TIDM48CF
RNS Number : 9059H
HSBC Bank plc
01 August 2023
1 August 2023
HSBC Bank plc
2023 Interim Report
In fulfilment of its obligations under sections 4.2.2, 6.3.3(2)
and 6.3.5(1) of the Disclosure Guidance and Transparency Rules,
HSBC Bank plc (the "Company") hereby releases the unedited full
text of its 2023 Interim Report for the half-year ended 30 June
2023.
The document is now available on the Company's website:
http://www.hsbc.com/investor-relations/subsidiary-company-reporting
The document has also been submitted to the National Storage
Mechanism (NSM) and will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
HSBC Bank plc
Interim Report 2023
Registered number - 00014259
Contents
1 Presentation of information
1 Cautionary statement regarding
forward-looking statements
Overview
3 Key financial metrics
4 Purpose and strategy
4 HSBC Bank plc's strategy and
progress on our
commitments
5 Our global businesses
6 ESG Overview
7 Economic background and outlook
Interim management report
8 Financial summary
9 Reported performance
11 Review of business position
12 Reconciliation of alternative
performance measures
13 Risk
13 Risk overview
14 Managing risk
15 Top and emerging risks
15 Ibor transition
16 Key developments in the first
half of 2023
16 Credit risk
28 Treasury risk
36 Board Changes
37 Statement of Directors' Responsibilities
Interim condensed financial
statements
38 Independent Review Report to
HSBC Bank plc
39 Interim condensed financial
statements
45 Notes on the interim condensed
financial statements
Presentation of information
This document comprises the Interim Report 2023 for HSBC Bank
plc ('the bank' or 'the company') and its subsidiaries (together
'the group'). 'We', 'us' and 'our' refer to HSBC Bank plc together
with its subsidiaries. References to 'HSBC', 'HSBC Group' or 'the
Group' within this document mean HSBC Holdings plc together with
its subsidiaries.
It contains the Interim management report and Condensed
financial statements of the group, together with the Auditor's
review report, as required by the Financial Conduct Authority's
('FCA') Disclosure Guidance and Transparency Rules ('DTR').
Within the Interim management report and Condensed financial
statements and related notes, the group has presented income
statement figures for the six months to 30 June 2023 with the same
period in the prior year to illustrate the current performance
compared with same period in prior year. Unless otherwise stated,
commentary on the income statement compares the six months to 30
June 2023 with the same period in the prior year. Balance sheet
commentary compares the position at 30 June 2023 to 31 December
2022.
In accordance with IAS 34 'Interim Financial Reporting', the
Interim Report is intended to provide an update on the Annual
Report and Accounts 2022 and therefore focuses on events during the
first six months of 2023, rather than duplicating information
previously reported.
Our reporting currency is GBP sterling. Unless otherwise
specified, all $ symbols represent US dollars.
Cautionary statement regarding forward-looking statements
This Interim Report 2023 contains certain forward-looking
statements with respect to the company's financial condition;
results of operations and business, including the strategic
priorities; financial, investment and capital targets; and the
company's ability to contribute to the HSBC Group's environmental,
social and governance ('ESG') targets, commitments and ambitions
described herein.
Statements that are not historical facts, including statements
about the company's beliefs and expectations, are forward-looking
statements. Words such as 'may', 'will', 'should', 'expects',
'targets', 'anticipates', 'intends', 'plans', 'believes', 'seeks',
'estimates', 'potential' and 'reasonably possible', or the negative
thereof, other variations thereon or similar expressions are
intended to identify forward-looking statements. These statements
are based on current plans, information, data, estimates and
projections, and therefore undue reliance should not be placed on
them. Forward-looking statements speak only as of the date they are
made. The company makes no commitment to revise or update any
forward-looking statements to reflect events or circumstances
occurring or existing after the date of any forward-looking
statements. Written and/or oral forward-looking statements may also
be made in the periodic reports to the US Securities and Exchange
Commission, offering circulars and prospectuses, press releases and
other written materials, and in oral statements made by the
company's Directors, officers or employees to third parties,
including financial analysts. Forward-looking statements involve
inherent risks and uncertainties.
Readers are cautioned that a number of factors could cause
actual results to differ, in some instances materially, from those
anticipated or implied in any forward-looking statement. These
include, but are not limited to:
- changes in general economic conditions in the markets in which
the company operates, such as new, continuing or deepening
recessions, prolonged inflationary pressures and fluctuations in
employment levels and the creditworthiness of customers beyond
those factored into consensus forecasts (including, without
limitation, as a result of the Russia-Ukraine war); the
Russia-Ukraine war and its impact on global economies and the
markets where the company operates, which could have a material
adverse effect on (among other things) the company's financial
condition, results of operations, prospects, liquidity, capital
position and credit ratings; deviations from the market and
economic assumptions that form the basis for the company's ECL
measurements (including, without limitation, as a result of the
Russia-Ukraine war and inflationary pressures); changes and
volatility in foreign exchange rates and interest rates levels;
volatility in equity markets; lack of liquidity in wholesale
funding or capital markets, which may affect the company's ability
to meet its obligations under financing facilities or to fund new
loans, investments and businesses; geopolitical tensions or
diplomatic developments, both in Europe and in other regions such
as Asia, producing social instability or legal uncertainty, such as
the Russia-Ukraine war (including the continuation and escalation
thereof) and the related imposition of sanctions and trade
restrictions, supply chain restrictions and disruptions, sustained
increases in energy prices and key commodity prices, claims of
human rights violations and diplomatic tensions between China and
the US, extending to the UK and the EU, alongside other potential
areas of tension, which may adversely affect the group by creating
regulatory, reputational and market risks;
the efficacy of government, customer, and the company's and the
HSBC Group's actions in managing and mitigating ESG risks, in
particular climate risk, nature-related risks and human rights
risks, and in supporting the global transition to net zero carbon
emissions, each of which can impact the company both directly and
indirectly through its customers and which may result in potential
financial and non-financial impacts; illiquidity and downward price
pressure in national real estate markets; adverse changes in
central banks' policies with respect to the provision of liquidity
support to financial markets; heightened market concerns over
sovereign creditworthiness in over-indebted countries; adverse
changes in the funding status of public or private defined benefit
pensions; societal shifts in customer financing and investment
needs, including consumer perception as to the continuing
availability of credit; exposure to counterparty risk, including
third parties using us as a conduit for illegal activities without
the company's knowledge; the discontinuation of certain key Ibors
and the development of near risk-free benchmark rates, as well as
the transition of legacy Ibor contracts to near risk-free benchmark
rates, which continues to expose the company to execution risks,
including in relation to the effectiveness of the HSBC Group's Ibor
remediation strategy, and increases some financial and non-
financial risks; and price competition in the market segments that
the company serves;
- changes in government policy and regulation, including the
monetary, interest rate and other policies of central banks and
other regulatory authorities in the principal markets in which the
company operates and the consequences thereof (including, without
limitation, actions taken as a result of the impact of the
Russia-Ukraine war on inflation); initiatives to change the size,
scope of activities and interconnectedness of financial
institutions in connection with the implementation of stricter
regulation of financial institutions in key markets worldwide;
revised capital and liquidity benchmarks, which could serve to
deleverage bank balance sheets and lower returns available from the
current business model and portfolio mix; changes to tax laws and
tax rates applicable to the company, including the imposition of
levies or taxes designed to change business mix and risk appetite;
the practices, pricing or responsibilities of financial
institutions serving their consumer markets; expropriation,
nationalisation, confiscation of assets and changes in legislation
relating to foreign ownership; the UK's relationship with the EU,
which continues to be characterised by uncertainty and political
disagreement, particularly with respect to the regulation of
financial services, despite the signing of the Trade and
Cooperation Agreement between the UK and the EU; changes in UK
macroeconomic and fiscal policy, which may result in fluctuations
in the value of the pound sterling; general changes in government
policy that may significantly influence investor decisions; the
costs, effects and outcomes of regulatory
reviews, actions or litigation, including any additional
compliance requirements; and the effects of competition in the
markets where we operate, including increased competition from
non-bank financial services companies; and
-
factors specific to the company and the HSBC Group, including
the company's success in adequately identifying the risks it faces,
such as the incidence of loan losses or delinquency, and managing
those risks (through account management, hedging and other
techniques); the company's ability to achieve its financial,
investment, capital targets and the HSBC Group's ESG targets,
commitments and ambitions, which may result in the company's
failure to achieve any of the expected benefits of its strategic
priorities; model limitations or failure, including, without
limitation, the impact that high inflationary pressures and rising
interest rates have had on the performance and usage of financial
models, which may require the company to hold additional capital,
incur losses and/or use compensating controls, such as judgemental
post- model adjustments, to address model limitations; changes to
the judgements, estimates and assumptions the company bases its
financial statements on; changes in the company's ability to meet
the requirements of regulatory stress tests; a reduction in the
credit ratings assigned to the company or any of its subsidiaries,
which could increase the cost or decrease the availability of the
company's funding and affect its liquidity position and net
interest margin; changes to the reliability and security of the
company's data management, data privacy, information and technology
infrastructure, including threats from cyber-attacks, which may
impact its ability to service clients and may result in financial
loss, business disruption and/or loss of customer services and
data; the accuracy and effective use of data, including internal
management information that may not have been independently
verified; changes in insurance customer behaviour and insurance
claim rates; the company's dependence on loan payments and
dividends from subsidiaries to meet its obligations; changes in the
HSBC Group's reporting framework and accounting standards, which
have had and may continue to have a material impact on the way the
company prepares its financial statements; changes in the company's
ability to manage third-party, fraud and reputational risks
inherent in its operations; employee misconduct, which may result
in regulatory sanctions and/or reputational or financial harm;
changes in skill requirements, ways of working and talent
shortages, which may affect the company's ability to recruit and
retain senior management and diverse and skilled personnel; and
changes in the company's ability to develop sustainable finance and
climate-related products consistent with the evolving expectations
of its regulators, and the company's capacity to measure the
climate impact from its financing activity (including as a result
of data limitations and changes in methodologies), which may affect
the group's ability to achieve the HSBC Group's climate ambition,
targets and commitments, and increase the risk of greenwashing.
Effective risk management depends on, among other things, the
company's ability through stress testing and other techniques to
prepare for events that cannot be captured by the statistical
models it uses; the company's success in addressing operational,
legal and regulatory, and litigation challenges; and other risks
and uncertainties we identify in 'Top and emerging risks' on page
15 of the Interim Report 2023.
-
Key financial metrics
Half-year to(1)
30 Jun 30 Jun
2023 2022
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For the period (GBPm)
---------------------------------------------------------------- ---------------------- ------------------------
Profit before tax (reported basis) 2,860 203
Net operating income before change in expected credit
losses and other credit impairment charges(2) 5,460 2,943
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Profit attributable to the parent company 2,193 175
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At period end (GBPm)
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Total equity attributable to the parent company 23,756 23,204
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Total assets 723,237 708,925
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Risk-weighted assets(3) 105,463 121,885
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Loans and advances to customers (net of impairment allowances) 88,708 94,840
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Customer accounts 229,274 224,991
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Capital ratios (%)(3)
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Common equity tier 1 18.7 14.9
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Tier 1 22.4 18.1
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Total capital 33.8 28.3
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Leverage ratio (%)(4) 5.5 4.9
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Performance, efficiency and other ratios (%)
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Return on average ordinary shareholders' equity (annualised)(5) 21.4 1.1
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Return on average tangible equity (annualised) 21.2 1.1
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Return on average tangible equity excluding strategic
transactions (annualised) 8.6 1.1
---------------------------------------------------------------- ---------------------- ------------------------
Cost efficiency ratio (reported basis)(6) 45.9 86.0
Ratio of customer advances to customer accounts 38.7 42.2
---------------------------------------------------------------- ---------------------- ------------------------
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
2 Net operating income before change in expected credit losses
and other credit impairment charges is also referred to as
revenue.
3 Unless otherwise stated, regulatory capital ratios and
requirements are based on the transitional arrangements of the
Capital Requirements Regulation in force at the time. These include
the regulatory transitional arrangements for IFRS 9 'Financial
Instruments'. References to EU regulations and directives
(including technical standards) should, as applicable, be read as a
reference 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.
4 Leverage metrics exclude central bank claims in accordance
with the Prudential Regulation Authority's ('PRA') UK leverage
framework.
5 The return on average ordinary shareholders' equity is defined
as profit attributable to the parent company divided by the average
total shareholders' equity.
6 Reported cost efficiency ratio is defined as total operating
expenses divided by net operating income before change in expected
credit losses and other credit impairment charges, which include
notable items as presented on page 10.
Purpose and strategy
HSBC's purpose and ambition
The HSBC Group's purpose is 'Opening up a world of opportunity'
with an ambition to be the preferred international financial
partner for its clients.
HSBC values
HSBC values define who we are as an organisation and are key to
our long-term success.
We value difference
Seeking out different perspectives.
We succeed together
Collaborating across boundaries.
We take responsibility
Holding ourselves accountable and taking the long view.
We get it done
Moving at pace and making things happen.
HSBC in Europe
Europe is an important part of the global economy, accounting
for approximately 40% of global trade and one-quarter of global
Gross Domestic Product (UNCTAD, IMF 2022). In addition, Europe is
the world's top exporter of services and second largest exporter of
manufactured goods (UNCTAD, 2022). HSBC Bank plc helps to
facilitate trade within Europe and between Europe and other
countries where the HSBC Group has a presence.
With assets of GBP723bn at 30 June 2023, HSBC Bank plc is one of
Europe's largest banking and financial services organisations. We
employ around 14,200 people across our locations. HSBC Bank plc is
responsible for HSBC's European business, aside from UK retail and
most UK commercial banking activity which, post ring-fencing, are
managed by HSBC UK Bank plc.
HSBC Bank plc operates as one integrated business with two main
hubs in London and Paris. This aligns with UK and European Union
('EU') legal entity and regulatory requirements for financial
services, following the UK's withdrawal from the European Union.
HSBC Bank plc is present in 19 markets(1) . Our operating entities
represent the Group to customers, regulators, employees and other
stakeholders. We are organised around the principal operating units
detailed below.
The London hub provides overall governance and management for
the Europe region as a whole and is a global centre of excellence
for wholesale banking for the HSBC Group. In addition, the
management team directly oversees our businesses in Armenia,
Channel Islands & Isle of Man, Israel, Russia and South
Africa.
HSBC Continental Europe, comprises our Paris hub and its EU
branches (Belgium, Czech Republic, Germany, Ireland, Italy,
Luxembourg, Netherlands, Poland, Spain and Sweden) and Malta. We
are creating an integrated Continental European bank anchored in
Paris to better serve our clients, and simplify our
organisation.
1 Full list of markets where HSBC Bank plc has a presence:
Armenia, Belgium, Channel Islands and Isle of Man, Czech Republic,
France, Germany, Ireland, Italy, Israel, Luxembourg, Malta,
Netherlands, Poland, Russia, South Africa, Spain, Sweden,
Switzerland and the UK.
HSBC Bank plc's strategy and progress on our commitments
Our ambition in Europe is to be a focused international
wholesale bank, with a complementary and targeted wealth
proposition, in support of the HSBC Group's ambition to be the
preferred international financial partner for its clients (see our
global businesses on page 5).
HSBC Bank plc serves its customers by opening up a world of
opportunity for our customers by connecting them to international
markets. Europe is the largest trading region in the world and Asia
is Europe's biggest and fastest growing external trading partner
(UNCTAD, IMF 2022). We are well positioned to capitalise on this
opportunity and play a pivotal role for the HSBC Group.
In February 2021, the HSBC Group adapted its strategy to: focus
on our strengths, digitise at scale, energise for growth and
transition to net zero. Below we provide a progress update on our
commitments and strategic initiatives for the first half of
2023.
Looking ahead, with sustained inflationary pressure across
Europe, high central bank interest rates and the continued impact
of the war in Ukraine, we continue to monitor the external
environment.
Focus on our strengths
Through our transformation programme we are building a leaner,
simpler bank with a sharper strategic focus. We have redesigned our
franchise around the needs of our international clients and
maintaining product and service capability where clients demand
them. We intend to support the HSBC Group in meeting its climate
ambition for net zero operations and supply chain by 2030.
HSBC Continental Europe ('HBCE') is expected, subject to receipt
of all necessary approvals, to complete its acquisition of HSBC
Private Bank (Luxembourg) SA in the second half of 2023, in order
to meet the requirement for all HSBC Group's EU credit institutions
to be owned by HBCE as HSBC Group's designated EU Intermediate
Parent Undertaking.
In line with our strategy to build a simpler bank, in June 2023,
we transferred business activities and teams, from HSBC Trinkaus
& Burkhardt GmbH to HBCE's German Branch.
To support our Private Banking model in Europe, we have also
established a Guernsey branch of HSBC Private Bank (Suisse) SA
('PBRS') and transferred HBCE Group's Guernsey private banking
business from HSBC Bank plc's Guernsey branch into PBRS' Guernsey
branch.
The implementation process for the sale of the French retail
business is ongoing. Negotiations with the buyer have progressed
and revised deal terms were announced in June 2023. The transaction
is expected to complete in the first quarter of 2024, subject to
regulatory approvals and the relevant works council consultation on
the adjustments to the potential transaction. Please see Note 11:
'Assets held for sale and liabilities of disposal groups held for
sale' for more information.
Following a strategic review of our business in Greece, an
agreement was signed in May 2022 to sell HSBC Continental Europe's
operations in Greece to Pancreta Bank SA. The transaction completed
in July 2023.
Following a strategic review of our business in Russia, HSBC
Europe BV (a wholly-owned subsidiary of HSBC Bank plc) has entered
into an agreement to sell its wholly-owned subsidiary HSBC Bank
(RR) (Limited Liability Company), subject to regulatory and
governmental approvals.
In July 2023, the Boards of HSBC Overseas Holdings (UK) Limited
('HOHU') and HSBC Bank plc ('HBEU') approved the proposed transfer
of HSBC Group's main operating bank in Bermuda, HSBC Bank Bermuda
Limited ('HBBM') from HOHU to HBEU, subject to receipt of all
necessary approvals. The transfer is expected to complete in the
second half of 2023, and is expected to both improve the financial
resilience of HSBC Bank plc and simplify the structure of the HSBC
Group by aligning legal ownership and deployment of capital to
management oversight.
Digitise at scale
We continue to invest in the digitisation of our global
businesses, which is central to our strategy.
Within Europe, digitisation and innovation remains a key pillar
of the Wealth and Personal Banking ('WPB') strategy. We continue to
improve and simplify our Expat customer experience, including
through the integration of our foreign exchange capabilities into
our core banking (Mobile X) application. Transaction limits have
also been increased for Expat international payments, enabling 99%
of transactions for our Expat customers to be completed
digitally.
We are committed to maintaining our core strength in Global
Payments Solutions ('GPS'). In the first half of 2023, we
successfully delivered the SEPA ('Single Euro Payments Area')
Direct Debit offering in Luxembourg, and deployed the first phase
of ISO ('International Organisation for Standardisation') CHAPS
('Clearing House Automated Payments System') for cross-border
payments across Europe. GPS continues to enhance the Liquidity
Management Dashboard functionality, improving customers' ability to
create and manage cash flow forecasts. For the remainder of 2023 we
will focus on enhancing our HSBCnet self-serve features for our
clients, for example, providing clients with the ability to return
funds back to a remitter via the platform and track their outbound
payments.
Our strategy within Global Trade and Receivables Finance
('GTRF') Europe is to make trade easier, faster and safer, whilst
seeking to deliver sustainable and profitable growth. During the
first half of 2023, we deployed enhancements to our digital channel
HSBCnet, delivering improvements to client interactions and
journeys. We continue to support our clients opting to use bank
agnostic platforms that provide trade finance solutions. In Germany
and Israel we rolled out third-party digital solutions for the
issuance and storage of bank guarantees. In the first half of 2023,
88% of trade transactions across all channels within HSBC Europe
were conducted digitally and we continue to see an increase in
clients adopting digital solutions.
We have achieved significant advancements in digital assets and
currencies through the launch of our strategic tokenisation
platform, HSBC Orion, within Global Banking and Markets. In January
2023, the HSBC Orion platform was used to launch the world's first
Pound sterling tokenised bond. HSBC Orion enables registration and
issuance of digital bonds, supports both primary and secondary
market trading, and aligns with our ambition to promote wider
adoption of digital assets. We expect the platform will be used for
additional bond issuances and will be expanded to support
additional products.
In Foreign Exchange ('FX') we further enhanced our electronic
trading product through AI Markets that uses natural language
processing to enrich the way investors interact with financial
markets. Clients can generate bespoke financial markets analytics,
browse the latest market insights and access real-time and
historical data sets - including FX pricing - and directly execute
trades from the platform.
Energise for growth
Empowering and energising our colleagues is crucial for
inspiring a dynamic culture. HSBC Bank plc continues to deliver on
our people
strategy, underpinned by three key pillars: 1) Change and grow
the business, 2) Inspire a dynamic culture and 3) Diversity &
Inclusion ('D&I').
Senior leaders(1) are encouraged to role model the behaviours
that support the values of the HSBC Group. The annual Values 360
Survey supports senior leaders with seeking feedback from the
people that they work with so that they can understand how they are
doing and where they can improve.
We remain focused on creating a diverse and inclusive
environment with HSBC Bank plc Executive Committee sponsorship of
our D&I agenda. We have engaged our colleagues through a number
of events to increase discussion around D&I. In May 2023, more
than 2,000 employees participated in our 'Inclusive Europe Live'
week which included a range of discussions such as supporting
different generations at work, working parents and social
mobility.
We remain committed to improving our gender diversity across our
senior leadership cadre which currently stands at 25.2% for the
first half of the year. However, we have more to do, given our full
year target for gender diversity across our senior leadership cadre
for 2023 is 26.8% and it remains a priority for the HSBC Bank plc
Executive Committee.
In 2022, the HSBC Group set an ethnicity strategy to better
represent the communities we serve. In the UK, Black heritage
representation in Global Career Band 3 and above roles is currently
2.6% for the first half of 2023, against a full year target of
2.9%(2.)
Transition to net zero
HSBC Group's net zero transition plan, which it expects to
publish later this year, will bring together the strategic approach
to net zero, science-based targets for financed emissions and their
operations. The plan will also detail how HSBC plans to embed
climate considerations into its business processes, policies, risk
management and governance.
HSBC Bank plc expects to complete assessments of transition
plans for all our customers in scope of the thermal coal phase-out
policy and the updated energy policy in the second half of
2023.
As part of the HSBC Group's ambition to support customers in
their transition to net zero and a sustainable future, the HSBC
Group aims to provide and facilitate $750bn to $1tn of sustainable
finance and investments by 2030. In the first half of 2023, HSBC
Bank plc has contributed $17.6bn towards this ambition, bringing
its total contribution since 1 January 2020 to approximately
$122.9bn.
1 Captures the Group Executive Committee ('GEC'), their direct
reports and country CEOs across the HSBC Group.
2 Our 2022 ethnicity goal of 2.6% and target of 2.9% includes UKRFB and NRFB.
Our global businesses
The Group manages its products and services through its three
global businesses: Global Banking and Markets ('GBM'); Commercial
Banking ('CMB'); Wealth and Personal Banking ('WPB'); and the
Corporate Centre (comprising: certain legacy assets, central
stewardship costs, and interests in our associates and joint
ventures).
Business segments
Our operating model has the following material segments: a GBM
business which is further split into three reportable segments;
MSS, GB and GBM Other (as defined below), CMB, WPB and a Corporate
Centre. These segments are supported by Digital Business Services
and 11 global functions, including Risk, Finance, Compliance, Legal
and Human Resources.
Markets & Securities Services ('MSS')
(Loss)/profit before tax GBP(12)m (1H22: GBP325m)
Markets & Securities Services is a products group that
services customers of all Global Businesses and institutional
clients across the
financial sector globally. We offer clients a range of services
and capabilities including trading, financing and securities
services across asset classes and geographies, supported by
dedicated sales and research teams.
Our European teams play a key role in providing access to FX,
commodities, Equities and Fixed Income offerings, bridging emerging
and developed markets, and collaborating with other global
businesses to provide clients across the HSBC Group with
commoditised and bespoke solutions that seek to support their
growth ambitions.
Global Banking ('GB')
Profit/(loss) before tax GBP462m (1H22: GBP119m)
Global Banking delivers tailored financial solutions to
corporate and institutional clients worldwide opening up
opportunities through the strength of our global network and
capabilities. We provide a comprehensive suite of services
including capital markets, advisory, lending, trade services and
global payments solutions.
Our European teams take a client-centric approach bringing
together relationship and product expertise to deliver financial
solutions customised to suit our clients' growth ambitions and
financial objectives. We work closely with our business partners
including MSS, WPB and CMB, to provide a range of tailored products
and services that seek to meet the needs of international clients
across the company. Global Banking Europe operates as an integral
part of the global business and contributes significant revenues to
other regions, particularly Asia and the Middle East, through our
European client base.
GBM Other
(Loss)/profit before tax GBP(26)m (1H22: GBP(77)m)
GBM Other primarily comprises Principal Investments and GBM's
share of the HSBC's Markets Treasury function.
The Principal Investments portfolio is focused on delivering
investments that align to the group's strategy and seeks to deliver
strong returns across a diversified portfolio. Our commitment to
sustainable private equity funds contributes directly to the HSBC
Group's aim to provide and facilitate $750bn to $1tn of sustainable
finance and investment by 2030.
Commercial Banking ('CMB')
Profit/(loss) before tax GBP587m (1H22: GBP295m)
We have a clear strategy to be the leading international
corporate bank in Europe. We connect our European customers to our
international network of relationship managers and product
specialists; supporting their growth ambitions and targets. Our
products range from term loans to region-wide treasury and trade
solutions. Commercial Banking collaborates closely with Global
Banking and Markets to provide expertise in capital markets and
advisory solutions. Our trade teams provide import and export
finance solutions to Global Banking and Markets clients. We are
expanding our services and products to provide customers with
sustainable finance solutions to help meet our clients' net zero
ambitions. Commercial Banking contributes significant revenues to
other regions, particularly Asia, through our European client base,
and draws benefit from the client network managed outside
Europe.
Wealth and Personal Banking ('WPB')
Profit/(loss) before tax GBP1,908m (1H22: GBP43m)
In Europe, Wealth and Personal Banking serves customers through
Private Banking, Retail Banking, Wealth Management, Insurance and
Asset Management. Our core retail proposition offers personal
banking, mortgages, loans, credit cards, savings, investments and
insurance. WPB offers propositions in certain markets such as
Premier; as well as wealth solutions, financial planning and
international services. In the Channel Islands and Isle of Man, we
serve local and international customers, the majority of whom are
customers of HSBC in other markets, through our HSBC Expat
proposition. Our Private Banking proposition serves high net worth
and ultra-high net worth clients with a relationship balance
greater than $2m. Services available to Private Banking clients
include investment management, Private Wealth Solutions and bespoke
lending. Private Banking hosts a 'Next Generation' programme of
events to support our clients' next generation in building and
retaining the wealth within the family. We continue to focus on
meeting the needs of our customers, communities we serve, and our
people, whilst working to build the bank of the future.
ESG Overview
We are committed to embedding strong environmental, social and
governance principles in the way we do business.
Our approach
We are guided by the HSBC Group's approach to ESG which is
shaped by its purpose and values, and a desire to create
sustainable long-term value for our stakeholders. As an
international bank with significant breadth and scale, HSBC
understands that it can have a significant impact in helping to
tackle ESG challenges and realise opportunities. The HSBC Group
also recognises the complexity of ESG issues. Our ESG efforts are
focused on the areas which align most closely to the Group's
strategy, purpose and values, and where we can help make a
significant difference: the transition to net zero, building
inclusion and resilience, and acting responsibly.
Transition to net zero
We continue to make progress on our ambition of becoming net
zero in our operations and supply chain by 2030 and aligning our
financed emissions to net zero by 2050, recognising we have a role
to play in enabling the transition to a net zero global
economy.
The HSBC Group is expanding the number of sectors where we plan
to provide, and make progress towards, 2030 on-balance sheet
financed emissions targets. These include the shipping,
agriculture, commercial real estate and residential real estate
sectors and will be in addition to the carbon-intensive sectors we
have already set targets for, as published in the HSBC Group's
Annual Report and Accounts 2022 in February.
In December 2022, the HSBC Group published an updated energy
policy covering the broader energy system including upstream oil
and gas, oil and gas power generation, hydrogen, renewables and
hydropower, nuclear, biomass and energy from waste. It also updated
the thermal coal phase-out policy. For further details on these
policies,
see page 65 in HSBC Group's Annual Report and Accounts 2022.
HSBC Bank plc continues to focus on the implementation of these
policies through customer engagement and assessment of its
transition plans.
In the first half of 2023, we undertook an analysis of the
agrifood sector in Europe using the Taskforce on Nature-related
Financial Disclosures' ('TNFD') framework. We aim to use this
analysis to inform the next steps in expanding our risk management
framework to incorporate nature considerations.
Build inclusion and resilience
HSBC is committed to building an inclusive workplace where the
best want to work. The HSBC Group places a strong focus on
recruiting and retaining diverse talent to better represent our
communities. Data is core to this and the Group has enabled 91% of
the organisation to disclose their ethnicity and HSBC Bank plc's
disclosure rate is 57% in markets where we can collect this data
(UK, South Africa and Channel Islands and Isle of Man).
We continue to focus on building a workplace for our colleagues
that is fit for the future and provides teams with the flexibility
and resources to deliver for our customers. In our annual employee
snapshot survey(1) , 67% of HSBC Bank plc employees stated their
manager holds discussions to agree balanced working patterns; while
73% said they have enough opportunities to connect and collaborate
with people outside their immediate team.
Developing the skills of colleagues plays a pivotal role in
achieving our strategic goals and growth ambitions. We have
continued to focus on strategic skills programmes covering:
operations, sustainability, cultural awareness and leadership
development.
1 The most recent survey was conducted in 2022.
Cost of living pressures have continued to be felt around the
world, and we have provided a range of resources for our
colleagues, including financial guidance and assistance programmes.
We will continue to review our approach to performance and pay to
ensure we are able to motivate colleagues in a way that is
authentic to our culture and values.
For customers we seek to ensure inclusion as we endeavour to
simplify the banking experience, so customers can manage their
finances more easily. We engage with the communities we operate
within through philanthropic giving, disaster relief and
volunteering.
Act responsibly
HSBC Bank plc follows the Group's purpose-led conduct approach
which guides us to do the right thing and focus on the impact we
have for our customers and the financial markets in which we
operate. Together with more formal policies and the tools we have
to do our jobs, our conduct approach provides a clear path to
achieving our purpose and delivering our strategy. For further
details, see
www.hsbc.com/who-we-are/esg-and-responsible-business/our-conduct.
Economic background and outlook
UK
High inflation, lowing labour market
UK consumer price inflation remains very high. While the
headline inflation rate fell to 7.9% in June 2023, compared to a
peak of 11.1% in October 2022, that largely reflects the 'dropping
out' of last year's sharp rises in utility bills from the annual
calculation. The 'core' inflation rate, which excludes food and
energy prices, remained elevated at 6.9% in June 2023, only a touch
below its May 2023 peak of 7.1%.
A large portion of this inflation strength is likely being
driven by labour cost pressures. 'Regular' wages (excluding
bonuses) grew by 7.3% year-on-year in the three months to May. This
might partly reflect ongoing labour shortages, perhaps stemming
from a combination of elevated rates of economic inactivity due to
long-term sickness, and lower levels of low-skilled worker
immigration. That said, the labour market might be starting to turn
- the unemployment rate rose to 4.0% in the three months to May,
versus a trough of 3.5% in August 2022.
While pay growth has been strong, it has not kept up with
inflation, implying a fall in real household incomes. This has held
back economic growth. GDP rose by 0.1% in the first quarter of 2023
and remains 0.5% below the peak level seen before the Covid-19
pandemic. Even if inflation eases, reduced strength in the labour
market and rising interest rates pose continued headwinds to the
UK's growth outlook.
The Bank of England has raised Bank Rate in every policy meeting
since December 2021, taking it to 5.00% in June 2023. Market
pricing points to Bank Rate rising to close to 6% towards the end
of 2023.
Eurozone
Weak growth, persistent inflation
The eurozone economy experienced stagnation over the winter,
with zero GDP growth in the first quarter of 2023, after a 0.1%
decline in the fourth quarter of 2022. This weakness was driven by
a drop in household real incomes and spending, resulting from sharp
rises in utility prices. However, the slowdown was milder than many
economists had expected, partly due to government support measures,
and also due to surprising resilience in the labour market.
Inflation remains elevated. The annual headline inflation rate
fell to 5.5% in June 2023, down from a 10.6% peak in October 2022.
The 'core' rate, which excludes energy and food prices, is also
slightly off its peak - it stood at 5.5% in June, as compared with
March 2023's peak rate of 5.7%. However, this is still
significantly above the ECB's 2% target.
A large portion of this inflation strength is likely the result
of wage pressure. Indeed, ECB's measure of compensation per
employee rose to an annual rate of 5.4% in the first quarter of
2023. In part, this likely reflects employees using labour
shortages to negotiate higher pay to try and claw back some of the
purchasing power eroded by high rates of past inflation. Even if
wage growth slows somewhat over the coming quarters, it is
uncertain how long it would take for that to feed through into
significant falls in underlying consumer price inflation.
Given the possibility of a significant degree of inflation
strength persisting, market prices suggest the ECB has not yet
stopped raising interest rates. With the ECB's rate deposit now
standing at 3.75%, and even though the ECB moved in July to a fully
data dependent mode, some officials have suggested that rate rises
will continue until underlying inflation is declining on a
sustained basis.
Financial summary
Use of alternative performance measures
Our reported results are prepared in accordance with
International Financial Reporting Standards ('IFRSs') as detailed
in the Financial Statements starting on page 37. In measuring our
performance we use financial measures which eliminate factors that
distort period-on-period comparisons. These are considered
alternative performance measures.
All alternative performance measures are described and
reconciled to the closest reported financial measure when used.
The global business segmental results are presented in
accordance with IFRS 8 'Operating Segments', as detailed in 'Basis
of preparation' in Note 3: 'Segmental analysis' on page 46.
Notable items
We separately disclose 'notable items', which are components of
our income statement that management would consider as outside the
normal course of business and generally non-recurring in
nature.
The table on page 10 detail the effects of notable items on each
of our global business segments in 1H23 and 1H22.
Changes to presentation from 1 January 2023
Changes to our reporting framework
On 1 January 2023, we updated our financial reporting framework
to no longer report 'adjusted' results, which exclude the impact of
significant items. We separately disclose 'notable items', which
are
components of our income statement that management would
consider as outside the normal course of business and generally
non-recurring in nature.
IFRS 17 'Insurance Contracts'
On 1 January 2023, HSBC adopted IFRS 17 'Insurance Contracts'.
As required by the standard, the group applied the requirements
retrospectively with comparative data previously published under
IFRS 4 'Insurance Contracts' restated from the 1 January 2022
transition date. Under IFRS 17 there is no present value of
in-force business ('PVIF') asset recognised up front. Instead the
measurement of the insurance contract liability takes into account
fulfilment cash flows and a contractual service margin ('CSM')
representing the unearned profit. In contrast to the group's
previous IFRS 4 accounting where profits are recognised up front,
under IFRS 17 they are deferred and systematically recognised in
revenue as services are provided over the life of the contract. The
CSM also includes attributable cost, which had previously been
expensed as incurred and which is now incorporated within the
insurance liability measurement and recognised over the life of the
contract.
The impact of the transition was a reduction of GBP179m on the
group's 1H22 reported revenue and a reduction of GBP124m to
reported profit before tax. The group's total equity at 1 January
2022 reduced by GBP570m to GBP23,014m on the transition.
For Further details on our adoption of IFRS 17 are provided in
Note 1: 'Basis of preparation and significant accounting policies'
on page 43 and Note 13: 'Effects of adoption of IFRS 17' on page
59.
Summary consolidated income statement
Half-year to(1)
--------------------------------------------------------
30 Jun 30 Jun
2023 2022
GBPm GBPm
------------------------------------------------------------ -------------------------- ----------------------------
Net interest income 1,140 991
------------------------------------------------------------ -------------------------- ----------------------------
Net fee income 674 662
------------------------------------------------------------ -------------------------- ----------------------------
Net income from financial instruments measured at fair
value 2,421 219
Gains/(losses) recognised on Assets held for sale(2) 1,737 (219)
------------------------------------------------------------ -------------------------- ----------------------------
Insurance finance (expense)/income (635) 1,168
------------------------------------------------------------ -------------------------- ----------------------------
Insurance service result 74 62
Other operating income 49 60
------------------------------------------------------------ -------------------------- ----------------------------
Total operating income 5,460 2,943
Net operating income before change in expected credit
losses and other credit impairment charges(3) 5,460 2,943
------------------------------------------------------------ -------------------------- ----------------------------
Change in expected credit losses and other credit impairment
charges (58) (187)
------------------------------------------------------------ -------------------------- ----------------------------
Net operating income 5,402 2,756
------------------------------------------------------------ -------------------------- ----------------------------
Total operating expenses (2,507) (2,532)
Operating profit 2,895 224
------------------------------------------------------------ -------------------------- ----------------------------
Share of loss in associates and joint ventures (35) (21)
------------------------------------------------------------ -------------------------- ----------------------------
Profit before tax 2,860 203
------------------------------------------------------------ -------------------------- ----------------------------
Tax expense (657) (24)
------------------------------------------------------------ -------------------------- ----------------------------
Profit for the period 2,203 179
------------------------------------------------------------ -------------------------- ----------------------------
Profit attributable to the parent company 2,193 175
------------------------------------------------------------ -------------------------- ----------------------------
Profit attributable to non-controlling interests 10 4
------------------------------------------------------------ -------------------------- ----------------------------
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
2 Reversal of the GBP1.7bn impairment loss relating to the
planned sale of the retail banking operations in France, recognised
in 3Q22, which is no longer classified as held for sale.
3 Net operating income before change in expected credit losses
and other credit impairment charges is also referred to as
revenue.
3
Reported performance
Profit before tax of GBP2,860m was GBP2,657m higher than the
first half of 2022. This increase was primarily due to a reversal
of an impairment relating to the planned sale of our retail banking
operations in France.
During 1Q23, the significant interest rate rises in France
resulted in the completion of the planned sale of our retail
banking operations in France becoming less certain, as the capital
required to be held by the buyer at completion of the transaction
is expected to increase significantly. As a result we were required
to change the accounting classification of our retail banking
operations in France to no longer be classified as held for sale.
The impairment on classifying the disposal as held for sale of
GBP1,753m was reversed. In June, we agreed new terms for the sale
of these operations that will involve HSBC retaining a portfolio of
loans. The transaction remains subject to regulatory approvals, and
the parties aim to complete on 1 January 2024.
Reported revenue increased by GBP2,517m or 85%, including
GBP1,753m from the reversal of an impairment relating to the
planned sale of our retail banking operations in France. There was
also growth in net interest income in Global Banking, CMB and WPB
from higher global interest rates. The first half of 2022 also
included losses associated with the sale of our branch operations
in Greece, completed in July 2023, and the planned sale of our
operations in Russia, together GBP222m. This was partly offset by
weaker trading performance in Markets and Securities Services
('MSS').
Expected credit losses and other credit impairment charges
('ECL') of GBP58m were down by GBP129m. The decreased charge mainly
reflected a more stabilised view of the economic outlook. The first
half of 2022 charge reflected heightened economic uncertainty due
to the Russia-Ukraine war and inflationary pressures.
Operating expenses of GBP2,507m were down GBP25m driven by lower
restructuring and other related costs following the completion of
the Group's cost-saving programme at the end of 2022, partly offset
by spend associated with ongoing strategic transformation
initiatives.
Net interest income ('NII') increased by GBP149m or 15% compared
with the first half of 2022. This included higher net interest
expense in Corporate Centre (up GBP715m compared with the first
half of 2022) mainly associated with funding of our Markets
business in MSS reflecting higher interest rates and balance sheet
growth. Excluding this, NII was up by GBP864m in Global Banking (up
GBP345m) and CMB (up GBP261m), notably in Global Payments Solutions
('GPS'), and in WPB (up GBP196m), from higher global interest
rates. NII was also higher in MSS (up GBP158m), including in
Securities Services (up GBP63m) driven by interest rates rises.
Net fee income increased by GBP12m or 2%, notably in Global Debt
Markets in MSS and in Debt Capital Markets in Global Banking,
driven by higher volumes compared with the first half of 2022.
Net income from financial instruments measured at fair value
increased by GBP2,202m, primarily in insurance manufacturing in
WPB. This increase was driven by higher returns on financial assets
supporting insurance contracts where the policyholder is subject to
part or all of the investment risks.
This favourable movement resulted in a corresponding movement in
liabilities to policyholders, reflecting the extent to which
policyholders participate in the investment performance of the
associated assets. The offsetting movements are recorded in
'Insurance finance income/(expense)'.
In MSS, revenue decreased by GBP324m, mainly in Equities and
Global FX due to lower client volume. This compared with a strong
first half of 2022 where market volatility levels were high driven
by the Russia-Ukraine war and the macroeconomic impacts from rising
inflation and increasing interest rates.
Gains/(losses) recognised on assets held for sale increased by
GBP1,956m mainly driven by the reversal of an impairment of
GBP1,753m relating to the planned sale of the retail banking
operations in France, recognised in 3Q22, which is no longer
classified as held for sale. Additionally, the first half of 2022
included losses associated with the sale of our branch operations
in Greece, completed in July 2023, and the planned sale of our
operations in Russia of GBP222m.
Insurance finance income/(expenses) decreased by GBP1,803m
primarily in insurance manufacturing in WPB. This decrease was
driven by lower returns on financial assets supporting contracts
where the policyholder is subject to part or all of the investment
risk. The losses recognised on the financial assets measured at
fair value through profit and loss held to support these insurance
contract liabilities are reported in 'Net income from financial
instruments designated at fair value'.
Insurance service result remained broadly flat.
Other operating income decreased by GBP11m mainly due to lower
intercompany recoveries of costs from other entities in the HSBC
Group.
Changes in expected credit losses and other impairment charges
('ECL') were a net charge of GBP58m in the first half of 2023,
GBP129m lower compared with the first half of 2022. The reduction
primarily reflects the outbreak of the Russia-Ukraine war in the
first half of 2022 which was reflected in additional stage 1 and
stage 2 allowances due to heightened levels of uncertainty and
inflationary pressures. The charge in the first half of 2023
reflected a relatively more stable outlook, although inflationary
pressures remain.
Total operating expenses decreased by GBP25m or 1%, reflecting a
reduction in restructuring and other related costs of GBP154m
following the completion of the Group's cost-saving programme at
the end of 2022, partly offset by spend associated with ongoing
strategic transformation initiatives (GBP55m). Operating expenses
were also lower driven by the reversal of a historical value-in-use
impairment (GBP58m) and a lower Single Resolution Fund ('SRF') levy
(down GBP39m compared with the first half of 2022). This was partly
offset by the non-recurrence of a recovery of historical VAT in the
first half of 2022 (GBP70m), higher litigation costs (up GBP30m)
and higher variable pay (GBP17m). Technology costs were also higher
reflecting the ongoing strategic investments to support our growth
initiatives.
Share of loss in associates and joint ventures was GBP35m in the
first half of 2023, the loss up by GBP14m compared with the first
half of 2022, mainly due to an impairment of an investment in an
associate.
Tax expense was GBP657m, giving an effective tax rate ('ETR') of
23.0% compared with 11.7% ETR in the same period in 2022. The
current period ETR of 23.0% reflects the mix of profits and losses
in different jurisdictions and is decreased by the release of
provisions for uncertain tax positions and non-taxable elements of
the impairment reversal in France. A tax charge of GBP418m was
recorded on the GBP1,753m reversal of impairment loss relating to
the planned sale of our retail banking operations in France.
The effective tax rate for the first half of 2022 was reduced by
non-taxable income on index-linked gilts in the UK, offset by a
charge arising on the remeasurement of UK deferred tax balances
following the substantive enactment of legislation to reduce the
rate of UK banking surcharge from 8% to 3%.
Supplementary analysis of notable items by global business
Notable items
Half year to 30 Jun 2023
----------------------------------------------------------------------------------------------------------------------------------------------------------------------
GBM Corporate
MSS GB Other CMB WPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Revenue - - - - 1,673 56 1,729
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
- - - - - - - -
Disposals,acqu
isitions and
investment
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
- Fair value - - - - - - -
movements on
financial
instruments
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
-
Restructuring
and other
related
costs(1) - - - - 1,673 56 1,729
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Operating
expenses - - - - 19 20 39
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
- Disposals, - - - - - - -
acquisitions
and investment
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
- Impairment - - - - - - -
of
non-financial
items
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
-
Restructuring
and other
related costs - - - - 19 20 39
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Half year to 30 Jun 2022
Revenue (1) - (14) - - (222) (237)
-------------- ------------------------ ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ----------------------
- Disposals,
acquisitions
and
investment (1) - (14) - - - (15)
-------------- ------------------------ ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ----------------------
- Fair value - - - - - - -
movements on
financial
instruments
-------------- ------------------------ ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ----------------------
-
Restructuring
and other
related costs - - - - - (222) (222)
-------------- ------------------------ ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ----------------------
Operating
expenses - - 33 13 7 140 193
-------------- ------------------------ ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ----------------------
- Disposals, - - - - - - -
acquisitions
and investment
-------------- ------------------------ ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ----------------------
- Impairment - - - - - - -
of
non-financial
items
-------------- ------------------------ ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ----------------------
-
Restructuring
and other
related costs - - 33 13 7 140 193
-------------- ------------------------ ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ----------------------
1 Reversal of GBP1.7bn impairment loss relating to the planned
sale of the retail banking operations in France, recognised in
3Q22, which is no longer classified as held for sale.
Markets and Securities Services
Loss before tax was GBP12m, compared with a profit of GBP325m in
the first half of 2022, a decrease of GBP337m. This was driven by
lower revenue and higher operating expenses.
Revenue decreased by GBP212m or 16%, mainly due to lower client
flow and volatility levels, notably in Equities (down GBP153m) and,
to a lesser extent, in Global FX (down GBP20m). This compared with
an exceptionally strong performance in the first half of 2022. This
was driven by high client activity due to elevated market
volatility resulting from the Russia-Ukraine war, and the
macroeconomic impacts from rising inflation and increasing interest
rates.
In contrast, revenue was up in Securities Services (up GBP47m)
driven by higher net interest income reflecting interest rates
rises.
Operating expenses increased by GBP124m or 13%, mainly driven by
the continued investment in technology to support our growth
initiatives. There were also higher intercompany costs driven by
higher inflation and strategic investments.
Global Banking
Profit before tax was GBP462m, an increase of GBP343m compared
with the first half of 2022. This was driven by strong revenue
growth and lower ECL, partly offset by higher costs.
Revenue increased by GBP328m or 45%, mainly in GPS (up GBP329m)
driven by margin growth reflecting the higher interest rate
environment and strategic initiatives to grow fee income. Revenue
in Capital Markets and Advisory was also higher (up GBP36m),
primarily due to higher volumes in Debt Capital Markets, growth in
Issuer Services from higher net interest income, and improved
performance in Leveraged & Acquisition Finance following
adverse valuation movements in the first half of 2022. This
increase was partly offset by lower revenue in Credit & Lending
(down GBP26m) and Real Assets Finance (down GBP13m) due to
continued focus on returns and balance sheet management.
ECL were a net charge of GBP87m, compared with a net charge of
GBP158m in the first half of 2022. The reduction primarily reflects
the outbreak of the Russia-Ukraine war in the first half of 2022
which resulted in additional charges due to heightened levels of
uncertainty. The charge in the first half of 2023 reflects a
relatively more stable outlook.
Operating expenses of GBP512m were higher by GBP56m or 12%,
mainly due to a GBP32m legal and litigation provision booked in the
first half of 2023. The remaining increase mainly reflected the
impact of higher inflation and strategic investments, partly offset
by the impact of our ongoing cost discipline.
Global Banking and Markets Other
Loss before tax was GBP26m compared with a loss before tax of
GBP77m in the first half of 2022, a decrease of GBP51m. This
reflected lower operating expenses, partly offset by lower
revenue.
Revenue decreased by GBP63m, mainly in Principal Investments
driven by lower valuation gains (down GBP58m) compared with the
first half of 2022. There were also lower intercompany recoveries
of costs from other entities in the HSBC Group of GBP64m (offset in
costs). The reduction was partly offset by lower tax-gross up
charges (down GBP75m), an adjustment between GBM Other and Global
Banking and MSS to reflect the tax benefit generated by certain
Structured Finance products in the revenue of these businesses.
Operating expenses decreased by GBP113m, mainly driven by the
movement of certain costs, which had historically been recharged to
other entities in the HSBC Group, from the bank to HSBC service
companies. There was a corresponding decrease in intercompany
recoveries in revenue. There were also lower restructuring and
related costs (down GBP30m).
Commercial Banking ('CMB')
CMB performed well in the first half of 2023 as we continued to
implement our strategy to focus on serving our international
customers.
Profit before tax was GBP587m, an increase of GBP292m compared
with the first half of 2022. This was mainly driven by higher
revenue and lower ECL. Operating expenses were broadly in line with
the first half of 2022.
Revenue increased by GBP247m or 40%, primarily in GPS (up
GBP278m) driven by an increase in margins reflecting rising
interest rates net of pass-through to customers. This was partly
offset by a decrease in Credit & Lending revenue (down GBP33m)
driven by margin compression.
ECL were a net release of GBP18m compared with a net charge of
GBP23m in the first half of 2022. The net charge in the first half
of 2022 primarily reflected a deterioration in the forward economic
outlook
due to heightened levels of uncertainty and inflationary
pressures following the outbreak of the Russia-Ukraine war. The net
release in the first of half of 2023 was mainly driven by stage 1
and stage 2 releases reflecting a relatively more stable
outlook.
Operating expenses decreased by GBP4m or 1%, mainly driven by a
reversal of a historical value-in-use impairment (GBP28m) in France
in the first half of 2023, mostly offset by the impact of strategic
investments and higher inflation.
Wealth and Personal Banking ('WPB')
Profit before tax was GBP1,908m, an increase of GBP1,865m
compared with the first half of 2022. This included a reversal of
an impairment relating to the planned sale of our retail banking
operations in France (GBP1,689m). The increase in profit before tax
also included higher revenue driven by an increase in interest
rates and lower ECL. This was partly offset by an increase in
operating expenses.
Revenue increased by GBP1,874m, mainly driven by the reversal of
loss relating to the planned sale of our retail banking operations
in France. Excluding this, revenue was higher (up GBP185m) mainly
in net interest income from retail, notably in Channel Islands and
Isle of Man, from rising interest rates.
ECL were a net release of GBP12m compared with a net charge of
GBP5m in the first half of 2022. The net charge in the first half
of 2022 was mainly driven by inflationary pressures following the
outbreak of the Russia-Ukraine war. The net release in the first
half of 2023 was mainly driven by stage 1 and stage 2 releases
reflecting a relatively more stable economic outlook.
Operating expenses increased by GBP26m or 6%, mainly driven by
the non-recurrence of a VAT recovery booked in France in the first
half of 2022.
Corporate Centre
Loss before tax of GBP59m compared with a loss before tax of
GBP502m in the first half of 2022, a decrease of GBP443m. This was
mainly driven by higher revenue and lower costs, partly offset by a
higher loss in associates and joint ventures.
Revenue increased by GBP343m. The first half of 2022 included l
osses of GBP222m associated with the sale of our branch operations
in Greece, completed in July 2023, and the planned sale of our
operations in Russia. In addition, revenue in the first half of
2023 included a benefit of GBP64m from the reversal of a provision
for project costs relating to the planned sale of our retail
banking operations in France. This reflected the change in
accounting classification of the planned transaction to no longer
being classified as held for sale. Revenue also increased driven by
favourable fair value movements from the ineffectiveness of hedging
of interest rate and exchange rate on our long-term debt.
Operating expenses of GBP80m were GBP114m lower compared with
the first half of 2022. This was mainly due to a reduction in
restructuring and other related costs of GBP140m following the
completion of the Group's cost-saving programme, which concluded at
the end of 2022, partly offset by spend associated with ongoing
strategic transformation initiatives (GBP20m).
Share of loss in associates and joint ventures was a loss of
GBP35m, compared with a loss of GBP21m in the first half of 2022.
This was mainly due to an impairment of an investment in an
associate of GBP18m.
Review of business position
Summary consolidated balance sheet
At(1)
30 Jun 31 Dec
2023 2022
GBPm GBPm
------------------------------------------------------------- ------------------------ ------------------------
Total assets 723,237 716,646
------------------------------------------------------------- ------------------------ ------------------------
* cash and balances at central banks 116,461 131,433
-------------------------------------------------------------
* trading assets 88,219 79,878
-------------------------------------------------------------
* financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 16,502 15,881
-------------------------------------------------------------
* derivatives 203,664 225,238
-------------------------------------------------------------
* loans and advances to banks 15,112 17,109
-------------------------------------------------------------
* loans and advances to customers 88,708 72,614
-------------------------------------------------------------
* reverse repurchase agreements - non-trading 77,246 53,949
-------------------------------------------------------------
* financial investments 38,314 32,604
-------------------------------------------------------------
* assets held for sale 1,170 21,214
-------------------------------------------------------------
* other assets 77,841 66,726
------------------------------------------------------------- ------------------------
Total liabilities 699,347 693,413
------------------------------------------------------------- ------------------------ ------------------------
* deposits by banks 24,567 20,836
-------------------------------------------------------------
* customer accounts 229,274 215,948
-------------------------------------------------------------
* repurchase agreements - non-trading 47,568 32,901
-------------------------------------------------------------
* trading liabilities 45,553 41,265
-------------------------------------------------------------
* financial liabilities designated at fair value 31,446 27,282
-------------------------------------------------------------
* derivatives 199,448 218,867
-------------------------------------------------------------
* debt securities in issue 8,605 7,268
-------------------------------------------------------------
- insurance contract liabilities 20,054 20,004
-------------------------------------------------------------
* liabilities of disposal groups held for sale 1,178 24,711
* other liabilities 91,654 84,331
------------------------------------------------------------- ------------------------
Total equity 23,890 23,233
------------------------------------------------------------- ------------------------ ------------------------
Total shareholders' equity 23,756 23,102
------------------------------------------------------------- ------------------------ ------------------------
Non-controlling interests 134 131
------------------------------------------------------------- ------------------------ ------------------------
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
Total reported assets were 0.9% higher than at 31 Dec 2022. The
group maintained a strong and liquid balance sheet with the ratio
of customer advances to customer accounts remaining below 40.0% at
30 Jun 2023.
Assets
Cash and balances at central banks decreased by 11.4% as a
result of an increase in reverse repos and trading assets.
Trading assets have increased by 10.4% reflecting growth in
Securities Financing in MSS.
Loans and advances to customers increased by 22.2%, mainly due
to the reclassification of balances associated with our retail
banking operations in France from held for sale during the
period.
Derivative assets decreased by 9.6% due to market movements in
FX rates.
Non-trading reverse repos decreased by 43.2% primarily due to
changes in market conditions.
Liabilities
Customer accounts increased by 6.2%, mainly due to the
reclassification of balances associated with our retail banking
operations in France from held for sale during the period.
Non-trading repos increased by 44.6% as a result of market
activities.
Derivative liabilities decreased by 8.9%. This is in line with
derivative assets as the underlying risk is broadly matched.
Equity
Total shareholders' equity increased by 2.8% compared with 31
Dec 2022.
Reconciliation of alternative performance measures
Return on average ordinary shareholders' equity and return on
average tangible equity
Return on average ordinary shareholders' equity ('RoE') is
computed by taking profit attributable to the ordinary shareholders
of the parent company ('reported results'), divided by average
ordinary shareholders' equity ('reported equity') for the period.
The adjustment to reported results and reported equity excludes
amounts attributable to non-controlling interests and holders of
preference shares and other equity instruments.
Return on average tangible equity ('RoTE') is computed by
adjusting reported results for impairment of goodwill and other
intangible assets (net of tax), divided by average reported equity
adjusted for goodwill and intangibles for the period.
We provide RoTE ratio in addition to RoE as a way of assessing
our performance, which is closely aligned to our capital
position.
Return on average ordinary shareholders' equity and return
on average tangible equity
Half-year ended(1)
----------------------------------------------------
30 Jun 30 Jun
2023 2022
GBPm GBPm
---------------------------------------------------------------- ------------------------ --------------------------
Profit
---------------------------------------------------------------- ------------------------ --------------------------
Profit attributable to the ordinary shareholders of the
parent company 2,127 108
Profit attributable to the ordinary shareholders, excluding
other intangible assets impairment 2,127 108
---------------------------------------------------------------- ------------------------ --------------------------
Impact of strategic transactions(2) (1,296) -
---------------------------------------------------------------- ------------------------ --------------------------
Profit attributable to the ordinary shareholders, excluding
other intangible assets impairment and strategic transactions 831 108
---------------------------------------------------------------- ------------------------ --------------------------
Equity
---------------------------------------------------------------- ------------------------ --------------------------
Average total shareholders' equity 23,853 23,016
---------------------------------------------------------------- ------------------------ --------------------------
Effect of average preference shares and other equity instruments (3,930) (3,861)
---------------------------------------------------------------- ------------------------ --------------------------
Average ordinary shareholders' equity 19,923 19,155
Effect of goodwill and other intangibles (net of deferred
tax) 192 (293)
---------------------------------------------------------------- ------------------------ --------------------------
Average tangible equity 20,115 18,862
---------------------------------------------------------------- ------------------------ --------------------------
Average impact of strategic transactions (864) -
---------------------------------------------------------------- ------------------------ --------------------------
Average tangible equity excluding strategic transactions 19,251 18,862
---------------------------------------------------------------- ------------------------ --------------------------
Ratio
---------------------------------------------------------------- ------------------------ --------------------------
Return on average ordinary shareholders' equity (annualised) 21.4 1.1
---------------------------------------------------------------- ------------------------ --------------------------
Return on average tangible equity (annualised) 21.2 1.1
---------------------------------------------------------------- ------------------------ --------------------------
Return on average tangible equity excluding strategic
transactions (annualised) 8.6 1.1
---------------------------------------------------------------- ------------------------ --------------------------
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
2 Includes the reversal of a GBP1.3bn (net of tax) impairment
loss relating to the planned sale of the retail banking operations
in France, recognised in 3Q22, which is no longer classified as
held for sale.
Risk
Risk overview
The group continuously identifies, assesses, manages and
monitors risks. This process, which is informed by its risk factors
and the results of its stress testing programme, gives rise to the
classification of certain financial and non-financial risks.
Changes in the assessment of these risks may result in adjustments
to the group's business strategy and, potentially, its risk
appetite.
Our banking risks include credit risk, treasury risk, market
risk, climate risk, resilience risk, regulatory compliance risk,
financial crime and fraud risk and model risk. We also incur
insurance risk.
In addition to these banking risks, we have identified top and
emerging risks with the potential to have a material impact on our
financial results, our reputation and the sustainability of our
long-term business model.
The exposure to our risks and risk management of these are
explained in more detail on pages 24 to 93 of our Annual Report and
Accounts 2022.
Externally driven
-------------------------------------------------------------------------------------------
Geopolitical Our operations and portfolios are exposed to risks associated
and macroeconomic with political instability, civil unrest and military
risk conflict, which could lead to disruption of our operations,
physical risk to our staff and/or physical damage to our
assets. Geopolitical tensions including the ongoing Russia-Ukraine
war, remain high although global supply chain disruptions
have abated. This risk has increased in the first half
of 2023 as the European and UK economies faced a number
of challenges, including persistently high inflation,
increased interest rates and a period of significant market
volatility that followed stressed conditions in the US
and Swiss banking sectors. Against this backdrop, the
economic recovery in the region has been slow.
------------------ -------------------------------------------------------------------
Credit risk We regularly undertake detailed reviews of our portfolios
and proactively manage credit facilities to customers
and sectors likely to come under stress as a result of
current macroeconomic and geopolitical events including
UK recessionary pressures and second order impacts from
the Russia-Ukraine war. We remain focused on assessing
and managing the impacts of the cost of living crisis
and higher interest rates on our customers as well as
inflationary pressures across our major markets. Particular
emphasis has been maintained on the Real Estate, Construction
and Contracting, Wholesale Trade, Consumer Goods, Retail
and Leverage portfolios. We have increased the frequency
and depth of our monitoring activities with stress tests
and other sectoral reviews performed to identify portfolios
or customers who are likely to experience financial difficulty
through the slowdown in economic activity.
------------------ -------------------------------------------------------------------
Cyber threat } We face a risk of service disruption or loss of data resulting
and unauthorised from technology failures or malicious activities by internal
access to or external threats. We continue to monitor ongoing geopolitical
systems events and changes to the threat landscape. We operate
a continuous improvement programme to protect our technology
operations and to counter a fast-evolving cyber-threat
environment.
------------------ -------------------------------------------------------------------
Evolving The regulatory and compliance risk environment is becoming
regulatory increasingly complex, in part driven by heightened geopolitical
environment tensions and stressed conditions in the US and Swiss banking
risk sectors, with increased scrutiny by European regulators.
There is a continued focus on strategy execution, transformation,
capital management, operational resilience, recovery and
resolution, regulatory reporting and protection of customers.
Throughout 2023, we have been working towards meeting
new Consumer Duty requirements, and a new Code of Conduct
rule, seeking to ensure we act to deliver good customer
outcomes and act consistently to support customers. Work
will continue to ensure good outcomes on an ongoing basis.
We continue to monitor regulatory and wider industry developments
closely, engaging with regulators as appropriate.
------------------ -------------------------------------------------------------------
Financial } We are exposed to financial crime risk from our customers,
crime and staff and third-parties engaging in criminal activity.
fraud risk The financial crime risk environment continues to evolve,
due to increasingly complex geopolitical challenges, the
macroeconomic outlook, evolving sanctions regulations,
rapid technological developments, national data privacy
requirements and the increasing sophistication of fraud.
As a result, we will continue to face the possibility
of regulatory enforcement and reputational risk. Development
of new technologies, for example for improved transaction
monitoring, continues at pace.
------------------ -------------------------------------------------------------------
Environmental, We are subject to ESG risks relating to climate change,
social and nature and human rights. These risks have increased owing
governance to the pace and volume of regulatory developments globally,
risk and due to stakeholders placing more emphasis on financial
institutions' actions and investment decisions in respect
of ESG matters. Failure to meet these evolving expectations
may result in financial and non-financial costs, including
adverse reputational consequences.
------------------ -------------------------------------------------------------------
Digitalisation -- Developments in technology and changes in regulations
and technological have enabled new entrants to the banking industry and
advances new products and services offered by competitors. Along
with opportunities, new technology can introduce new risks.
This challenges us to continue to innovate to take advantage
of new digital capabilities to best serve our customers
by adapting our products, and to attract and retain customers
and employee talent, while ensuring that the risks are
understood and managed with appropriate controls.
Internally driven
People risk } We have capacity and capability risks resulting from various
organisational changes coupled with elevated workloads
while transitioning into new operating models. These together
with job uncertainty, heightened inflationary pressures
and the social climate are affecting the financial and
mental well-being of our people. Identified areas of focus
remain under tight oversight. We monitor hiring activities
and levels of employee attrition, and each business and
function has workforce plans in place to aim to ensure
effective workforce forecasting to meet business demands.
------------------ -------------------------------------------------------------------
IT systems } We continue to monitor and improve our IT systems and
infrastructure network resilience, both on our premises and on the Cloud
and resilience to minimise service disruption and improve customer experience.
To support the business strategy, we remain focused on
strengthening our end to end management, building and
deploying controls and system monitoring capabilities.
We continue to seek to reduce the complexity of our technology
estate and consolidate our core banking systems onto a
single strategic platform.
Internally driven (continued)
-------------------------------------------------------------------------------------------
Execution Failure to effectively prioritise, manage and/or deliver
risk transformation across the group impacts our ability to
achieve our strategic objectives. Given the complexity
and volume of change planned throughout 2023, the group
aims to continue to monitor, manage and oversee change
execution risk to ensure our change portfolios and initiatives
continue to deliver the right outcomes for our customers,
people, regulators, investors and communities.
------------------ -------------------------------------------------------------------
Model risk Model risk arises whenever business decision making includes
reliance on models. We use models in both financial and
non-financial contexts, as well as in a range of business
applications such as customer selections, product pricing,
financial crime transaction monitoring, creditworthiness
evaluation and financial reporting. Evolving regulatory
requirements are driving material changes to the way model
risk is managed across the banking industry, with particular
focus on capital models. New Bank of England guidance
on Model Risk management will require greater attention
on the management of model risks across the bank. A key
area of focus is ensuring we enhance the dialogue with
regulators within the region to ensure our deliverables
meet their expectations. The rapidly changing technology
environment including generative Artificial Intelligence
and large language models are impacting the need for enhanced
model risk controls.
Data risk We use data to serve our customers and run our operations,
often in real-time within digital experiences and processes.
There is increased focus on data risk as we continue to
enhance our control environment. If our data is not accurate
and timely, our ability to serve customers, operate with
resilience or meet regulatory requirements could be impacted.
We need to ensure that non-public data is kept confidential,
and that we comply with the regulations that govern data
privacy and cross-border movement of data. There is a
focus to deliver our Data Strategy to Protect, Connect
and Unlock data to deliver sustainable outcomes for our
customers.
------------------ -------------------------------------------------------------------
Third-party We procure goods and services from a range of third parties,
risk who we recognise may be impacted by the same external
markets factors as us. It is critical that we have appropriate
risk management policies and processes to select and govern
third parties, including third parties' increasingly complex
supply networks, particularly for key activities that
could adversely affect our operational resilience. Any
deficiency in the management of risks associated with
our third parties could affect our ability to support
our customers and meet regulatory expectations.
------------------ -------------------------------------------------------------------
-- New risk introduced in 2023
Risk has heightened during 2023
} Risk remains at the same level
as 2022
Managing risk
We aim to use a comprehensive risk management approach across
the organisation and across all risk types, underpinned by our
culture and values. This is outlined in our risk management
framework, including the key principles and practices that we
employ in managing material risks, both financial and
non-financial.
Difficult economic conditions in the EU and the UK have impacted
our customers and our organisation in 2023. With inflationary
pressures remaining high, the ECB and the Bank of England have
continued to increase interest rates and economic growth in the
eurozone remains slow. In the UK the economic recovery has been
particularly weak. It is unlikely that monetary policy across our
major markets will begin to ease until well into 2024. This may
change if inflation moderates more discernibly, or recession
concerns come to the fore.
There continue to be ongoing impacts of the Russia-Ukraine war.
We are monitoring the impacts and continue to respond to the
economic sanctions and trade restrictions that have been imposed on
Russia in response. In particular, significant sanctions and trade
restrictions imposed against Russia have been put in place by the
UK, the US and the EU, as well as other countries. In response to
such sanctions and trade restrictions, as well as asset flight,
Russia has implemented certain countermeasures. The war's economic
impact has reduced as the global economy has largely adapted to the
sanctions regime. In particular, Europe is diversifying its energy
sources to reduce dependence on Russian energy supplies. Further
sanctions, for instance focusing on sanctions evasion by parties in
third countries, and Russian countermeasures may adversely impact
the group, its customers and the markets in which the group
operates by creating regulatory, reputational and market risks.
Our business in Russia principally serves multinational
corporate clients headquartered in other countries, is not
accepting new business or customers and is consequently on a
declining trend. Following a strategic review, HSBC Europe BV (a
wholly-owned subsidiary of HSBC Bank plc) has entered into an
agreement to sell its wholly-owned subsidiary HSBC Bank (RR)
(Limited Liability Company), subject to regulatory and governmental
approvals.
We continue to focus on improving the quality and timeliness of
the data used to inform management decisions, through measures such
as early warning indicators, prudent active risk management of our
risk appetite, and ensuring regular communication with our Board
and key stakeholders.
Climate risk
Climate risk relates to the financial and non-financial impacts
that may arise as a result of climate change and the move to a
greener economy. Climate risk can impact us either directly or
through our relationships with our clients. This includes potential
risk arising as a result of HSBC Group's net zero ambition, which
could lead to reputational concerns, and potential legal and/or
regulatory action if we are perceived to mislead stakeholders on
our business activities or if we fail to achieve the HSBC Group's
stated net zero targets. Our most material exposure to climate risk
relates to corporate and retail client financing activity within
our banking portfolio. We seek to manage climate risk across all
our businesses in line with our HSBC Group-wide risk management
framework, and are incorporating climate considerations within our
existing risk types.
We continue to monitor the impacts of climate risk and further
embed our approach across our key risk areas and business
lines.
For further details of our approach to climate risk management,
see 'Climate risk' on page 86 of our Annual Report and Accounts
2022.
Our risk appetite
Our risk appetite defines our desired forward-looking risk
profile, and informs the strategic and financial planning process.
It provides an objective baseline to guide strategic decision
making, helping to ensure that planned business activities provide
an appropriate balance of return for the risk assumed, while
remaining within acceptable risk levels. Risk appetite supports
senior management in allocating capital, funding and liquidity
optimally to finance growth, while monitoring exposure to
non-financial risks.
Capital and liquidity remain at the core of our risk appetite
framework, with forward-looking statements informed by stress
testing. We continue to develop our climate risk appetite as we
engage with businesses on including climate risk in decision making
and starting to embed climate risk appetite into business
planning.
Top and emerging risks
Our top and emerging risks report identifies forward-looking
risks so that they can be considered in determining whether any
incremental action is needed to either prevent them from
materialising or to limit their effect.
Top risks are those that may have a material impact on our
financial results, reputation or business model in the year ahead.
Emerging risks are those that have large unknown components and may
form beyond a one-year horizon. If any of these risks were to
occur, they could have a material effect on the group.
Our suite of top and emerging risks is subject to regular review
by senior governance forums. We continue to monitor closely the
identified risks and ensure robust management actions are in place,
as required.
We have reviewed our list of top and emerging risks. Some risks
were removed as these were considered as having reduced into
business as usual risk management practices, including Ibor
transition. Digitalisation and technological advances risk has been
added reflecting their increasing impact on the banking sector.
Our current top and emerging risks are summarised on the
previous two pages and discussed in more detail on page 28 of our
Annual Report and Accounts 2022.
Ibor transition
Following the UK's Financial Conduct Authority ('FCA')
announcement in July 2017 that it would no longer continue to
persuade or require panel banks to submit rates for the London
interbank offered rate ('Libor') after 2021, we have been actively
working to transition legacy contracts from Ibors to products
linked to near risk-free replacement rates ('RFRs') or alternative
reference rates.
The publication of sterling, Swiss franc, euro and Japanese yen
Libor interest rate benchmarks, as well as Euro Overnight Index
Average ('Eonia'), and two US dollar Libor settings ceased from the
end of 2021. Following this, the publication of all remaining
settings of US dollar Libor ceased from 30 June 2023. To support
any remaining contracts referencing these benchmarks, the FCA has
compelled the ICE Benchmark Administration Limited to publish the
three-month sterling Libor setting using an alternative 'synthetic'
methodology until 31 March 2024, and one-month, three-month and
six-month US dollar Libor settings until 30 September 2024. We
continue to support our customers in the transition of the limited
number of outstanding contracts relying on 'synthetic' Libor
benchmarks in line with these dates.
Financial instruments impacted by Ibor reform
Financial instruments
yet to transition
to alternative
benchmarks, by
main benchmark
------------------------------------------------------------------
USD Libor Others(1)
At 30 Jun 2023 GBPm GBPm
------------------------------------------- -------------------------------- --------------------------------
Non-derivative financial assets(2)
------------------------------------------- -------------------------------- --------------------------------
Loans and advances to customers 2,563 101
------------------------------------------- -------------------------------- --------------------------------
Financial investments 221 -
------------------------------------------- -------------------------------- --------------------------------
Others 105 110
------------------------------------------- -------------------------------- --------------------------------
Total non-derivative financial assets 2,889 211
------------------------------------------- -------------------------------- --------------------------------
Non-derivative financial liabilities
------------------------------------------- -------------------------------- --------------------------------
Subordinated liabilities 393 -
------------------------------------------- -------------------------------- --------------------------------
Others 522 -
------------------------------------------- -------------------------------- --------------------------------
Total non-derivative financial liabilities 915 -
------------------------------------------- -------------------------------- --------------------------------
Derivative notional contract amount
------------------------------------------- -------------------------------- --------------------------------
Foreign exchange 232,922 7,530
------------------------------------------- -------------------------------- --------------------------------
Interest rate 754,281 165,225
------------------------------------------- -------------------------------- --------------------------------
Others - -
------------------------------------------- -------------------------------- --------------------------------
Total derivative notional contract amount 987,203 172,755
------------------------------------------- -------------------------------- --------------------------------
At 31 Dec 2022
------------------------------------------- -------------------------------- ---------------------------------
Non-derivative financial assets(2)
------------------------------------------- -------------------------------- ---------------------------------
Loans and advances to customers 4,350 101
------------------------------------------- -------------------------------- ---------------------------------
Financial investments 1,072 -
------------------------------------------- -------------------------------- ---------------------------------
Others 554 35
------------------------------------------- -------------------------------- ---------------------------------
Total non-derivative financial assets 5,976 136
------------------------------------------- -------------------------------- ---------------------------------
Non-derivative financial liabilities
------------------------------------------- -------------------------------- ---------------------------------
Subordinated liabilities 1,287 -
------------------------------------------- -------------------------------- ---------------------------------
Others 560 -
------------------------------------------- -------------------------------- ---------------------------------
Total non-derivative financial liabilities 1,847 -
------------------------------------------- -------------------------------- ---------------------------------
Derivative notional contract amount
------------------------------------------- -------------------------------- ---------------------------------
Foreign exchange 243,872 103
------------------------------------------- -------------------------------- ---------------------------------
Interest rate 1,399,561 155,848
------------------------------------------- -------------------------------- ---------------------------------
Others - -
------------------------------------------- -------------------------------- ---------------------------------
Total derivative notional contract amount 1,643,433 155,951
------------------------------------------- -------------------------------- ---------------------------------
1 Comprises financial instruments referencing other significant
demising benchmark rates yet to transition to alternative
benchmarks: Canadian dollar offered rate ('CDOR'), GBP libor,
Mexican Interbank equilibrium interest rate ('TIIE'), SOR, THBFIX,
MIFOR and Sibor). An announcement was made by the South African
regulator during the first half of 2023 on the cessation of the
Johannesburg interbank average rate ('JIBAR'). Therefore, JIBAR is
also included in 'Others' during the current period.
2 Gross carrying amount excluding allowances for expected credit losses.
The amounts in the above table relate to the group's main
operating entities where we have material exposures impacted by
Ibor reform, including in the United Kingdom, France and Germany.
The amounts provide an indication of the extent of the group's
exposure to the Ibor
benchmarks that are due to be replaced. Amounts are in respect
of financial instruments that:
- contractually reference an interest rate benchmark that is
planned to transition to an alternative benchmark;
- US dollar Libor contracts that include no further transition
risk, i.e. those covered by industry fallback clauses effective 3
July 2023 (c. 99% of derivatives exposure) or contracts
transitioned to an alternative rate but fixed on USD Libor until
their first interest rate determination post US dollar Libor
cessation (over c.80% of loans and advances);
- have a contractual maturity date beyond the date by which the
reference interest rate benchmark is expected to cease; and
- are recognised on the group's consolidated balance sheet.
Interest rate benchmark reform: Amendments to IFRS 9 and IAS 39
'Financial Instruments'
The group has applied both the first set of amendments ('Phase
1') and the second set of amendments ('Phase 2') to IFRS 9 and IAS
39 applicable to hedge accounting. The hedge accounting
relationships that are affected by Phase 1 and Phase 2 amendments
are presented in the balance sheet as 'Financial assets designated
and otherwise mandatorily measured at fair value through other
comprehensive income', 'Loans and advances to customers', 'Debt
securities in
issue' and 'Deposits by banks'. The notional value of the
derivatives impacted by the Ibor reform, including those designated
in hedge accounting relationships, is disclosed above in the
section 'Financial instruments impacted by Ibor reform'.
Hedge accounting will not be discontinued solely because of the
replacement of the interest rate benchmark if the hedge meets other
hedge accounting criteria.
For some of the Ibors included under the 'Other' header in the
table below, judgement was needed to establish whether a transition
is required. This is because there are Ibor benchmarks subject to
computation improvements and insertion of fallback provisions where
their administrators have yet to provide full clarity on whether or
when these Ibor benchmarks will be demised.
The notional amounts of interest rate derivatives designated in
hedge accounting relationships do not represent the extent of the
risk exposure managed by the group but they are expected to be
directly affected by market-wide Ibor reform and in scope of Phase
1 amendments and are shown in the table below. The cross-currency
swaps designated in hedge accounting relationships and affected by
Ibor reform are not significant and have not been presented
below:
Hedging instrument impacted by Ibor reform
Hedging instrument
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Impacted by Ibor reform
--------------------------------------------------------------------------------------------------------------------------------
EUR(1) USD Other(2) Total Not Impacted
by Ibor Notional
reform Amount(3)
GBPm GBPm GBPm GBPm GBPm GBPm
------- ----------------------------- -------------------------------- -------------------------------- ----------------------------- --------------------------- ---------------------------
Fair
Value
Hedges 7,190 - 80 7,270 20,944 28,214
------- ----------------------------- -------------------------------- -------------------------------- ----------------------------- --------------------------- ---------------------------
Cash
Flow
Hedges 8,767 - - 8,767 30,552 39,319
------- ----------------------------- -------------------------------- -------------------------------- ----------------------------- --------------------------- ---------------------------
At 30
Jun
2023 15,957 - 80 16,037 51,496 67,533
------- ----------------------------- -------------------------------- -------------------------------- ----------------------------- --------------------------- ---------------------------
Fair
Value
Hedges 7,581 225 105 7,911 18,738 26,649
------- ----------------------------- -------------------------------- -------------------------------- ----------------------------- --------------------------- ---------------------------
Cash
Flow
Hedges 7,359 - - 7,359 22,136 29,495
------- ----------------------------- -------------------------------- -------------------------------- ----------------------------- --------------------------- ---------------------------
At 31
Dec
2022 14,940 225 105 15,270 40,874 56,144
------- ----------------------------- -------------------------------- -------------------------------- ----------------------------- --------------------------- ---------------------------
1 The notional contract amounts of euro interest rate
derivatives impacted by Ibor reform mainly comprise hedges with
Euribor benchmark.
2 Other benchmarks impacted by Ibor reform comprise derivatives
that are expected to be impacted by the transition, but do not have
a published cessation date.
3 The notional contract amounts of interest rate derivatives
designated in qualifying hedge accounting relationships indicate
the nominal value of transactions outstanding at the balance sheet
date and they do not represent amounts at risk.
Key developments in the first half of 2023
We actively managed the risks related to macroeconomic and
geopolitical uncertainties, as well as other key risks described in
this section. In addition, we sought to enhance our risk management
in the following areas:
- We continued to embed the governance and oversight around the
IFRS 9 process including financial reporting processes.
- Through our climate risk programme, we continued to embed
climate considerations throughout the organisation, including
enhancing our approach to assessing the impact of climate on
capital, and continued development of risk metrics to manage our
exposure to climate risk.
- We have continued to strengthen our third-party risk policy
and have enhanced the way third-party risk is overseen and managed
across all non-financial risks. Our processes, framework and
reporting capabilities have been enhanced to improve the control
and oversight of our material third-parties to help maintain our
operational resilience and to meet new and evolving regulatory
requirements.
- We deployed industry leading technology and advanced analytics
capabilities into new markets to improve our ability to identify
suspicious activities and prevent financial crime. We continue to
monitor regulatory changes.
Credit risk
17 Summary of credit risk
21 Measurement uncertainty and sensitivity
analysis of ECL estimates
26 Reconciliation of changes in
gross carrying/nominal amount
and allowances for loans and
advances to banks and customers
including loan commitments and
financial guarantees
Overview
Credit risk is the risk of financial loss if a customer or
counterparty fails to meet an obligation under a contract. Credit
risk arises principally from direct lending, trade finance and
leasing business, but also from certain other products, such as
guarantees and derivatives.
Credit risk in the first half of 2023
A summary of our current policies and practices for the
management of credit risk is set out in 'Credit risk management' on
page 36 of the Annual Report and Accounts 2022.
At 30 June 2023, gross loans and advances to customers and banks
of GBP105bn increased by GBP14.1bn, compared with 31 December 2022.
This included adverse foreign exchange movements of GBP2.1bn.
Excluding foreign exchange movements the growth was driven by
GBP18bn increase in personal loans and advances to customers. The
balance of wholesale loans and advances to customer has increased
by GBP0.1bn. This was mainly driven by a reversal of
reclassification of our retail banking operations in France to
assets held for sale. The increase has been partially offset by a
GBP1.8bn decrease in loans and advances to banks.
At 30 June 2023, the allowance for ECL excluding foreign
exchange movements in relation to loans and advances to customers
increased by GBP38m compared with 31 December 2022.
This was attributable to:
- a GBP22m decrease in wholesale loans and advances to
customers, of which GBP13m was driven by stages 1 and 2; and GBP9m
by stage 3; and,
- a GBP61m increase in personal loans and advances to
customers,of which GBP10m was driven by stages 1 and 2; and GBP51m
by stage 3.
The ECL charge for the first six months of 2023 was GBP58m,
inclusive of recoveries. This was mainly driven by higher stage 2
and 3 charges, heightened economic uncertainty and inflationary
pressures.
Summary of credit risk
The following disclosure presents the gross carrying/nominal
amount of financial instruments to which the impairment
requirements in IFRS 9 are applied and the associated allowance for
ECL.
The following tables analyse loans by industry sector which
represent the concentration of exposures on which credit risk is
managed.
Summary of financial instruments to which the impairment requirements
in IFRS 9 are applied
At 30 Jun 2023 At 31 Dec 2022
--------------------------------------------------------------------------- ----------------------------------------------------------------------------
Gross carrying/ Allowance Gross carrying/nominal Allowance
nominal for ECL(1) amount for ECL(1)
amount
GBPm GBPm GBPm GBPm
--------------- ------------------------------------ ------------------------------------- ------------------------------------ --------------------------------------
Loans and
advances to
customers
at amortised
cost 89,823 (1,115) 73,717 (1,103)
--------------- ------------------------------------ ------------------------------------- ------------------------------------ --------------------------------------
* personal 23,403 (113) 6,013 (55)
---------------
- corporate and
commercial 53,762 (887) 55,004 (937)
---------------
- non-bank
financial
institutions 12,658 (115) 12,700 (111)
--------------- ------------------------------------ ------------------------------------- ------------------------------------
Loans and
advances to
banks at
amortised
cost 15,157 (45) 17,152 (43)
--------------- ------------------------------------ ------------------------------------- ------------------------------------ --------------------------------------
Other financial
assets
measured
at amortised
cost 271,209 (50) 269,755 (137)
--------------- ------------------------------------ ------------------------------------- ------------------------------------ --------------------------------------
- cash and
balances at
central banks 116,461 - 131,434 (1)
---------------
- items in the
course of
collection
from other
banks 1,931 - 2,285 -
- reverse
repurchase
agreements
- non-trading 77,246 - 53,949 -
---------------
- financial
investments 7,490 - 3,248 -
---------------
- prepayments,
accrued income
and
other
assets(2) 66,671 (4) 55,634 (3)
---------------
- assets held
for sale(6) 1,410 (46) 23,205 (133)
--------------- ------------------------------------ ------------------------------------- ------------------------------------
Total gross
carrying
amount
on-balance
sheet 376,189 (1,210) 360,624 (1,283)
--------------- ------------------------------------ ------------------------------------- ------------------------------------ --------------------------------------
Loans and other
credit related
commitments 134,690 (44) 126,457 (67)
--------------- ------------------------------------ ------------------------------------- ------------------------------------ --------------------------------------
- personal 1,858 - 2,116 -
---------------
- corporate and
commercial 62,342 (36) 68,441 (62)
---------------
- financial 70,490 (8) 55,900 (5)
--------------- ------------------------------------ ------------------------------------- ------------------------------------
Financial
guarantees(3) 5,263 (19) 5,327 (20)
--------------- ------------------------------------ ------------------------------------- ------------------------------------ --------------------------------------
- personal 17 - 23 -
---------------
- corporate and
commercial 3,278 (18) 3,415 (19)
---------------
- financial 1,968 (1) 1,889 (1)
--------------- ------------------------------------ ------------------------------------- ------------------------------------
Total nominal
amount
off-balance
sheet(4) 139,953 (63) 131,784 (87)
--------------- ------------------------------------ ------------------------------------- ------------------------------------ --------------------------------------
516,142 (1,273) 492,408 (1,370)
--------------- ------------------------------------ ------------------------------------- ------------------------------------ --------------------------------------
Memorandum Memorandum
allowance allowance
for for
Fair value ECL(5) Fair value ECL(5)
GBPm GBPm GBPm GBPm
--------------- ------------------------------------ ------------------------------------- ------------------------------------ --------------------------------------
Debt
instruments
measured at
fair
value through
other
comprehensive
income
('FVOCI') 30,718 (24) 29,248 (24)
--------------- ------------------------------------ ------------------------------------- ------------------------------------ --------------------------------------
1 The total ECL is recognised in the loss allowance for the
financial asset unless the total ECL exceeds the gross carrying
amount of the financial asset, in which case the ECL is recognised
as a provision.
2 Includes only those financial instruments which are subject to
the impairment requirements of IFRS 9. 'Prepayments, accrued income
and other assets' as presented within the consolidated balance
sheet on page 39 includes both financial and non-financial
assets.
3 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
4 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
5 Debt instruments measured at FVOCI continue to be measured at
fair value with the allowance for ECL as a memorandum item. Change
in ECL is recognised in 'Change in expected credit losses and other
credit impairment charges' in the income statement.
6 For further details on gross carrying amounts and allowances
for ECL related to assets held for sale, see Note 11: 'Assets held
for sale and liabilities of disposal group held for sale' on page
57.
The following table provides an overview of the group's credit
risk by stage and industry, and the associated ECL coverage. The
financial assets recorded in each stage have the following
characteristics:
- Stage 1: These financial assets are unimpaired and without a
significant increase in credit risk for which a 12-month allowance
for ECL is recognised.
- Stage 2: A significant increase in credit risk has been
experienced on these financial assets since initial recognition for
which a lifetime ECL is recognised.
- Stage 3: There is objective evidence of impairment and the
financial assets are therefore considered to be in default or
otherwise credit impaired for which a lifetime ECL is
recognised.
- POCI: Financial assets that are purchased or originated at a
deep discount are seen to reflect the incurred credit losses on
which a lifetime ECL is recognised.
-
Summary of credit risk (excluding debt instruments measured at FVOCI)
by stage distribution and ECL coverage by industry sector
at 30 June 2023
Gross carrying/nominal Allowance for ECL ECL coverage %
amount(2)
------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------- ---------------------------------------------------------------
Stage Stage Stage POCI(3) Total Stage Stage Stage POCI(3) Total Stage Stage Stage POCI(3) Total
1 2 3 1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % % % % %
-------------------------------------- -------------- ---------------- ---------------- ----------- ------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------ ---------- -------------- -------------- ------- ----------
Loans
and advances
to customers
at amortised
cost 76,669 10,631 2,521 2 89,823 (60) (128) (927) - (1,115) 0.1 1.2 36.8 - 1.2
-------------------------------------- -------------- ---------------- ---------------- ----------- ------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------ ---------- -------------- -------------- ------- ----------
- personal 20,370 2,772 261 - 23,403 (13) (20) (80) - (113) 0.1 0.7 30.7 - 0.5
-------------------------------------- ---------- -------------- -------------- ------- ----------
* corporate and commercial 44,992 6,781 1,987 2 53,762 (43) (95) (749) - (887) 0.1 1.4 37.7 - 1.6
-------------------------------------- ---------- -------------- -------------- ------- ----------
* non-bank financial institutions 11,307 1,078 273 - 12,658 (4) (13) (98) - (115) - 1.2 35.9 - 0.9
-------------------------------------- -------------- ---------------- ---------------- ----------- ------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------ ---------- -------------- -------------- ------- ----------
Loans
and advances
to banks
at amortised
cost 15,013 79 65 - 15,157 (4) (24) (17) - (45) - 30.4 26.2 - 0.3
-------------------------------------- -------------- ---------------- ---------------- ----------- ------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------ ---------- -------------- -------------- ------- ----------
Other
financial
assets
measured
at amortised
cost 270,955 153 101 - 271,209 (5) (3) (42) - (50) - 2.0 41.6 - -
-------------------------------------- -------------- ---------------- ---------------- ----------- ------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------ ---------- -------------- -------------- ------- ----------
Loan and
other
credit-related
commitments 126,101 8,455 134 - 134,690 (9) (27) (8) - (44) - 0.3 6.0 - -
-------------------------------------- -------------- ---------------- ---------------- ----------- ------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------ ---------- -------------- -------------- ------- ----------
- personal 1,826 29 3 - 1,858 - - - - - - - - - -
-------------------------------------- ---------- -------------- -------------- ------- ----------
* corporate and commercial 56,673 5,563 106 - 62,342 (8) (20) (8) - (36) - 0.4 7.5 - 0.1
-------------------------------------- ---------- -------------- -------------- ------- ----------
- financial 67,602 2,863 25 - 70,490 (1) (7) - - (8) - 0.2 - - -
-------------------------------------- -------------- ---------------- ---------------- ----------- ------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------ ---------- -------------- -------------- ------- ----------
Financial
guarantees(1) 4,675 524 64 - 5,263 (1) (2) (16) - (19) - 0.4 25.0 - 0.4
-------------------------------------- -------------- ---------------- ---------------- ----------- ------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------ ---------- -------------- -------------- ------- ----------
- personal 15 2 - - 17 - - - - - - - - - -
-------------------------------------- ---------- -------------- -------------- ------- ----------
* corporate and commercial 2,868 347 63 - 3,278 (1) (1) (16) - (18) - 0.3 25.4 - 0.5
-------------------------------------- ---------- -------------- -------------- ------- ----------
- financial 1,792 175 1 - 1,968 - (1) - - (1) - 0.6 - - 0.1
-------------------------------------- -------------- ---------------- ---------------- ----------- ------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------ ---------- -------------- -------------- ------- ----------
At 30
Jun 2023 493,413 19,842 2,885 2 516,142 (79) (184) (1,010) - (1,273) - 0.9 35.0 - 0.2
-------------------------------------- -------------- ---------------- ---------------- ----------- ------------------------- ---------------- ---------------- ---------------- ----------- ------------------------------ ---------- -------------- -------------- ------- ----------
1 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
2 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
3 Purchased or originated credit-impaired ('POCI').
Unless identified at an earlier stage, all financial assets are
deemed to have suffered a significant increase in credit risk when
they are 30 days past due ('DPD') and are transferred from stage 1
to stage 2. The following disclosure presents the ageing of stage 2
financial
assets by those less than 30 and greater than 30 DPD and
therefore presents those financial assets classified as stage 2 due
to ageing ('30 DPD') and those identified at an earlier stage (less
than 30 DPD).
Stage 2 days past due analysis at 30 June 2023
Gross carrying Allowance for ECL ECL coverage %
amount
------------------------------------------------------------------ ---------------------------------------------------------------------- ------------------------------------------
of which: of which: of which: of which: of which: of which:
1 to 30 1 to 30 1 to 30
Stage 29 DPD(1,2) and Stage 29 DPD(1,2) and Stage 29 and
2 > DPD(1,2) 2 > DPD(1,2) 2 DPD(1,2) > DPD(1,2)
GBPm GBPm GBPm GBPm GBPm GBPm % % %
------------- -------------------- -------------------- ---------------------- ---------------------- ---------------------- ---------------------- -------------- ---------- --------------
Loans and
advances
to customers
at amortised
cost 10,631 215 304 (128) (3) (2) 1.2 1.4 0.7
------------- -------------------- -------------------- ---------------------- ---------------------- ---------------------- ---------------------- -------------- ---------- --------------
- personal 2,772 137 36 (20) (2) (1) 0.7 1.5 2.8
------------- -------------- ---------- --------------
- corporate
and
commercial 6,781 78 248 (95) (1) (1) 1.4 1.3 0.4
------------- -------------- ---------- --------------
- non-bank
financial
institutions 1,078 - 20 (13) - - 1.2 - -
------------- -------------------- -------------------- ---------------------- ---------------------- ---------------------- ---------------------- -------------- ---------- --------------
Loans and
advances
to banks at
amortised
cost 79 - 2 (24) - - 30.4 - -
------------- -------------------- -------------------- ---------------------- ---------------------- ---------------------- ---------------------- -------------- ---------- --------------
Other
financial
assets
measured at
amortised
cost 153 - 3 (3) - (2) 2.0 - 66.7
------------- -------------------- -------------------- ---------------------- ---------------------- ---------------------- ---------------------- -------------- ---------- --------------
1 Days past due ('DPD'). Up-to-date accounts in stage 2 are not shown in amounts presented above.
2 The days past due amounts presented above are on a contractual
basis and include the benefit of any customer relief payment
holidays granted.
Summary of credit risk (excluding debt instruments measured at FVOCI)
by stage distribution and ECL coverage by industry sector at
31 December 2022 (continued)
Gross carrying/nominal Allowance for ECL ECL coverage %
amount(2)
------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- -----------------------------------------------------------
Stage Stage Stage POCI(3) Total Stage Stage Stage POCI(3) Total Stage Stage Stage POCI(3) Total
1 2 3 1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % % % % %
-------------------------------------- --------------- ---------------- ---------------- ------------ ------------------------ ---------------- ---------------- -------------- ---------- ------------- ---------- ---------- -------------- ------- ----------
Loans and
advances
to customers
at amortised
cost 63,673 7,817 2,224 3 73,717 (51) (145) (907) - (1,103) 0.1 1.9 40.8 - 1.5
-------------------------------------- --------------- ---------------- ---------------- ------------ ------------------------ ---------------- ---------------- -------------- ---------- ------------- ---------- ---------- -------------- ------- ----------
- personal 5,293 615 105 - 6,013 (9) (15) (31) - (55) 0.2 2.4 29.5 - 0.9
-------------------------------------- ---------- ---------- -------------- ------- ----------
* corporate and commercial 46,671 6,479 1,851 3 55,004 (40) (123) (774) - (937) 0.1 1.9 41.8 - 1.7
-------------------------------------- ---------- ---------- -------------- ------- ----------
* non-bank financial institutions 11,709 723 268 - 12,700 (2) (7) (102) - (111) - 1.0 38.1 - 0.9
-------------------------------------- --------------- ---------------- ---------------- ------------ ------------------------ ---------------- ---------------- -------------- ---------- ------------- ---------- ---------- -------------- ------- ----------
Loans and
advances
to banks
at amortised
cost 16,673 414 65 - 17,152 (6) (21) (16) - (43) - 5.1 24.6 - 0.3
-------------------------------------- --------------- ---------------- ---------------- ------------ ------------------------ ---------------- ---------------- -------------- ---------- ------------- ---------- ---------- -------------- ------- ----------
Other financial
assets
measured
at amortised
cost 267,770 1,662 323 - 269,755 (14) (17) (106) - (137) - 1.0 32.8 - 0.1
-------------------------------------- --------------- ---------------- ---------------- ------------ ------------------------ ---------------- ---------------- -------------- ---------- ------------- ---------- ---------- -------------- ------- ----------
Loan and
other credit
related
commitments 116,994 9,300 163 - 126,457 (13) (32) (22) - (67) - 0.3 13.5 - 0.1
-------------------------------------- --------------- ---------------- ---------------- ------------ ------------------------ ---------------- ---------------- -------------- ---------- ------------- ---------- ---------- -------------- ------- ----------
- personal 2,004 107 5 - 2,116 - - - - - - - - - -
-------------------------------------- ---------- ---------- -------------- ------- ----------
* corporate and commercial 60,659 7,625 157 - 68,441 (12) (28) (22) - (62) - 0.4 14.0 - 0.1
-------------------------------------- ---------- ---------- -------------- ------- ----------
- financial 54,331 1,568 1 - 55,900 (1) (4) - - (5) - 0.3 - - -
-------------------------------------- --------------- ---------------- ---------------- ------------ ------------------------ ---------------- ---------------- -------------- ---------- ------------- ---------- ---------- -------------- ------- ----------
Financial
guarantees(1) 4,715 528 84 - 5,327 (1) (2) (17) - (20) - 0.4 20.2 - 0.4
-------------------------------------- --------------- ---------------- ---------------- ------------ ------------------------ ---------------- ---------------- -------------- ---------- ------------- ---------- ---------- -------------- ------- ----------
- personal 20 2 1 - 23 - - - - - - - - - -
-------------------------------------- ---------- ---------- -------------- ------- ----------
* corporate and commercial 2,946 387 82 - 3,415 (1) (1) (17) - (19) - 0.3 20.7 - 0.6
-------------------------------------- ---------- ---------- -------------- ------- ----------
- financial 1,749 139 1 - 1,889 - (1) - - (1) - 0.7 - - 0.1
-------------------------------------- --------------- ---------------- ---------------- ------------ ------------------------ ---------------- ---------------- -------------- ---------- ------------- ---------- ---------- -------------- ------- ----------
At 31 Dec
2022 469,825 19,721 2,859 3 492,408 (85) (217) (1,068) - (1,370) - 1.1 37.4 - 0.3
-------------------------------------- --------------- ---------------- ---------------- ------------ ------------------------ ---------------- ---------------- -------------- ---------- ------------- ---------- ---------- -------------- ------- ----------
1 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
2 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
3 Purchased or originated credit-impaired ('POCI').
Stage 2 days past due analysis at 31 December 2022 (continued)
Gross carrying amount Allowance for ECL ECL coverage %
------------------------------------------------------------------ ---------------------------------------------------------------------- --------------------------------------
of which: of which: of which: of which: of which: of which:
1 to 30 1 to 30 1 to 30
Stage 29 DPD(1,2) and Stage 29 DPD(1,2) and Stage 29 and
2 > DPD(1,2) 2 > DPD(1,2) 2 DPD(1,2) > DPD(1,2)
GBPm GBPm GBPm GBPm GBPm GBPm % % %
------------- ------------------- --------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------- ---------- --------------
Loans and
advances
to customers
at amortised
cost 7,817 93 331 (145) (2) (2) 1.9 2.2 0.6
------------- ------------------- --------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------- ---------- --------------
- personal 615 43 9 (15) (2) (1) 2.4 4.7 11.1
------------- ---------- ---------- --------------
- corporate
and
commercial 6,479 50 296 (123) - (1) 1.9 - 0.3
------------- ---------- ---------- --------------
- non-bank
financial
institutions 723 - 26 (7) - - 1.0 - -
------------- ------------------- --------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------- ---------- --------------
Loans and
advances
to banks at
amortised
cost 414 - 8 (21) - - 5.1 - -
------------- ------------------- --------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------- ---------- --------------
Other
financial
assets
measured at
amortised
cost 1,662 25 12 (17) - (2) 1.0 - 16.7
------------- ------------------- --------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------- ---------- --------------
1 Days past due ('DPD'). Up-to-date accounts in stage 2 are not shown in amounts presented above.
2 The days past due amounts presented above are on a contractual
basis and include the benefit of any customer relief payment
holidays granted.
Stage 2 decomposition
The following table presents the stage 2 decomposition of gross
carrying amount and allowances for ECL for loans and advances to
customers. An exposure is categorised as stage 2 upon a significant
increase in credit risk, which is classified as follows.
The quantitative classification shows gross carrying values and
allowances for ECL for which the applicable reporting date
probability of default ('PD') measure exceeds defined quantitative
thresholds for retail and wholesale exposures, as set out in Note
1.2 'Summary of significant accounting policies', on page 126 of
the Annual Report and Accounts 2022.
The qualitative classification primarily accounts for customer
risk rating ('CRR') deterioration, watch-and-worry and retail
management judgemental adjustments.
A summary of our current policies and practices for the
significant increase in credit risk is set out in 'Summary of
significant accounting policies' on page 126 of the Annual Report
and Accounts 2022 .
Loans and advances to customers at 30 June 2023(1)
Gross carrying amount Allowance for ECL
---------------------------------------------
Corporate Non-bank Corporate Non-bank ECL
and financial and financial Coverage
Personal commercial institutions Total Personal commercial institutions Total Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
------------- -------- ------------ ------------- ------ -------- ------------- ------------- ----- ---------
Quantitative 2,346 4,026 801 7,173 (19) (46) (11) (76) 1.1
------------- -------- ------------ ------------- ------ -------- ------------- ------------- ----- ---------
Qualitative 420 2,512 257 3,189 (1) (49) (2) (52) 1.6
------------- -------- ------------ ------------- ------ -------- ------------- ------------- ----- ---------
30 DPD
backstop(2) 6 243 20 269 - - - - -
------------- -------- ------------ ------------- ------ -------- ------------- ------------- ----- ---------
Total stage
2 2,772 6,781 1,078 10,631 (20) (95) (13) (128) 1.2
------------- -------- ------------ ------------- ------ -------- ------------- ------------- ----- ---------
Loans and advances to customers at 31 December 2022(1)
Gross carrying amount Allowance for ECL
------------------------------------------- -------------------------------------------
Corporate Non-bank Corporate Non-bank ECL
and financial and financial Coverage
Personal commercial institutions Total Personal commercial institutions Total Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
----------------- -------- ----------- ------------- ----- -------- ----------- ------------- ----- ---------
Quantitative 557 3,310 379 4,246 (12) (71) (2) (85) 2.0
----------------- -------- ----------- ------------- ----- -------- ----------- ------------- ----- ---------
Qualitative 56 2,874 319 3,249 (3) (51) (5) (59) 1.8
----------------- -------- ----------- ------------- ----- -------- ----------- ------------- ----- ---------
30 DPD
backstop(2) 2 295 25 322 - (1) - (1) 0.3
----------------- -------- ----------- ------------- ----- -------- ----------- ------------- ----- ---------
Total stage
2 615 6,479 723 7,817 (15) (123) (7) (145) 1.9
----------------- -------- ----------- ------------- ----- -------- ----------- ------------- ----- ---------
1 Where balances satisfy more than one of the above three
criteria for determining a significant increase in credit risk, the
corresponding gross exposure and ECL have been assigned in order of
categories presented.
2 Days past due ('DPD').
Assets held for sale
At 30 June 2023, held for sale balances included the sale of our
branch operations in Greece, completed in July 2023, and the
planned sale of our operations in Russia.
During the first half of 2023 the planned sale of our retail
banking operations in France has become less certain and no longer
meets the definition of held for sale.
'Loans and other credit-related commitments' and 'financial
guarantees', as reported in credit disclosures, also include
exposures and allowances relating to financial assets classified as
'assets held for sale'.
Loans and advances to customers and banks measured at
amortised cost
At 30 Jun 2023 At 31 Dec 2022
-------------------------------------------------------------- ----------------------------------------------------------
Total Impairment Impairment
gross allowances Total gross allowances
loans on loans loans on loans
and and and and
advances advances advances advances
GBPm GBPm GBPm GBPm
--------- ----------------------------- ------------------------------- -------------------------- ------------------------------
As
reported 104,980 (1,160) 90,869 (1,146)
--------- ----------------------------- ------------------------------- -------------------------- ------------------------------
Reported
in
'Assets
held for
sale' 427 (45) 21,325 (131)
--------- ----------------------------- ------------------------------- -------------------------- ------------------------------
Total 105,407 (1,205) 112,194 (1,277)
--------- ----------------------------- ------------------------------- -------------------------- ------------------------------
At 30 June 2023, gross loans and advances were GBP427m and the
related impairment allowance for ECL was GBP45m.
Lending balances held for sale continue to be measured at
amortised cost less allowances for impairment and, therefore, such
carrying amounts may differ from fair value.
These lending balances are part of associated disposal groups
that are measured in their entirety at the lower of carrying
amount
and fair value less costs to sell. Any difference between the
carrying amount of these assets and their sales price is part of
the overall gain or loss on the associated disposal group as a
whole.
For further details of the carrying amount and the fair value at
30 June 2023 of loans and advances to banks and customers
classified as held for sale, see Note 11.
Gross loans and impairment allowances on loans and advances to customers
and banks reported in 'Assets held for sale'
Retail
banking
operations
in France Other(1) Total
Gross Loans GBPm GBPm GBPm
------------- ------------------------------------ ------------------------------------- -------------------------------------
Loans and
advances to
customers at
amortised
cost: - 283 283
------------- ------------------------------------ ------------------------------------- -------------------------------------
Personal - 224 224
------------- ------------------------------------ ------------------------------------- -------------------------------------
Corporate and
Commercial - 59 59
------------- ------------------------------------ ------------------------------------- -------------------------------------
Non-bank - - -
financial
institutions
------------- ------------------------------------ ------------------------------------- -------------------------------------
Loans and
advances to
banks at
amortised
cost - 144 144
------------- ------------------------------------ ------------------------------------- -------------------------------------
At 30 Jun
2023 - 427 427
------------- ------------------------------------ ------------------------------------- -------------------------------------
Impairment
allowance
------------- ------------------------------------ ------------------------------------- -------------------------------------
Loans and
advances to
customers at
amortised
cost: - (44) (44)
------------- ------------------------------------ ------------------------------------- -------------------------------------
Personal - (34) (34)
------------- ------------------------------------ ------------------------------------- -------------------------------------
Corporate and
Commercial - (10) (10)
------------- ------------------------------------ ------------------------------------- -------------------------------------
Non-bank - - -
financial
institutions
------------- ------------------------------------ ------------------------------------- -------------------------------------
Loans and
advances to
banks at
amortised
cost - (1) (1)
------------- ------------------------------------ ------------------------------------- -------------------------------------
At 30 Jun
2023 - (45) (45)
------------- ------------------------------------ ------------------------------------- -------------------------------------
Gross Loans
------------- -------------------------------------- -------------------------------------- --------------------------------------
Loans and
advances to
customers at
amortised
cost: 20,852 342 21,194
------------- -------------------------------------- -------------------------------------- --------------------------------------
Personal 18,835 253 19,088
------------- -------------------------------------- -------------------------------------- --------------------------------------
Corporate and
Commercial 1,975 89 2,064
------------- -------------------------------------- -------------------------------------- --------------------------------------
Non-bank
financial
institutions 42 - 42
------------- -------------------------------------- -------------------------------------- --------------------------------------
Loans and
advances to
banks at
amortised
cost - 131 131
------------- -------------------------------------- -------------------------------------- --------------------------------------
At 31 Dec
2022 20,852 473 21,325
------------- -------------------------------------- -------------------------------------- --------------------------------------
Impairment
allowance
------------- -------------------------------------- -------------------------------------- --------------------------------------
Loans and
advances to
customers at
amortised
cost: (76) (51) (127)
------------- -------------------------------------- -------------------------------------- --------------------------------------
Personal (73) (38) (111)
------------- -------------------------------------- -------------------------------------- --------------------------------------
Corporate and
Commercial (3) (13) (16)
------------- -------------------------------------- -------------------------------------- --------------------------------------
Non-bank - - -
financial
institutions
------------- -------------------------------------- -------------------------------------- --------------------------------------
Loans and
advances to
banks at
amortised
cost - (4) (4)
------------- -------------------------------------- -------------------------------------- --------------------------------------
At 31 Dec
2022 (76) (55) (131)
------------- -------------------------------------- -------------------------------------- --------------------------------------
1 Comprising assets held for sale relating to the planned sale
of our branch operations in Greece and of our business in
Russia.
Measurement uncertainty and sensitivity analysis of ECL
estimates
The recognition and measurement of ECL involves the use of
significant judgement and estimation. We form multiple economic
scenarios based on economic forecasts, apply these assumptions to
credit risk models to estimate future credit losses, and
probability-weight the results to determine an unbiased ECL
estimate. Management judgemental adjustments are used to address
late-breaking events, data and model limitations, model
deficiencies and expert credit judgements.
At 30 June 2023, management recognised a reduction in
uncertainty
in most markets. It was management's view that the Central
scenario sufficiently reflected the muted global economic
environment and that the probability weightings assigned to this
scenario for each of our major markets should increase and revert
to the standard weight of 75%.
Methodology
At 30 June 2023, four economic scenarios were used to capture
the current economic environment and to articulate management's
view of the range of potential outcomes. Each scenario is updated
with new forecasts and estimates each quarter.
The Upside, Central and Downside scenarios are drawn from
external consensus forecasts market data and distributional
estimates of the entire range of economic outcomes.
The fourth scenario, the Downside 2, represents management's
view of severe downside risks.
Economic scenarios produced to calculate ECL are aligned to
HSBC's top and emerging risks.
In June 2023, following a significant shift in UK policy
interest rate expectations, the Central scenario for the UK was
updated and key economic and financial variables were replaced.
Outer scenario economic variables for the UK were changed in
parallel with these Central scenario adjustments.
Description of economic scenarios
In the Central scenario, global economic forecasts have improved
since 1Q23. In western Europe and North America, GDP and employment
have proved resilient to higher inflation and interest rates, as
well as the failure of several US banks. In Hong Kong and China,
the post-pandemic reopening has led to a faster than expected
improvement in growth and expectations, which has now been
reflected in forecasts.
Stronger than expected growth means that inflation has declined
at a slower pace than projected. For many markets, inflation
forecasts have been raised. Further monetary tightening is also
expected, although interest rates are, in most markets, thought to
be at, or close to, their peak. The UK and China are key
exceptions.
In the UK, interest rates are expected to rise over the
remainder of 2023. There remains uncertainty around the speed and
extent of the increases, which may impose additional downside
risks.
The Upside and Downside scenarios are designed to encompass the
potential crystallisation of a number of key macro-financial risks.
Higher inflation, tighter monetary policy and financial conditions,
and an escalation of geopolitical risks pose key downside risks to
the outlook. To the upside, a swifter decline in inflation, a cut
to interest rates and greater cooperation between the US and China
on trade and investment would drive faster economic growth.
The scenarios used to calculate ECL are described below.
The consensus Central scenario
HSBC's Central scenario features a slowdown in GDP growth and a
rise in unemployment across our major markets in 2023, relative to
2022.
Global GDP forecasts have been raised in recent quarters, due to
stronger-than-expected growth in 1Q23, underpinned by resilience in
household consumption. Nevertheless, the outlook for the remainder
of 2023 and the beginning of 2024 remains subdued as high inflation
continues to erode disposable income and curtail investment.
The Central scenario assumes that inflation gradually declines
through 2023 and only reverts to central bank target ranges in
2025.
Global GDP is expected to grow by 2.0% in 2023 in the Central
scenario. The average rate of global GDP growth is expected to be
2.6% over the forecast period, slightly below the 2.8% average
five-year growth rate expectation prior to the onset of the
pandemic.
Across the key markets, the Central scenario assumes the
following:
- In the UK, persistently high inflation and wage growth has
caused a significant reappraisal of interest rate expectations. A
substantially higher terminal rate for interest rates implies a
bigger impact on confidence, discretionary income and investment.
We have sought to reflect this in an updated Central scenario,
which incorporates a recession for the UK that begins in the second
half of 2023 and persists into 2024.
- In the remainder of western Europe, economic growth is
expected to slow in the second half of 2023 as tighter monetary
policy and elevated inflation squeeze corporate margins and
households' real disposable income. Tighter financial conditions
are expected to weigh on credit growth.
- Unemployment is expected to rise gradually in most of our key
markets from 2022 levels as economic growth slows.
- Inflation is expected to remain above central bank targets in
our key markets in 2023 as core inflation and food prices remain
high. Inflation is subsequently expected to converge back to
central bank targets over the next two years of the forecast.
- Policy interest rates in key markets are expected to peak
later this year following rapid tightening cycles over the past 18
months to bring inflation back towards its targets. Thereafter,
they are expected to fall slowly and remain at higher levels than
they were pre-pandemic. In the UK, policy interest rates are
forecast to rise until the end of the year and remain high for an
extended period of time.
- The Brent crude oil price is expected to average $77 per
barrel in 2023, before dropping back as demand weakens. Over the
entire projection the oil price is expected to average $69 per
barrel.
The Central scenario was created from consensus forecasts
available in May, and market-based projections updated in June. For
the UK, significant UK variables, including GDP, unemployment and
policy rates were updated in late June.
The following table describes key macroeconomic variables
assigned in the consensus Central scenario.
Consensus Central scenario
UK France
-------------------------- ---------------------------- ----------
GDP (annual average
growth rate, %)
-------------------------- ---------------------------- ----------
2023 0.0 0.5
-------------------------- ---------------------------- ----------
2024 (0.6) 1.0
-------------------------- ---------------------------- ----------
2025 1.0 1.5
-------------------------- ---------------------------- ----------
2026 1.6 1.6
-------------------------- ---------------------------- ----------
2027 1.4 1.5
-------------------------- ---------------------------- ----------
5-year average(1) 0.8 1.3
-------------------------- ---------------------------- ----------
Unemployment rate (%)
-------------------------- ---------------------------- ----------
2023 4.2 7.4
-------------------------- ---------------------------- ----------
2024 4.7 7.4
-------------------------- ---------------------------- ----------
2025 4.5 7.2
-------------------------- ---------------------------- ----------
2026 4.4 7.3
-------------------------- ---------------------------- ----------
2027 4.5 7.0
-------------------------- ---------------------------- ----------
5-year average(1) 4.5 7.2
-------------------------- ---------------------------- ----------
House prices (annual
average growth rate,
%)
-------------------------- ---------------------------- ----------
2023 (1.3) 0.7
-------------------------- ---------------------------- ----------
2024 (5.7) 0.6
-------------------------- ---------------------------- ----------
2025 (1.9) 3.1
-------------------------- ---------------------------- ----------
2026 3.2 3.8
-------------------------- ---------------------------- ----------
2027 2.7 3.7
-------------------------- ---------------------------- ----------
5-year average(1) (0.6) 2.5
-------------------------- ---------------------------- ----------
Inflation (annual average
growth rate, %)
-------------------------- ---------------------------- ----------
2023 7.5 5.3
-------------------------- ---------------------------- ----------
2024 2.8 2.6
-------------------------- ---------------------------- ----------
2025 1.8 1.9
-------------------------- ---------------------------- ----------
2026 1.9 1.9
-------------------------- ---------------------------- ----------
2027 2.1 1.9
-------------------------- ---------------------------- ----------
5-year average(1) 2.5 2.3
-------------------------- ---------------------------- ----------
1 The five-year average is calculated over a projected period of 20 quarters, from 3Q23 to 2Q28.
The graphs compare the respective Central scenario with current
economic expectations beginning in the second quarter of 2023.
GDP growth: Comparison of Central scenarios
UK
Note: Real GDP shown as year-on-year percentage change.
France
Note: Real GDP shown as year-on-year percentage change.
The consensus Upside scenario
The consensus Upside scenario features stronger growth, lower
unemployment and a faster fall in inflation compared with the
Central scenario. Asset prices, including housing also rise more
quickly in this scenario. Other upside risk themes include a
de-escalation of geographical tensions and looser financial
conditions.
The following table describes key macroeconomic variables in the
consensus Upside scenario.
Consensus Upside scenario (3Q23-2Q28)
UK France
GDP level (%,
start-to-peak)(1) 8.7 (2Q28) 10.1 (2Q28)
----------------------- ---------- ------ -------------- ------
Unemployment
rate (%, min)(2) 3.0 (2Q25) 6.2 (2Q25)
----------------------- ---------- ------ -------------- ------
House price index
(%, start-to-peak)(1) 5.7 (2Q28) 17.1 (2Q28)
----------------------- ---------- ------ -------------- ------
Inflation rate
(YoY % change,
min)(3) 1.0 (2Q24) 1.4 (3Q24)
----------------------- ---------- ------ -------------- ------
1 Cumulative change to the highest level of the series during the 20-quarter projection.
2 Lowest projected unemployment rate in the scenario.
3 Lowest projected year-on-year percentage change in inflation in the scenario.
Downside scenarios
Downside scenarios explore the intensification and
crystallisation of a number of key economic and financial risks.
High inflation and the monetary policy response remain key concerns
for global growth. While supply chain disruptions, caused by the
Covid-19 pandemic and the Russia-Ukraine war are easing helping to
reduce headline price inflation across many markets, core inflation
remains high. This reflects tight labour markets, which is putting
upward pressure on wages, and resilience in demand. In turn, it
raises the risk of a more forceful policy response from central
banks, encompassing a steeper trajectory for interest rates, a
higher terminal rate and ultimately, economic recession.
The rapid increase in interest rates has already led to a
repricing of asset valuations, as corporate and household borrowers
face steep increases in debt service costs. Policymakers have also
raised concerns that, following the collapse of several US regional
banks, financial conditions could tighten further, acting as
another constraint on activity. Insolvencies and default rates
could rise sharply as businesses find it difficult to refinance,
and cash buffers diminish amid weaker demand.
In the consensus Downside scenario, economic activity is
considerably weaker compared with the Central scenario, driven by
an intensification of geopolitical risks that aggravate supply
chain disruptions and cause global energy and other commodity
prices to rise. In this scenario, the economies of our key markets
experience moderate recession, unemployment rates increase, and
asset prices fall.
The following table describes key macroeconomic variables in the
consensus Downside scenario.
Consensus Downside scenario (3Q2023-2Q2028)
UK France
GDP level (%,
start-to-trough)(1) (3.2) (3Q25) (0.4) (2Q24)
------------------------- ----------------------------- ------ ---------------------------- ------
Unemployment rate
(%, max)(2) 6.2 (4Q24) 8.5 (1Q24)
------------------------- ----------------------------- ------ ---------------------------- ------
House price index
(%, start-to-trough)(1) (16.6) (2Q25) (1.3) (2Q24)
------------------------- ----------------------------- ------ ---------------------------- ------
Inflation rate
(YoY % change,
max)(3) 7.0 (3Q23) 5.6 (3Q23)
------------------------- ----------------------------- ------ ---------------------------- ------
1 Cumulative change to the lowest level of the series during the 20-quarter projection.
2 The highest projected unemployment rate in the scenario.
3 The highest projected year-on-year percentage change in inflation in the scenario.
Downside 2 scenario
The Downside 2 scenario features a deep global recession and
reflects management's view of the tail of the economic risk
distribution. It incorporates the simultaneous crystallisation of a
number of risks. The narrative features an escalation in
geopolitical tensions, which leads to further disruptions to supply
chains. This creates additional upward pressure on inflation,
prompting central banks to keep interest rates higher than in the
Central scenario. However, demand subsequently falls sharply and
unemployment rises before inflation pressures subside.
The following table describes key macroeconomic variables in the
Downside 2 scenario.
Downside 2 scenario (3Q2023-2Q2028)
UK France
GDP level (%,
start-to-trough)(1) (7.7) (4Q24) (7.1) (3Q24)
------------------------- ----------------------------- ------ ----------------------------- ------
Unemployment rate
(%, max)(2) 9.0 (4Q24) 10.0 (3Q25)
------------------------- ----------------------------- ------ ----------------------------- ------
House price index
(%, start-to-trough)(1) (40.8) (3Q25) (12.1) (4Q25)
------------------------- ----------------------------- ------ ----------------------------- ------
Inflation rate
(YoY % change,
max)(3) 10.3 (4Q23) 9.9 (4Q23)
------------------------- ----------------------------- ------ ----------------------------- ------
1 Cumulative change to the lowest level of the series during the 20-quarter projection.
2 The highest projected unemployment rate in the scenario.
3 The highest projected year-on-year percentage change in inflation in the scenario.
Scenario weightings
In reviewing the economic situation, as well as the level of
uncertainty and risk, management has considered both global and
country-specific factors. This has led management to assigning
scenario probabilities that are tailored to its view of uncertainty
in individual markets.
In second quarter of 2023 the level of certainty attached to the
Central scenario was assessed to have increased compared with
previous quarters. It was noted that:
- the dispersion of external economic forecasts had narrowed.
- there has been stabilisation of a number of key risk drivers; and
- the current Central scenario forecasts are sufficiently
reflective of weak GDP growth prospects.
As a result, it was decided that having previously reduced the
probability weights assigned to the Central scenario for each of
our major markets, the weightings should increase and revert to the
standard weight of 75%.
The upside potential in major markets is considered to be
limited by current inflation and monetary policy trends. Management
therefore assigned only 5% to the Upside scenario in these markets.
The remaining 20% weighting is assigned across our two Downside
scenarios to reflect the continued downside risks posed by
inflation and monetary policy.
For the UK, uncertainty generated by shifting interest rate
expectations was addressed with revisions to scenario variables.
The weighting assigned to the UK Central scenario therefore aligns
to the standard weight.
The following table describes the probabilities assigned in each
scenario.
Scenario weightings, %
Standard
Weights UK France
---------- -------------- -------------- --------------
2Q23
---------- -------------- -------------- --------------
Upside 10.0 5.0 5.0
---------- -------------- -------------- --------------
Central 75.0 75.0 75.0
---------- -------------- -------------- --------------
Downside 10.0 15.0 15.0
---------- -------------- -------------- --------------
Downside 2 5.0 5.0 5.0
---------- -------------- -------------- --------------
4Q22
---------- -------------- -------------- --------------
Upside 10.0 5.0 5.0
---------- -------------- -------------- --------------
Central 75.0 60.0 60.0
---------- -------------- -------------- --------------
Downside 10.0 25.0 25.0
---------- -------------- -------------- --------------
Downside 2 5.0 10.0 10.0
---------- -------------- -------------- --------------
The following graphs show the historical and forecasted GDP
growth rate for the various economic scenarios in the UK and
France.
UK
France
Note: Real GDP shown as year-on-year percentage change.
Critical accounting estimates and judgements
The calculation of ECL under IFRS 9 involves significant
judgements, assumptions and estimates at 30 June 2023. These
included:
- the selection of economic scenarios, given rapidly changing
economic conditions and a wide distribution of economic forecasts;
and
- estimating the economic effects of those scenarios on ECL,
particularly the effect of interest rates and inflationary
pressures in specific sectors.
How economic scenarios are reflected in ECL calculations
The methodologies for the application of forward economic
guidance into the calculation of ECL for wholesale and retail loans
and portfolios are set out on page 50 of the Annual Report and
Accounts 2022. Models are used to reflect economic scenarios on ECL
estimates. These models are based largely on historical
observations and correlations with default.
Economic forecasts and ECL model responses to these forecasts
are subject to a degree of uncertainty. The models continue to be
supplemented by management judgemental adjustments where
required.
Management judgemental adjustments
In the context of IFRS 9, management judgemental adjustments are
typically increases or decreases to the modelled ECL at either a
customer, segment or portfolio level to account for late-breaking
events, model and data limitations and deficiencies, and expert
credit judgement applied during management review and challenge.
These include refining model inputs and outputs, and using
adjustments to ECL based on management judgement and higher levels
of quantitative analysis for impacts that are difficult to model.
The effects of management judgemental adjustments are considered
for both balances and ECL, and will consider any changes to stage
allocation where appropriate. This is in accordance with the
internal adjustments framework.
The wholesale and retail management judgemental adjustments are
presented as part of the internal review and challenge committees,
and are subject to further second line review, where significant.
This is in line with the governance process for IFRS 9 as set out
on page 36 of the Annual Report and Accounts 2022. We have internal
governance in place to monitor management judgemental adjustments
regularly and, where possible, to reduce the reliance on these
through model recalibration or redevelopment, as appropriate.
The drivers of the management judgemental adjustments continue
to evolve with the economic environment as new risks emerge.
Management judgemental adjustments made in estimating the
reported ECL at 30 June 2023 are set out in the following
table.
Management judgemental adjustments
to ECL at 30 Jun 20231
Retail Wholesale Total
GBPm GBPm GBPm
--------------------------------- -------------------- --------------------- ------------------
Banks, sovereigns,
government entities
and low risk counterparties (14) 11 (3)
--------------------------------- -------------------- --------------------- ------------------
Corporate lending
adjustments - (187) (187)
--------------------------------- -------------------- --------------------- ------------------
Retail lending Inflation-related
adjustments 7 - 7
--------------------------------- -------------------- --------------------- ------------------
Other macroeconomic-related
adjustments 2 - 2
Other retail lending
adjustments 12 - 12
--------------------------------- -------------------- --------------------- ------------------
Total 7 (176) (169)
--------------------------------- -------------------- --------------------- ------------------
Management judgemental adjustments
to ECL at 31 Dec 2022(1)
Retail Wholesale Total
GBPm GBPm GBPm
--------------------------------- --------------------- --------------------- -------------------
Banks, sovereigns,
government entities
and low risk counterparties (16) (2) (18)
--------------------------------- --------------------- --------------------- -------------------
Corporate lending
adjustments - (100) (100)
--------------------------------- --------------------- --------------------- -------------------
Retail lending Inflation-related
adjustments 8 - 8
Other macroeconomic-related
adjustments 3 - 3
Other retail lending
adjustments 7 - 7
--------------------------------- --------------------- --------------------- -------------------
Total 2 (102) (100)
--------------------------------- --------------------- --------------------- -------------------
1 Management judgemental adjustments presented in the table
reflect increases or (decreases) to ECL, respectively.
In the wholesale portfolio, management judgemental adjustments
were a decrease to modelled ECL of GBP176m (31 December
2022:GBP102m).
- Adjustments to banks, sovereigns, government entities and low
risk counterparties were an increase to modelled ECL of GBP11m
(31 December 2022: GBP2m decrease) mostly due to management
overlay on Russian Bank exposure due to sanctions, partially offset
by monthly adjustments for bank and sovereign exposures secured by
export credit agency guarantees.
- Adjustments to corporate credit risk exposures decreased
allowances by GBP187m (31 December 2022: GBP100m). These
adjustments include GBP181m other adjustments that reduced
allowances, notably those to reflect export credit agency
guarantees that mitigate credit risk and GBP6m of additional credit
judgement adjustments due to model limitation.
In the retail portfolio, management judgemental adjustments were
an ECL increase of GBP7m at 30 June 2023 (31 December 2022:
GBP2m).
- Inflation-related adjustments increased ECL by GBP7m (31
December 2022: GBP8m). These adjustments addressed where
country-specific inflation risks were not fully captured by the
modelled output.
- Other macroeconomic-related adjustments increased ECL by GBP2m
(31 December 2022: GBP3m). These adjustments were primarily in
relation to country-specific risks related to future macroeconomic
conditions.
- Other retail lending adjustments increased ECL by GBP12m (31
December 2022: GBP7m) reflecting all other data, model and
management judgemental adjustments.
- Banks, sovereigns, government entities and low risk
counterparties adjustments decreased ECL by GBP14m
(31 December 2022: GBP16m). These adjustments related to the
realignment of PD between reporting and origination date for
certain parts of the portfolio.
Economic scenarios sensitivity analysis of ECL estimates
Management considered the sensitivity of the ECL outcome against
the economic forecasts as part of the ECL governance process by
recalculating the ECL under each scenario described above for
selected portfolios, applying a 100% weighting to each scenario in
turn. The weighting is reflected in both the determination of a
significant increase in credit risk and the measurement of the
resulting ECL.
The ECL calculated for the Upside and Downside scenarios should
not be taken to represent the upper and lower limits of possible
ECL outcomes. The impact of defaults that might occur in the future
under different economic scenarios is captured by recalculating ECL
for loans at the balance sheet date.
There is a particularly high degree of estimation uncertainty in
numbers representing tail risk scenarios when assigned a 100%
weighting.
For wholesale credit risk exposures, the sensitivity analysis
excludes ECL for financial instruments related to defaulted (stage
3) obligors. The measurement of stage 3 ECL is relatively more
sensitive to credit factors specific to the obligor than future
economic scenarios, and therefore the effects of macroeconomic
factors are not necessarily the key consideration when performing
individual assessments of ECL for obligors in default. Loans to
defaulted obligors are a small portion of the overall wholesale
lending exposure, even if representing the majority of the
allowance for ECL. Due to the range and specificity of the credit
factors to which the ECL is sensitive, it is not possible to
provide a meaningful alternative sensitivity analysis for a
consistent set of risks across all defaulted obligors.
For retail credit risk exposures, the sensitivity analysis
includes ECL for loans and advances to customers related to
defaulted obligors. This is because the retail ECL for secured
mortgage portfolios, including loans in all stages, is sensitive to
macroeconomic variables.
Wholesale and retail sensitivity
The wholesale and retail sensitivity analysis is stated
inclusive of management judgemental adjustments, as appropriate to
each scenario and scope of sensitivity. The results tables exclude
portfolios held by the insurance and private banking business and
small portfolios, and as such cannot be directly compared with
personal and wholesale lending presented in other credit risk
tables. In both the wholesale and retail analysis, the comparative
period results for Downside 2 scenarios are also not directly
comparable with the current period, because they reflect different
risks relative to the consensus scenarios for the period end.
For both retail and wholesale portfolios, the gross carrying
amount and nominal amount of financial instruments are the same
under each scenario. For exposures with similar risk profile and
product characteristics, the sensitivity impact is therefore
largely the result of changes in macroeconomic assumptions.
Wholesale analysis
IFRS 9 ECL sensitivity to future
economic conditions(1,2)
UK France
ECL of loans and advances
to customers at 30 June
2023 GBPm GBPm
-------------------------- -------------------- --------------------
Reported ECL 103 60
-------------------------- -------------------- --------------------
Consensus scenarios
-------------------------- -------------------- --------------------
Central scenario 86 56
-------------------------- -------------------- --------------------
Upside scenario 69 49
-------------------------- -------------------- --------------------
Downside scenario 115 69
Downside 2 scenario 409 85
-------------------------- -------------------- --------------------
Gross carrying amount 134,418 133,984
-------------------------- -------------------- --------------------
IFRS 9 ECL sensitivity to future
economic conditions (continued)(1,2)
UK France(3)
ECL of loans and advances
to customers at 31 December
2022 GBPm GBPm
----------------------------- ------- ---------
Reported ECL 84 94
----------------------------- ------- ---------
Consensus scenarios
----------------------------- ------- ---------
Central scenario 64 87
----------------------------- ------- ---------
Upside scenario 51 77
----------------------------- ------- ---------
Downside scenario 91 104
----------------------------- ------- ---------
Downside 2 scenario 271 124
Gross carrying amount 143,037 148,417
----------------------------- ------- ---------
1 ECL sensitivity includes off-balance sheet financial
instruments that are subject to significant measurement
uncertainty.
2 Includes low credit-risk financial instruments such as debt
instruments at FVOCI, which have high carrying amounts but low ECL
under all the above scenarios.
3 Classified as 'assets held for sale' at 31 December 2022.
At 30 June 2023, the highest level of 100% weighted ECL was
observed in the UK. This higher ECL impact was largely driven by
significant exposure in this region. In the wholesale portfolio,
off-balance sheet financial instruments have a lower likelihood to
be fully converted to a funded exposure at the point of default,
and consequently the ECL sensitivity impact is lower in relation to
its nominal amount when compared with an on-balance sheet exposure
with similar risk profile. Compared with 31 December 2022, the
Downside 2 ECL impact was higher in UK. In the UK, the increase in
Downside 2 ECL impact is mostly reflective of the heightened macro
economic uncertainty driven by the high inflation and interest rate
environment.
Retail analysis
IFRS 9 ECL sensitivity to future
economic conditions(1)
UK France
ECL of loans and advances
to customers at
30 June 2023 GBPm GBPm
Reported ECL 6 78
-------------------------- --------------------- --------------------
Consensus scenarios
Central scenario 6 78
-------------------------- --------------------- --------------------
Upside scenario 5 76
-------------------------- --------------------- --------------------
Downside scenario 6 80
Downside 2 scenario 11 82
-------------------------- --------------------- --------------------
Gross carrying amount 2,016 17,681
-------------------------- --------------------- --------------------
UK France(2)
ECL of loans and advances
to customers at 31 December
2022 GBPm GBPm
Reported ECL 7 87
----------------------------- --------------------- --------------------
Consensus scenarios
----------------------------- --------------------- --------------------
Central scenario 6 86
----------------------------- --------------------- --------------------
Upside scenario 6 84
----------------------------- --------------------- --------------------
Downside scenario 7 88
----------------------------- --------------------- --------------------
Downside 2 scenario 12 92
Gross carrying amount 2,037 18,987
----------------------------- --------------------- --------------------
1 ECL sensitivities exclude portfolios utilising less complex modelling approaches.
2 Classified as 'assets held for sale' at 31 December 2022.
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)
Non-credit impaired Credit impaired
-------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Total
------------------------------------------- ----------------------------------------- ------------------------------------------- ----------------------------------------- -----------------------------------------
Gross Gross Gross
Gross Allowance carrying/ carrying/ carrying/ Allowance Gross Allowance
carrying/nominal for nominal Allowance nominal Allowance nominal for carrying/nominal for
amount ECL amount for ECL amount for ECL amount ECL amount ECL
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
At 1 Jan 2023 168,371 (71) 18,059 (200) 2,536 (962) 3 - 188,969 (1,233)
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
Transfers of
financial instruments: (672) (28) 309 53 363 (25) - - - -
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
* transfers from stage 1 to stage 2 (8,895) 7 8,895 (7) - - - - - -
----------------------------------------
* transfers from stage 2 to stage 1 8,403 (35) (8,403) 35 - - - - - -
----------------------------------------
- transfers to
stage 3 (188) - (283) 28 471 (28) - - - -
----------------------------------------
- transfers from
stage 3 8 - 100 (3) (108) 3 - - - -
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- -----------------
Net remeasurement
of ECL arising
from transfer
of stage - 27 - (17) - - - - - 10
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
New financial
assets originated
or purchased 18,768 (18) - - - - - - 18,768 (18)
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
Asset derecognised
(including final
repayments) (14,859) 1 (1,421) 10 (117) 24 - - (16,397) 35
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
Changes to risk
parameters -
further lending/repayments (11,549) 17 1,201 (39) (7) 13 (1) - (10,356) (9)
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
Changes to risk
parameters -
credit quality - 1 - 35 - (106) - - - (70)
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
Changes to model
used for ECL
calculation - - - (12) - - - - - (12)
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
Assets written
off - - - - (122) 122 - - (122) 122
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
Credit-related
modifications
that resulted
in derecognition - - - - - - - - - -
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
Foreign exchange (3,670) 1 (339) 3 (69) 23 - - (4,078) 27
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
Others(2,3,4) 17,580 (4) 1,880 (14) 200 (57) - - 19,660 (75)
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
At 30 Jun 2023 173,969 (74) 19,689 (181) 2,784 (968) 2 - 196,444 (1,223)
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
ECL income statement
change for the
period 28 (23) (69) - (64)
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
Recoveries 3
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
Others (7)
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
Total ECL income
statement change
for the period (68)
---------------------------------------- ------------------- ---------------------- ----------------- ---------------------- ------------------- ---------------------- ------------------- -------------------- ----------------- ----------------------
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)
Half-year
ended 30 Jun
At 30 Jun 2023 2023
------------------------------------------------------------------------------------------------- ------------------------------------------------
Gross carrying/ Allowance ECL
nominal amount for ECL release/(charge)
GBPm GBPm GBPm
---------------- ---------------------------------------------- ------------------------------------------------- ------------------------------------------------
As above 196,444 (1,223) (68)
---------------- ---------------------------------------------- ------------------------------------------------- ------------------------------------------------
Other financial 271,209 (50) 2
assets measured
at
amortised cost
---------------- ---------------------------------------------- ------------------------------------------------- ------------------------------------------------
Non-trading 48,489 - -
reverse purchase
agreement
commitments
---------------- ---------------------------------------------- ------------------------------------------------- ------------------------------------------------
Performance and
other guarantee
not
considered for
IFRS 9 - - 7
---------------- ---------------------------------------------- ------------------------------------------------- ------------------------------------------------
Summary of
financial
instruments to
which the
impairment
requirements in
IFRS 9 are
applied/Summary
consolidated
income
statement 516,142 (1,273) (59)
---------------- ---------------------------------------------- ------------------------------------------------- ------------------------------------------------
Debt instruments 30,718 (24) 1
measured at
FVOCI
---------------- ---------------------------------------------- ------------------------------------------------- ------------------------------------------------
Total allowance N/A (1,297) (58)
for ECL/total
income
statement ECL
change for the
period
---------------- ---------------------------------------------- ------------------------------------------------- ------------------------------------------------
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. At 30 June 2023, this amount
decreased by GBP0.4bn and were classified as stage 1 with no
ECL.
3 Total includes GBP427m 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 GBP45bn reflecting
business disposals as disclosed in Note 11: 'Assets held for sale
and liabilities of disposal groups held for sale' on page 57.
4 Total includes GBP20.8bn of gross carrying loans and advances,
which were classified from assets held for sale and a corresponding
allowance for ECL of GBP76 m, reflecting the planned sale of our
retail banking operations in France no longer meeting the
definition of held for sale. For further details, see Note 11:
'Assets held for sale and liabilities of disposal groups held for
sale' on page 57.
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)
Non-credit impaired Credit Impaired
---------------------------------------------------------------------------------- ------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Total
----------------------------------------- --------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
Gross Gross Gross Gross Gross
carrying/nominal carrying/ carrying/ carrying/ carrying/nominal
amount Allowance nominal Allowance nominal Allowance nominal Allowance amount Allowance
for ECL amount for ECL amount for ECL amount for ECL for ECL
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)
12 months
ended 31
At 31 Dec 2022 Dec 2022
--------------------------------------------------------------------------------------------------------- --------------------------------------------
Gross carrying/nominal Allowance ECL release/(charge)
amount for ECL
GBPm GBPm GBPm
---------------- ---------------------------------------------------------------- --------------------------------------- --------------------------------------------
As above 188,969 (1,233) (220)
---------------- ---------------------------------------------------------------- --------------------------------------- --------------------------------------------
Other financial 269,755 (137) (3)
assets measured
at
amortised cost
---------------- ---------------------------------------------------------------- --------------------------------------- --------------------------------------------
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 29,248 (24) (5)
measured at
FVOCI
---------------- ---------------------------------------------------------------- --------------------------------------- --------------------------------------------
Total allowance N/A (1,394) (222)
for ECL/total
income
statement ECL
change for the
period
---------------- ---------------------------------------------------------------- --------------------------------------- --------------------------------------------
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. 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' of the Annual
Report and Accounts 2022 .
Treasury risk
Overview
Treasury risk is the risk of having insufficient capital,
liquidity or funding resources to meet financial obligations and
satisfy regulatory requirements, together with the financial risks
arising from the provision of pensions and other post-employment
benefits to staff and their dependants. Treasury risk also includes
the risk to our earnings or capital due to non-trading book foreign
exchange exposures and changes in market interest rates.
Treasury risk arises from changes to the respective resources
and risk profiles driven by customer behaviour, management
decisions or the external environment.
Approach and policy
Our objective in the management of treasury risk is to maintain
appropriate levels of capital, liquidity, funding, foreign exchange
and market risk to support our business strategy, and meet our
regulatory and stress testing-related requirements.
Our approach to treasury management is driven by our strategic
and organisational requirements, considering 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, our
internal capital adequacy assessment process ('ICAAP') and our
internal liquidity adequacy assessment process ('ILAAP'). The risk
framework incorporates several measures aligned to our assessment
of risks for both internal and regulatory purposes. These risks
include credit, market, operational, pensions, non-trading book
foreign exchange risk, and interest rate risk in the banking
book.
A summary of our current policies and practices regarding the
management of treasury risk is set out on pages 76 to 79 of the
Annual Report and Accounts 2022 .
Treasury risk management
Key developments in the first half of 2023
- Following high-profile US and Swiss banking failures in the
first quarter of 2023, we validated our existing risk management
practices including stress testing and limit setting. We also
reviewed our liquidity monitoring and metric assumptions as part of
our ILAAP cycle to ensure they continued to cover observed and
emerging risks.
- We continued to improve our analysis and understanding of the
drivers of capital volatility and the underlying sensitivities,
ensuring these are actively considered in our risk appetite and
limit setting processes.
- As announced by the BoE's Financial Policy Committee ('FPC'),
the UK countercyclical capital buffer rate increased from 1% to 2%,
effective July 2023 in line with the usual 12--month implementation
lag.
- We continued to increase the stabilisation of our Net Interest
Income ('NII') as interest rate expectations fluctuated, driven by
central bank rate increases and a reassessment of the trajectory of
inflation in major economies.
- During 1Q23, the significant interest rate rises in France
resulted in the completion of the planned sale of our retail
banking operations in France becoming less certain, as the capital
required to be held by the buyer at completion of the transaction
was expected to increase significantly. As a result, we were
required to change the accounting classification of our retail
banking operations in France to no longer be classified as held for
sale. The impairment on classifying the disposal as held for sale,
which had resulted in an approximately 1.6 percentage point
reduction in our CET1 ratio last year, was reversed. In June 2023,
we agreed new terms for the sale of these operations that will
involve HSBC retaining a portfolio of loans. The transaction
remains subject to information and consultation processes with
respective works councils and regulatory approvals, and the parties
aim to complete the transaction on 1 January 2024. An estimated
pre-tax loss of up to GBP1.7bn would be recognised in the second
half of 2023 if the retail operations in France were reclassified
as held for sale.
For quantitative disclosures on capital ratios, own funds and
RWAs, see pages 30 to 31.
Capital, liquidity and funding risk management processes
Assessment and risk appetite
Our capital management policy is supported by a global capital
management framework. The framework sets out our approach to
determining key capital risk appetites including CET1, total
capital, minimum requirements for own funds and eligible
liabilities ('MREL'), and leverage ratio. Our 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, interest rate risk in the banking book and Group risk.
Climate risk is also considered as part of the ICAAP, and we are
continuing to develop our approach. Subsidiaries prepare ICAAPs in
line with global guidance, while considering their local regulatory
regimes to determine their own risk appetites and ratios.
We aim to ensure that management has oversight of our liquidity
and funding risks at Group and entity level through robust
governance, in line with our risk management framework. We manage
liquidity and funding risk at an operating entity level, in
accordance with globally consistent policies, procedures and
reporting standards. This ensures
that obligations can be met in a timely manner, in the
jurisdiction where they fall due.
Operating entities are required to meet internal minimum
requirements and any applicable regulatory requirements at all
times. These requirements are assessed through our ILAAP, which
ensures that operating entities have robust strategies, policies,
processes and systems for the identification, measurement,
management and monitoring of liquidity risk over an appropriate set
of time horizons, including intra-day. The ILAAP informs the
validation of risk tolerance and the setting of risk appetite. It
also assesses the capability to manage liquidity and funding
effectively in each major entity. These metrics are set and managed
locally but are subject to robust global review and challenge to
ensure consistency of approach and application of the HSBC Group's
policies and controls.
Planning and performance
Capital and RWA plans, as well as funding and liquidity plans,
form part of the annual financial resource plan that is approved by
the Board. Capital and RWA forecasts are submitted to the ALCO on a
monthly basis, and capital and RWAs are monitored and managed
against the plan.
The Board-level appetite measures for funding and liquidity are
the Liquidity Coverage Ratio ('LCR') and net stable funding ratio
('NSFR'), together with an internal liquidity metric. In addition,
we use a wider set of measures to manage an appropriate funding and
liquidity profile, including legal entity depositor concentration
limits, intra-day liquidity, forward-looking funding assessments
and other key measures.
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 to
support growth objectives where returns above internal hurdle
levels have been identified, and in order to meet their regulatory
and economic capital needs. We evaluate and manage business returns
by using a return on average tangible equity measure.
Risks to capital and liquidity
Outside the stress testing framework, other risks may be
identified that have the potential to affect our RWAs, capital
and/or liquidity position. We closely monitor future regulatory
changes, and continue to evaluate the impact of these upon our
capital and liquidity requirements, particularly those related to
the UK's implementation of the outstanding measures to be
implemented from the Basel III reforms ('Basel 3.1').
Regulatory developments
Future changes to our ratios will occur with the implementation
of Basel 3.1. The PRA has published its consultation paper on the
UK's implementation, with a proposed implementation date of 1
January 2025.
The PRA has published a consultation paper to remove the CET1
deduction requirement in the PRA Rulebook regarding non-performing
exposures that are treated as insufficiently covered by firms'
accounting provisions. The changes are anticipated to come into
force in the second half of 2023.
Regulatory reporting processes and controls
The quality of regulatory reporting remains a key priority for
management and regulators. We are progressing with a comprehensive
programme to strengthen our processes, improve consistency and
enhance controls across regulatory reports, focusing on our
prudential regulatory reporting and other priority regulatory
reports globally.
Our ongoing programme of work on our prudential regulatory
reports is being phased over a number of years, prioritising RWA,
capital and liquidity reporting. This programme includes both data
enhancement and the transformation of the reporting systems that
they flow into. While this programme continues, there may be
further impacts on some of our regulatory ratios, such as CET1, LCR
and NSFR, as we implement recommended changes and continue to
enhance our controls. We are
also establishing enhanced risk stewardship and assurance over
our regulatory reports and have developed a strategic inventory and
tooling to drive consistent standards and accountability.
Stress testing and recovery and resolution planning
We use 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 by the Bank of England and other
regulators. 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 regulatory stress testing exercises may inform the
setting of regulatory minimum ratios and buffers.
We maintain a recovery plan, which sets out potential options
management could take in a range of stress scenarios that could
result in a breach of capital or liquidity buffers. The Group
recovery plan sets out the framework and governance arrangements to
support restoring HSBC to a stable and viable position, and so
lowering the probability of failure from either idiosyncratic
company-specific stress or systemic market-wide issues. Our
recovery plans provide detailed actions that management would
consider taking in a stress scenario should its position
deteriorate and threaten to breach risk appetite and regulatory
minimum levels. This is to help ensure that we can stabilise our
financial position and recover from financial losses in a stress
environment.
We also have 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. The Group
performed the inaugural Resolvability Assessment Framework
self-assessment during 2021 to meet the Bank of England's
requirements, which came into effect on 1 January 2022.
Overall, our recovery and resolution planning helps safeguard
our financial and operational stability. We are committed to
further developing its recovery and resolution capabilities,
including in relation to the Bank of England's RAF.
Measurement of interest rate risk in the banking book
processes
Assessment and risk appetite
Interest rate risk in the banking book is the risk of an adverse
impact to earnings or capital due to changes in market interest
rates. It is generated by our non-traded assets and liabilities,
specifically loans, deposits and financial instruments that are not
held for trading intent or held in order 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 Asset, Liability and Capital Management ('ALCM') function
uses a number of measures to monitor and control interest rate risk
in the banking book, including:
- net interest income sensitivity;
- economic value of equity sensitivity; and
- hold-to-collect-and-sell stressed value at risk.
Net interest income sensitivity
A principal part of our management of non-traded interest rate
risk is to monitor the sensitivity of expected net interest income
('NII') under varying interest rate scenarios (i.e. simulation
modelling), where all other economic variables are held constant.
This monitoring is undertaken at an entity level by the ALCO, where
one-year and five-year NII sensitivities are forecast across a
range of interest rate scenarios.
Projected 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, non-interest-bearing current account migration and
fixed-rate loan early prepayment. 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
Economic value of equity ('EVE') represents the present value of
the future banking book cash flows that could be distributed to
equity providers 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. EVE sensitivities are monitored as a
percentage of capital resources.
Hold-to-collect-and-sell stressed value at risk
Hold-to-collect-and-sell stressed value at risk ('VaR') is a
quantification of the potential losses to a 99% confidence level of
the portfolio of securities held under a held-to-collect-and-sell
business model in the Markets Treasury business. The portfolio is
accounted for at fair value through other comprehensive income
together with the derivatives held in designated hedging
relationships with these securities. This is quantified based on
the worst losses over a one-year period going back to the beginning
of 2007 and the assumed holding period is 60 days.
Hold-to-collect-and-sell stressed VaR uses the same models as
those used for trading book capitalisation and covers only the
portfolio managed by Markets Treasury under this business
model.
Capital risk in the first half of 2023
Capital overview
Capital adequacy metrics
At(1)
30 31 Dec
Jun
2023 2022
-------------------------- -------------- --------------
Risk-weighted assets
('RWAs') (GBPm)
-------------------------- -------------- --------------
Credit risk 61,837 66,887
-------------------------- -------------- --------------
Counterparty credit risk 17,714 17,981
-------------------------- -------------- --------------
Market risk 14,591 15,822
-------------------------- -------------- --------------
Operational risk 11,321 11,547
-------------------------- -------------- --------------
Total RWAs 105,463 112,237
-------------------------- -------------- --------------
Capital on a transitional
basis (GBPm)
-------------------------- -------------- --------------
Common equity tier 1
('CET1') capital 19,747 18,411
-------------------------- -------------- --------------
Tier 1 capital 23,642 22,304
-------------------------- -------------- --------------
Total capital 35,671 35,414
-------------------------- -------------- --------------
Capital ratios on a
transitional basis (%)
-------------------------- -------------- --------------
Common equity tier 1 18.7 16.4
-------------------------- -------------- --------------
Total tier 1 22.4 19.9
-------------------------- -------------- --------------
Total capital ratio 33.8 31.6
Leverage ratio (fully
phased-in)
-------------------------- -------------- --------------
Tier 1 capital (GBPm) 23,642 22,304
-------------------------- -------------- --------------
Total leverage ratio
exposure measure (GBPm) 431,714 416,814
-------------------------- -------------- --------------
Leverage ratio (%) 5.5 5.4
-------------------------- -------------- --------------
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
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 developments
Basel III Reforms
The Basel Committee on Banking Supervision ('Basel') completed
the Basel III Reforms ('the Reforms') in July 2020. The reforms
make significant changes to the way firms calculate risk-weighted
assets ('RWAs') across all risk types and include the
implementation of an RWA floor for banks that use internal models
to calculate RWAs.
In Q1 2023, the Prudential Regulation Authority's ('PRA')
consultation on the implementation of the Reforms closed. While the
PRA's proposals were generally consistent with Basel, it has
proposed some limited adjustments to Basel's final rules, such as
the treatment of unrated corporates under the standardised approach
to credit risk, the removal of modelled approaches for sovereign
exposures and the calibration of the exposure measure for
counterparty risk. It has also proposed to remove certain of the
EU's concessions under the current framework, such as the SME and
infrastructure supporting factors, in addition to amending the
scope of the EU's exemptions from the credit valuation adjustment
('CVA') charges. The changes are proposed to be implemented on 1
January 2025.
Alongside the PRA's consultation, His Majesty's Treasury ('HMT')
published its own consultation on the implementation of the
Reforms. HMT's consultation primarily focused on the technical and
legislative changes necessary to facilitate the implementation by
the PRA, including the proposed revocation of certain rules under
the current regime that would get replaced by the new rules being
proposed by the PRA. It has also consulted on the costs and
benefits of improving ratings coverage in the UK.
In the EU, a provisional agreement was reached between the
Council, Commission and Parliament on the implementation of the
Reforms. Our current expectation is that Reforms will enter into
force on
1 January 2025; however, this remains subject to formal
confirmation.
The UK's regulatory framework
The Financial Services and Markets Bill ('the Act') received
royal assent on 29 June 2023. Amongst other things, post the UK's
departure from the EU, the Act establishes powers for the PRA to
set the prudential rules, many of which are currently set out in
retained EU law. In response, the PRA published a consultation
paper on how it intends to review these rules. In making rules, the
PRA is required to apply its new secondary objective under the Act
to facilitate the international competitiveness of the UK and its
growth in the medium to long term.
Capital Buffers
In Q2 2023, the Financial Policy Committee published its
quarterly financial policy summary, in which the UK's
countercyclical buffer rate will be maintained at 2%.
Non-Performing Exposures Capital ('NPL') Deduction
In Q1 2023, the PRA published a consultation paper setting out a
proposal to remove the Common Equity Tier 1 deduction for
under-provisioned NPLs. Final rules are expected in Q4 2023.
Environmental, social and governance ('ESG') risk
The Corporate Sustainability Reporting Directive ('CSRD')
entered into force in Q1 2023 and strengthens the existing rules on
non-financial reporting introduced by the 2014 Non-Financial
Reporting Directive. It also broadens the scope for EU entities and
includes non-EU entities subject to meeting certain criteria. The
European Sustainability Reporting Standards under the CSRD was
finalised in November 2022 and the EU Commission is expected to
adopt the final standards imminently.
In March 2022, the US Securities and Exchange Commission
published a consultation on its proposed climate-related
disclosures required for both domestic and foreign private issuers.
The proposed disclosure requirements cover the broad areas of
governance, strategy, risk management and metrics and targets.
Own funds
Own funds disclosure
At(1)
30 Jun 31 Dec
2023 2022
Ref(*) GBPm GBPm
------ ------------------------------------------------------ -------------------------- --------------------------
Common equity tier 1 ('CET1') capital: instruments
and reserves^
------ ------------------------------------------------------ -------------------------- --------------------------
Capital instruments and the related share premium
1 accounts 1,217 1,217
------ ------------------------------------------------------ -------------------------- --------------------------
* ordinary shares 1,217 1,217
------ ------------------------------------------------------ --------------------------
2 Retained earnings 16,452 16,177
------ ------------------------------------------------------ -------------------------- --------------------------
3 Accumulated other comprehensive income (and other 778 3,237
reserves)
------ ------------------------------------------------------ -------------------------- --------------------------
5 Minority interests (amount allowed in consolidated 73 72
CET1)
------ ------------------------------------------------------ -------------------------- --------------------------
5a Independently reviewed interim net profits net of any 1,378 (1,459)
foreseeable charge or dividend
------ ------------------------------------------------------ -------------------------- --------------------------
6 Common equity tier 1 capital before regulatory 19,898 19,244
adjustments
28 Total regulatory adjustments to common equity tier (151) (833)
1
------ ------------------------------------------------------ -------------------------- --------------------------
29 Common equity tier 1 capital 19,747 18,411
36 Additional tier 1 capital before regulatory 3,942 3,942
adjustments
43 Total regulatory adjustments to additional tier 1 (47) (49)
capital
------ ------------------------------------------------------ -------------------------- --------------------------
44 Additional tier 1 capital 3,895 3,893
------ ------------------------------------------------------ -------------------------- --------------------------
45 Tier 1 capital 23,642 22,304
51 Tier 2 capital before regulatory adjustments 12,464 13,559
57 Total regulatory adjustments to tier 2 capital (435) (449)
------ ------------------------------------------------------ -------------------------- --------------------------
58 Tier 2 capital 12,029 13,110
------ ------------------------------------------------------ -------------------------- --------------------------
59 Total capital 35,671 35,414
------ ------------------------------------------------------ -------------------------- --------------------------
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
* The references identify the lines prescribed in the template
that are applicable and where there is a value.
^ Figures have been prepared on an IFRS 9 transitional basis. At
30 June 2023, the add-back to CET1 capital and the related tax have
been not applied as they were immaterial.
At 30 June 2023, our common equity tier 1 ('CET1') capital ratio
increased to 18.7% from 16.4% at 31 December 2022. The key drivers
of the rise in our CET1 ratio were:
- a 1.3 percentage point increase from RWA decline primarily due
to the impact of FX movement and portfolio mix across risk
types;
- a 1.9 percentage point increase from gain on reversal of
planned sale of our French retail banking business and capital
generation through profits;
- a (0.7) percentage point decrease from payment of a special dividend to HSBC Holdings plc.
FX movement, deferred tax and other movements led to a (0.2)
percentage points decline in the CET1 ratio.
Throughout 2023, 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 2023 112,237
Asset size (491)
-------------------------- ----------------------------
Asset quality (1,279)
-------------------------- ----------------------------
Model updates 43
Methodology and policy (876)
Foreign exchange movement (4,171)
Total RWA movement (6,774)
-------------------------- ----------------------------
RWAs at 30 Jun 2023 105,463
-------------------------- ----------------------------
Asset size
Credit risk RWAs fall of GBP1.8bn, driven by decrease in
corporate lending and other financial assets. Counterparty Credit
Risk RWA rose by GBP1.7bn, driven by increase in cash exposures and
Securities Financing Transactions portfolio.
Market risk RWAs fall of GBP0.3bn is due to decrease in Value at
Risk backtesting, partially offset by higher markets volatility
(due to the current geopolitical situation) during observed
period.
Asset quality
The Asset quality decrease of GBP1.3bn is primarily driven by
the change in the portfolio mix for Credit Risk.
Model updates
The increase is due to implementation of a new Retail EAD model
in Credit Risk.
Methodology and policy
The GBP0.8bn decrease is primarily driven by change in treatment
of small and medium enterprises in Credit Risk.
Leverage ratio
Leverage ratio increased to 5.5% at 30 June 2023, from 5.4% at
31 December 2022. The improvement was primarily due to rise in tier
1 capital and downward FX movement driven by strengthening of GBP
against EUR, partially, offset by organic increase in SFT
exposures.
Leverage ratio
At
----------------------
30 Jun 31 Dec
2023 2022
GBPbn GBPbn
Tier 1 capital 23,642 22,304
Total leverage ratio
exposure 431,714 416,814
--------------------- ---------- ----------
% %
--------------------- ---------- ----------
Leverage ratio 5.5 5.4
--------------------- ---------- ----------
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 30
June 2023 is published on our website, www.hsbc.com/investors.
Market risk in the first half of 2023
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. There were no material
changes to our policies and practices for the management of market
risk in the first half of 2023.
We managed market risk prudently in the first half of 2023.
Sensitivity exposures remained within appetite as the business
pursued its core market-making activity in support of our
customers. We continued to undertake hedging activities to protect
the business from geopolitical risk, macroeconomic uncertainty and
potential future deterioration in credit conditions. Market risk
continued to be managed using a complementary set of exposure
measures and limits, including Value At Risk (VaR), stress and
scenario analysis.
During the first half of 2023, global financial markets
continued to be driven by the inflation outlook, expectations of
monetary policy tightening and recession risks, coupled with
banking distress during March and negotiations over the US debt
ceiling in May. Major central banks maintained their restrictive
monetary policies throughout 1H23, while falling headline inflation
in the US led the Fed to signal that it may be approaching the end
of its tightening cycle. Rates markets saw key short-term yields
rise over 2Q23, after falling rapidly in the wake of the banking
crisis in March. Global equity markets sentiment was driven by
resilient corporate earnings and changes in the monetary policy
outlook. Main US indices reached their highest in over one year in
2Q23, with large gains in the technology sector and relatively
subdued volatility. In foreign exchange markets, the US dollar
fluctuated against most other major currencies, in line with the
Fed policy and bond yields expectations. Investor sentiment
remained mostly resilient in credit markets. High-yield and
investment-grade credit spreads tended to narrow as the banking
sector stabilised and the likelihood of a US debt downgrade
receded.
Trading portfolios
Value at risk of the trading portfolios
The Trading VaR predominantly resides within Market Securities
Services where it was GBP32.8m as at 30 June 2023, compared with
GBP31.2m at 31 December 2022. The Total Trading VaR peaked at
GBP44m in May 2023 and subsequently decreased from the peak level
and remained around the average level seen in the first half of the
year.
The group's trading VaR for the year is shown in the table
below.
Trading VaR, 99% 1 day
Foreign
exchange Interest Credit
('FX') rate Equity spread Portfolio
and commodity ('IR') ('EQ') ('CS') diversification(1) Total(2)
GBPm GBPm GBPm GBPm GBPm GBPm
---------- -------------------------- -------------------------- -------------------------- -------------------------- ------------------------------- ------------------------
Half-year
to 30 Jun
2023 15.9 23.7 10.3 11.9 (28.9) 32.8
---------- -------------------------- -------------------------- -------------------------- -------------------------- ------------------------------- ------------------------
Average 12.0 26.1 10.0 8.6 (24.5) 32.3
---------- -------------------------- -------------------------- -------------------------- -------------------------- ------------------------------- ------------------------
Maximum 17.0 42.0 14.7 11.9 - 44.0
---------- -------------------------- -------------------------- -------------------------- -------------------------- ------------------------------- ------------------------
Minimum 7.0 18.9 7.8 6.2 - 25.6
---------- -------------------------- -------------------------- -------------------------- -------------------------- ------------------------------- ------------------------
Half-year
to 30 Jun
2022 7.5 10.8 10.7 14.1 (19.9) 23.2
---------- -------------------------- -------------------------- -------------------------- -------------------------- ------------------------------- ------------------------
Average 9.7 11.3 9.8 14.2 (21.4) 23.6
---------- -------------------------- -------------------------- -------------------------- -------------------------- ------------------------------- ------------------------
Maximum 21.5 14.7 13.3 22.9 - 43.6
---------- -------------------------- -------------------------- -------------------------- -------------------------- ------------------------------- ------------------------
Minimum 3.3 8.2 6.8 8.8 - 14.2
---------- -------------------------- -------------------------- -------------------------- -------------------------- ------------------------------- ------------------------
Half-year
to 31 Dec
2022 7.5 26.4 13.6 8.6 (24.9) 31.2
---------- -------------------------- -------------------------- -------------------------- -------------------------- ------------------------------- ------------------------
Average 10.3 19.1 13.6 11.9 (24.2) 30.7
---------- -------------------------- -------------------------- -------------------------- -------------------------- ------------------------------- ------------------------
Maximum 17.4 49.2 17.1 19.1 - 60.0
---------- -------------------------- -------------------------- -------------------------- -------------------------- ------------------------------- ------------------------
Minimum 5.6 9.3 10.2 7.0 - 20.6
---------- -------------------------- -------------------------- -------------------------- -------------------------- ------------------------------- ------------------------
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
In the first half of 2023, there were no back-testing exceptions
against actual as well as hypothetical profit and losses.
Non-trading portfolios
Value at risk of the non-trading portfolios
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 as at 30 June 2023 was GBP34.5m, driven by
interest rate risk in the banking book arising from Markets
Treasury and ALCO book positions. The increase in VaR for
non-trading activity from GBP18.6m as at 31 December 2022 was
driven by an overall outright duration risk increase in the banking
book portfolio. Interest rate yields in G3 countries have continued
to rise in Q2 as central banks raise rates and the markets remain
volatile as they continue to evaluate risk of inflation and
uncertainties surrounding the growth outlook in the global economy.
Markets treasury business continued to actively manage the interest
rate risk in the portfolio throughout H1.
The group's non-trading VaR for the year is shown in the table
below.
Non-trading VaR, 99% 1 day
Interest Credit Portfolio
rate spread diversification(1)
('IR') ('CS') Total(2)
GBPm GBPm GBPm GBPm
---------- ------------------------ -------------------------- -------------------------------- ------------------------
Half-year
to 30 Jun
2023 30.6 11.1 (7.2) 34.5
---------- ------------------------ -------------------------- -------------------------------- ------------------------
Average 23.3 8.7 (6.9) 25.2
---------- ------------------------ -------------------------- -------------------------------- ------------------------
Maximum 37.9 13.3 - 37.4
---------- ------------------------ -------------------------- -------------------------------- ------------------------
Minimum 14.5 6.1 - 16.9
---------- ------------------------ -------------------------- -------------------------------- ------------------------
Half-year
to 30 Jun
2022 19.5 5.9 (2.7) 22.7
---------- ------------------------ -------------------------- -------------------------------- ------------------------
Average 29.1 6.8 (5.1) 30.8
---------- ------------------------ -------------------------- -------------------------------- ------------------------
Maximum 37.6 11.9 - 40.5
---------- ------------------------ -------------------------- -------------------------------- ------------------------
Minimum 19.1 4.2 - 22.5
---------- ------------------------ -------------------------- -------------------------------- ------------------------
Half-year
to 31 Dec
2022 17.1 7.2 (5.6) 18.6
---------- ------------------------ -------------------------- -------------------------------- ------------------------
Average 23.6 6.6 (4.8) 25.4
---------- ------------------------ -------------------------- -------------------------------- ------------------------
Maximum 39.7 8.7 - 40.9
---------- ------------------------ -------------------------- -------------------------------- ------------------------
Minimum 16.3 5.3 - 17.8
---------- ------------------------ -------------------------- -------------------------------- ------------------------
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.
Insurance manufacturing operations risk
Overview
The key risks for our insurance manufacturing operations are
market risks, in particular interest rate, growth asset, and credit
risks, as well as insurance underwriting and operational risks.
Liquidity risk, while significant for other parts of the HSBC
Group, is relatively minor for our insurance operations.
A summary of our policies and practices regarding the risk
management of insurance operations, our insurance model and the
main contracts we manufacture is provided on page 89 of the Annual
Report and Accounts 2022.
Insurance manufacturing operations risk profile in the first
half of 2023
The risk profile of our insurance manufacturing operations is
assessed in the HSBC Group's ICAAP based on their financial
capacity to support the risks to which they are exposed.
Capital adequacy is assessed on both the HSBC Group's economic
capital basis, and the relevant local insurance regulatory basis.
The group's economic capital basis is largely aligned to European
Solvency II regulations. Risk appetite buffers are set to ensure
that the operations are able to remain solvent on both bases
allowing for business-as-usual volatility and extreme but plausible
stress events. In addition, the insurance manufacturing operations
manage their market, liquidity, credit, underwriting and
non-financial risk exposures to Board-approved risk appetite
limits. Overall, at 30 June 2023, the majority of the capital risk
positions of our insurance operations were within risk appetite. We
continue to monitor these risks closely in the current volatile
economic climate.
The following table shows the composition of assets and
liabilities by contract type.
Balance sheet of insurance manufacturing subsidiaries by type of contract(1)
Life
Direct
Participating Shareholder
and investment Life Other assets
DPF contracts other(2) contracts(3) and liabilities Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------ ---------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Financial assets 20,794 110 907 1,109 22,920
------------------------------------------------------------ ---------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
- - - - -
* trading assets
------------------------------------------------------------
* financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 12,127 90 901 642 13,760
------------------------------------------------------------
- derivatives 120 - - 5 125
------------------------------------------------------------
- financial investments - at amortised
cost 299 - - 16 315
------------------------------------------------------------
- financial investments at fair
value through other comprehensive
income 7,150 - - 376 7,526
------------------------------------------------------------
- other financial assets(4) 1,098 20 6 70 1,194
------------------------------------------------------------ ---------------------------- ------------------------------ ------------------------------ ------------------------------
Insurance contract assets - 43 - - 43
------------------------------------------------------------ ---------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Reinsurance contract assets - 130 - - 130
Other assets and investment properties 758 1 - 64 823
------------------------------------------------------------ ---------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Total assets at 30 Jun 2023 21,552 284 907 1,173 23,916
------------------------------------------------------------ ---------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Liabilities under investment contracts
designated at fair value - - 962 - 962
------------------------------------------------------------ ---------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Insurance contract liabilities 19,771 283 - - 20,054
------------------------------------------------------------ ---------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Reinsurance contract liabilities - 30 - - 30
------------------------------------------------------------ ---------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Deferred tax - 5 - - 5
------------------------------------------------------------ ---------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Other liabilities - - - 1,856 1,856
------------------------------------------------------------ ---------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Total liabilities 19,771 318 962 1,856 22,907
------------------------------------------------------------ ---------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Total equity - - - 1,009 1,009
------------------------------------------------------------ ---------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Total liabilities and equity at
30 Jun 2023 19,771 318 962 2,865 23,916
------------------------------------------------------------ ---------------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Financial assets 20,623 93 883 1,156 22,755
------------------------------------------------------------ ----------------------------- ------------------------------- ----------------------------- ----------------------------- -----------------------------
- - - - -
* trading assets
------------------------------------------------------------
* financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 11,562 85 883 634 13,164
------------------------------------------------------------
- derivatives 232 - - 11 243
------------------------------------------------------------
- financial investments - at amortised
cost 298 - - 20 318
------------------------------------------------------------
- financial investments at fair
value through other comprehensive
income 7,497 - - 394 7,891
------------------------------------------------------------
- other financial assets(4) 1,034 8 - 97 1,139
------------------------------------------------------------ ----------------------------- ------------------------------- ----------------------------- -----------------------------
Insurance contract assets - 43 - - 43
------------------------------------------------------------ ----------------------------- ------------------------------- ----------------------------- ----------------------------- -----------------------------
Reinsurance contract assets - 121 - - 121
------------------------------------------------------------ ----------------------------- ------------------------------- ----------------------------- ----------------------------- -----------------------------
Other assets and investment properties 726 13 - 131 870
------------------------------------------------------------ ----------------------------- ------------------------------- ----------------------------- ----------------------------- -----------------------------
Total assets at 31 Dec 2022 21,349 270 883 1,287 23,789
------------------------------------------------------------ ----------------------------- ------------------------------- ----------------------------- ----------------------------- -----------------------------
Liabilities under investment contracts
designated at fair value - - 944 - 944
------------------------------------------------------------ ----------------------------- ------------------------------- ----------------------------- ----------------------------- -----------------------------
Insurance contract liabilities 19,719 285 - - 20,004
------------------------------------------------------------ ----------------------------- ------------------------------- ----------------------------- ----------------------------- -----------------------------
Reinsurance contract liabilities - 33 - - 33
------------------------------------------------------------ ----------------------------- ------------------------------- ----------------------------- ----------------------------- -----------------------------
Deferred tax - - - - -
------------------------------------------------------------ ----------------------------- ------------------------------- ----------------------------- ----------------------------- -----------------------------
Other liabilities - - - 1,837 1,837
------------------------------------------------------------ ----------------------------- ------------------------------- ----------------------------- ----------------------------- -----------------------------
Total liabilities 19,719 318 944 1,837 22,818
------------------------------------------------------------ ----------------------------- ------------------------------- ----------------------------- ----------------------------- -----------------------------
Total equity - - - 971 971
------------------------------------------------------------ ----------------------------- ------------------------------- ----------------------------- ----------------------------- -----------------------------
Total liabilities and equity at
31 Dec 2022 19,719 318 944 2,808 23,789
------------------------------------------------------------ ----------------------------- ------------------------------- ----------------------------- ----------------------------- -----------------------------
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
2 'Life other' mainly includes protection type contracts as well
as reinsurance contracts. The reinsurance contracts primarily
provide diversification benefits over the life participating and
investment discretionary participation feature ('DPF')
contracts.
3 'Other contracts' includes investment contracts for which HSBC
does not bear significant insurance risk.
4 Comprise mainly loans and advances to banks, cash and
inter-company balances with other non-insurance legal entities.
Board Changes
David Watts is expected to step down as Chief Financial Officer
and as a Director of the HSBC Bank plc Board on 31 October 2023.
The Company is in the process of identifying a suitable
successor.
Statement of Directors' Responsibilities
The Directors, who are required to prepare the condensed
consolidated interim financial statements on a going concern basis
unless it is not appropriate, are satisfied that the group and bank
have the resources to continue in business for the foreseeable
future and that the financial statements continue to be prepared on
a going concern basis.
The Directors, the names of whom are set out below, confirm that
to the best of their knowledge:
- the interim condensed financial statements have been prepared
in accordance with UK adopted International Accounting Standard 34
'Interim Financial Reporting', IAS 34 'Interim Financial Reporting'
as issued by the International Accounting Standards Board ('IASB'),
International Accounting Standard 34 'Interim Financial Reporting'
as adopted by the EU and the Disclosure Guidance and Transparency
Rules sourcebook of the UK's Financial Conduct Authority;
- this Interim Report 2023 gives a true and fair view of the
assets, liabilities and financial position of the group and of the
profit or loss of the group for that period; and
- this Interim Report 2023 includes a fair review of the information required by:
- DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year ending 31 December 2023
and their impact on the condensed set of financial statements;
and
- a description of the principal risks and uncertainties of the
remaining six months of the financial year.
S O'Connor (Chair); C Bell (Chief Executive Officer); D Watts
(Chief Financial Officer); P Clackson ; K Gurney; L O'Donald ; Y
Omura ; J Ellis (nee Robinson) ; E Strutz ; N Dove-Edwin and A
Wright .
On behalf of the Board
David Watts
Director
31 July 2023
Registered number 00014259
Independent non-executive Director
Independent Review Report to HSBC Bank plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed HSBC Bank plc's condensed consolidated interim
financial statements (the 'interim financial statements') in the
Interim Report of HSBC Bank plc for the 6 month period ended 30
June 2023 (the 'period').
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
IAS 34 'Interim Financial Reporting' as issued by the International
Accounting Standards Board ('IASB'), IAS 34 'Interim Financial
Reporting' as adopted by the EU and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
The interim financial statements comprise:
- the consolidated balance sheet as at 30 June 2023;
- the consolidated income statement and consolidated statement
of comprehensive income for the period then ended;
- the consolidated statement of cash flows for the period then ended;
- the consolidated statement of changes in equity for the period then ended; and
- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Report
of HSBC Bank plc have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
IAS 34 'Interim Financial Reporting' as issued by the International
Accounting Standards Board ('IASB'), IAS 34 'Interim Financial
Reporting' as adopted by the EU and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council for use in the
United Kingdom ('ISRE (UK) 2410'). A review of interim financial
information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on
the review procedures performed in accordance with ISRE (UK) 2410.
However, future events or conditions may cause the group to cease
to continue as a going concern.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Report, including the interim financial statements,
is the responsibility of, and has been approved by the directors.
The directors are responsible for preparing the Interim Report in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority. In
preparing the Interim Report, including the interim financial
statements, the directors are responsible for assessing the group'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 to cease operations, or have no realistic alternative but
to do so.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Report based on our review. Our
conclusion, including our Conclusions relating to going concern, is
based on procedures that are less extensive than audit procedures,
as described in the Basis for conclusion paragraph of this report.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, 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.
PricewaterhouseCoopers LLP
Chartered Accountants
London
31 July 2023
Interim condensed financial statements
Contents
39 Consolidated income statement
40 Consolidated statement of comprehensive
income
41 Consolidated balance sheet
42 Consolidated statement of changes
in equity
44 Consolidated statement of cash
flows
Consolidated income statement
Half-year to(1)
---------------------------------------------------------
30 Jun 30 Jun
2023 2022
GBPm GBPm
----------------------------------------------------------- --------------------------- ----------------------------
Net interest income 1,140 991
----------------------------------------------------------- --------------------------- ----------------------------
- interest income 7,973 2,105
-----------------------------------------------------------
- interest expense (6,833) (1,114)
----------------------------------------------------------- ---------------------------
Net fee income 674 662
----------------------------------------------------------- --------------------------- ----------------------------
- fee income 1,358 1,306
-----------------------------------------------------------
- fee expense (684) (644)
----------------------------------------------------------- ---------------------------
Net income from financial instruments held for trading
or managed on a fair value basis 1,784 1,545
----------------------------------------------------------- --------------------------- ----------------------------
Net income/(expense) from assets and liabilities of
insurance
businesses, including related derivatives, measured at
fair value through profit or loss 637 (1,326)
Gains/(losses) recognised on Assets held for sale(2) 1,737 (219)
----------------------------------------------------------- --------------------------- ----------------------------
Insurance finance (expense)/income (635) 1,168
----------------------------------------------------------- --------------------------- ----------------------------
Insurance service result 74 62
----------------------------------------------------------- --------------------------- ----------------------------
- Insurance revenue 188 177
-----------------------------------------------------------
- Insurance service expense (114) (115)
----------------------------------------------------------- ---------------------------
Other operating income 49 60
----------------------------------------------------------- --------------------------- ----------------------------
Total operating income 5,460 2,943
Net operating income before change in expected credit
losses and other credit impairment charges(3) 5,460 2,943
----------------------------------------------------------- --------------------------- ----------------------------
Change in expected credit losses and other credit
impairment
charges (58) (187)
----------------------------------------------------------- --------------------------- ----------------------------
Net operating income 5,402 2,756
----------------------------------------------------------- --------------------------- ----------------------------
Total operating expenses (2,507) (2,532)
----------------------------------------------------------- --------------------------- ----------------------------
* employee compensation and benefits (842) (809)
-----------------------------------------------------------
* general and administrative expenses (1,662) (1,657)
-----------------------------------------------------------
* depreciation and impairment of property, plant and
equipment and right of use assets (11) (44)
-----------------------------------------------------------
* amortisation and impairment of intangible assets 8 (22)
----------------------------------------------------------- ---------------------------
Operating profit 2,895 224
----------------------------------------------------------- --------------------------- ----------------------------
Share of loss in associates and joint ventures (35) (21)
----------------------------------------------------------- --------------------------- ----------------------------
Profit before tax 2,860 203
----------------------------------------------------------- --------------------------- ----------------------------
Tax expense (657) (24)
----------------------------------------------------------- --------------------------- ----------------------------
Profit for the period 2,203 179
----------------------------------------------------------- --------------------------- ----------------------------
Profit attributable to the parent company 2,193 175
----------------------------------------------------------- --------------------------- ----------------------------
Profit attributable to non-controlling interests 10 4
----------------------------------------------------------- --------------------------- ----------------------------
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
2 Reversal of the GBP1.7bn impairment loss relating to the
planned sale of the retail banking operations in France, recognised
in 3Q22, which is no longer classified as held for sale.
3 Net operating income before change in expected credit losses
and other credit impairment charges is also referred to as
revenue.
The accompanying notes on pages 43 to 62, the 'Summary of
financial instruments to which the impairment requirements in IFRS
9 are applied', 'Summary of credit risk (excluding debt instruments
measured at FVOCI) by stage distribution and ECL coverage by
industry sector', and 'Reconciliation of changes in gross
carrying/nominal amount and allowances for loans and advances to
banks and customers including loan commitments and financial
guarantees' tables in the 'Credit risk' section form an integral
part of these condensed financial statements.
Consolidated statement of comprehensive income
Half-year to(1)
---------------------------------------------------------
30 Jun 30 Jun
2023 2022
GBPm GBPm
------------------------------------------------------------ --------------------------- ----------------------------
Profit for the period 2,203 179
------------------------------------------------------------ --------------------------- ----------------------------
Other comprehensive income/(expense)
------------------------------------------------------------ --------------------------- ----------------------------
Items that will be reclassified subsequently to profit
or loss when specific conditions are met:
------------------------------------------------------------ --------------------------- ----------------------------
Debt instruments at fair value though other comprehensive
income 125 (1,516)
------------------------------------------------------------ --------------------------- ----------------------------
* fair value gains/(losses) 174 (2,071)
------------------------------------------------------------
* fair value (gains)/losses transferred to the income
statement on disposal (4) 1
------------------------------------------------------------
* expected credit losses recognised in income statement - 5
------------------------------------------------------------
* income taxes (45) 549
------------------------------------------------------------ ---------------------------
Cash flow hedges (257) (433)
------------------------------------------------------------ --------------------------- ----------------------------
* fair value (losses)/gains (458) (614)
------------------------------------------------------------
* fair value losses/(gains) reclassified to the income
statement 102 26
------------------------------------------------------------
* income taxes 99 155
------------------------------------------------------------ ---------------------------
Finance (expenses)/income from insurance contracts (84) 1,054
------------------------------------------------------------ --------------------------- ----------------------------
* before income taxes (113) 1,421
------------------------------------------------------------
* income taxes 29 (367)
------------------------------------------------------------ ---------------------------
Exchange differences and other (419) 354
------------------------------------------------------------ --------------------------- ----------------------------
Items that will not be reclassified subsequently to profit
or loss:
------------------------------------------------------------ --------------------------- ----------------------------
Remeasurement of defined benefit asset/liability (1) 64
------------------------------------------------------------ --------------------------- ----------------------------
* before income taxes (21) 83
------------------------------------------------------------
* income taxes 20 (19)
------------------------------------------------------------ ---------------------------
Equity instruments designated at fair value through other
comprehensive income - 1
------------------------------------------------------------ --------------------------- ----------------------------
* fair value gains - 1
------------------------------------------------------------
- -
* income taxes
------------------------------------------------------------ ---------------------------
Changes in fair value of financial liabilities designated
at fair value upon initial recognition arising from changes
in own credit risk (90) 365
------------------------------------------------------------ --------------------------- ----------------------------
* before income taxes (123) 508
------------------------------------------------------------
* income taxes 33 (143)
------------------------------------------------------------ ---------------------------
Other comprehensive expense for the period, net of tax (726) (111)
------------------------------------------------------------ --------------------------- ----------------------------
Total comprehensive income for the period 1,477 68
------------------------------------------------------------ --------------------------- ----------------------------
Attributable to:
------------------------------------------------------------ --------------------------- ----------------------------
* the parent company 1,471 67
------------------------------------------------------------
* non-controlling interests 6 1
------------------------------------------------------------ ---------------------------
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
Consolidated balance sheet
At(1)
---------------------------------------------------------
30 Jun 31 Dec
2023 2022
GBPm GBPm
------------------------------------------------------ --------------------------- ----------------------------
Assets
------------------------------------------------------ --------------------------- ----------------------------
Cash and balances at central banks 116,461 131,433
------------------------------------------------------ --------------------------- ----------------------------
Items in the course of collection from other banks 1,931 2,285
------------------------------------------------------ --------------------------- ----------------------------
Trading assets 88,219 79,878
------------------------------------------------------ --------------------------- ----------------------------
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 16,502 15,881
------------------------------------------------------ --------------------------- ----------------------------
Derivatives 203,664 225,238
------------------------------------------------------ --------------------------- ----------------------------
Loans and advances to banks 15,112 17,109
------------------------------------------------------ --------------------------- ----------------------------
Loans and advances to customers 88,708 72,614
------------------------------------------------------ --------------------------- ----------------------------
Reverse repurchase agreements - non-trading 77,246 53,949
------------------------------------------------------ --------------------------- ----------------------------
Financial investments 38,314 32,604
------------------------------------------------------ --------------------------- ----------------------------
Assets held for sale(2) 1,170 21,214
------------------------------------------------------ --------------------------- ----------------------------
Prepayments, accrued income and other assets 72,745 61,444
------------------------------------------------------ --------------------------- ----------------------------
Current tax assets 1,128 595
------------------------------------------------------ --------------------------- ----------------------------
Interests in associates and joint ventures 691 728
------------------------------------------------------ --------------------------- ----------------------------
Goodwill and intangible assets 118 91
------------------------------------------------------ --------------------------- ----------------------------
Deferred tax assets 1,228 1,583
------------------------------------------------------ --------------------------- ----------------------------
Total assets 723,237 716,646
------------------------------------------------------ --------------------------- ----------------------------
Liabilities and equity
------------------------------------------------------ --------------------------- ----------------------------
Liabilities
------------------------------------------------------ --------------------------- ----------------------------
Deposits by banks 24,567 20,836
------------------------------------------------------ --------------------------- ----------------------------
Customer accounts 229,274 215,948
------------------------------------------------------ --------------------------- ----------------------------
Repurchase agreements - non-trading 47,568 32,901
------------------------------------------------------ --------------------------- ----------------------------
Items in the course of transmission to other banks 2,260 2,226
------------------------------------------------------ --------------------------- ----------------------------
Trading liabilities 45,553 41,265
------------------------------------------------------ --------------------------- ----------------------------
Financial liabilities designated at fair value 31,446 27,282
------------------------------------------------------ --------------------------- ----------------------------
Derivatives 199,448 218,867
------------------------------------------------------ --------------------------- ----------------------------
Debt securities in issue 8,605 7,268
------------------------------------------------------ --------------------------- ----------------------------
Liabilities of disposal groups held for sale(2) 1,178 24,711
------------------------------------------------------ --------------------------- ----------------------------
Accruals, deferred income and other liabilities 74,768 67,020
------------------------------------------------------ --------------------------- ----------------------------
Current tax liabilities 193 130
Insurance contract liabilities 20,054 20,004
------------------------------------------------------ --------------------------- ----------------------------
Provisions 334 424
------------------------------------------------------ --------------------------- ----------------------------
Deferred tax liabilities 3 3
------------------------------------------------------ --------------------------- ----------------------------
Subordinated liabilities 14,096 14,528
------------------------------------------------------ --------------------------- ----------------------------
Total liabilities 699,347 693,413
------------------------------------------------------ --------------------------- ----------------------------
Equity
------------------------------------------------------ --------------------------- ----------------------------
Total shareholders' equity 23,756 23,102
------------------------------------------------------ --------------------------- ----------------------------
* called up share capital 797 797
------------------------------------------------------
* share premium account 420 420
------------------------------------------------------
* other equity instruments 3,930 3,930
------------------------------------------------------
* other reserves (7,044) (6,413)
------------------------------------------------------
* retained earnings 25,653 24,368
------------------------------------------------------ ---------------------------
Non-controlling interests 134 131
------------------------------------------------------ --------------------------- ----------------------------
Total equity 23,890 23,233
------------------------------------------------------ --------------------------- ----------------------------
Total liabilities and equity 723,237 716,646
------------------------------------------------------ --------------------------- ----------------------------
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
2 Includes businesses classified as held-for-sale as part of a
broader restructuring of our European business. Refer to Note 11
'Assets held for sale and liabilities of disposal groups held for
sale' on page 57.
Consolidated statement of changes in equity(1)
Other reserves
-----------------------------------------------------------------------
Called
up
share Other Financial Cash Group Total
capital equity assets flow Foreign reorgan-isation Insur-ance share-
& share instru- Retained at FVOCI hedg-ing ex-change reserve finance holders' Non-control-ling Total
premium ments earnings reserve reserve reserve ('GRR')(5) reserve equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 Jan 2023 1,217 3,930 24,368 (278) (950) 1,613 (7,692) 894 23,102 131 23,233
---------------------------------------------------------- ----------------- ----------------- ------------------- ----------------- ---------------- ---------------- ---------------- ---------------- ----------------- -------------------- ----------------
Profit for the
period - - 2,193 - - - - 2,193 10 2,203
---------------------------------------------------------- ----------------- ----------------- ------------------- ----------------- ---------------- ---------------- ---------------- ---------------- ----------------- -------------------- ----------------
Other comprehensive
income/(expense)
(net of tax) - - (91) 125 (257) (415) - (84) (722) (4) (726)
---------------------------------------------------------- ----------------- ----------------- ------------------- ----------------- ---------------- ---------------- ---------------- ---------------- ----------------- -------------------- ----------------
* debt instruments at fair value through other
comprehensive income - - - 125 - - - 125 - 125
----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - - - - - - - -
----------------------------------------------------------
* cash flow hedges - - - - (257) - - (257) - (257)
----------------------------------------------------------
* remeasurement of defined benefit asset/liability - - (1) - - - - (1) - (1)
----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(2) - - (90) - - - - (90) - (90)
----------------------------------------------------------
* insurance finance income/ (expense) recongnised in
other comprehensive income - - - - - - - (84) (84) - (84)
----------------------------------------------------------
- exchange differences - - - - - (415) - - (415) (4) (419)
---------------------------------------------------------- ----------------- ----------------- ------------------- ----------------- ---------------- ---------------- ---------------- ---------------- ----------------- --------------------
Total comprehensive
income/(expense)
for the period - - 2,102 125 (257) (415) - (84) 1,471 6 1,477
Dividends paid(3) - - (816) - - - - (816) (3) (819)
---------------------------------------------------------- ----------------- ----------------- ------------------- ----------------- ---------------- ---------------- ---------------- ---------------- ----------------- -------------------- ----------------
Net impact of
equity-settled
share-based payments - - (7) - - - - - (7) - (7)
Change in business
combinations
and other movements - - 6 - - - - - 6 - 6
At 30 Jun 2023 1,217 3,930 25,653 (153) (1,207) 1,198 (7,692) 810 23,756 134 23,890
---------------------------------------------------------- ----------------- ----------------- ------------------- ----------------- ---------------- ---------------- ---------------- ---------------- ----------------- -------------------- ----------------
As on 31 Dec
2021 797 3,722 24,735 1,081 (7) 948 (7,692) - 23,584 131 23,715
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ------------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
IFRS 17 Transition - - (578) 522 - - - (514) (570) - (570)
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ------------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
At 1 Jan 2022 797 3,722 24,157 1,603 (7) 948 (7,692) (514) 23,014 131 23,145
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ------------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
Profit for the
period - - 175 - - - - 175 4 179
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ------------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
Other comprehensive
income/(expense)
(net of tax) - - 429 (1,510) (433) 352 - 1,054 (108) (3) (111)
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ------------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
* debt instruments at fair value through other
comprehensive income - - - (1,511) - - - - (1,511) (5) (1,516)
----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - 1 - - - - 1 - 1
----------------------------------------------------------
- cash flow hedges - - - - (433) - - - (433) - (433)
----------------------------------------------------------
* remeasurement of defined benefit asset/liability - - 64 - - - - - 64 - 64
----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(2) - - 365 - - - - - 365 - 365
----------------------------------------------------------
* insurance finance income/ (expense) recongnised in
other comprehensive income - - - - - - - 1,054 1,054 - 1,054
----------------------------------------------------------
- exchange differences - - - - - 352 - - 352 2 354
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ------------------- ----------------- ----------------- ---------------- ------------------ --------------------
Total comprehensive
income/(expense)
for the period - - 604 (1,510) (433) 352 - 1,054 67 1 68
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ------------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
Capital securities
issued during
the period - 208 - - - - - - 208 - 208
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ------------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
Dividends paid(3) - - (59) - - - - - (59) (2) (61)
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ------------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
Net impact of
equity-settled
share-based payments - - (3) - - - - - (3) - (3)
Change in business
combinations
and other movements - - (24) 1 - - - - (23) - (23)
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ------------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
At 30 Jun 2022 797 3,930 24,675 94 (440) 1,300 (7,692) 540 23,204 130 23,334
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ------------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
Consolidated statement of changes in equity(1) (continued)
Other reserves
Called
up
share Financial Cash Group Total
capital Other assets flow Foreign reorgan-isation Insur-ance share-
& share equity Retained at FVOCI hedging ex-change reserve finance holders' Non-control-ling Total
premium instru-ments earnings reserve reserve reserve ('GRR')(5) reserve equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ----------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
At 1 Jul 2022 797 3,930 24,675 94 (440) 1,300 (7,692) 540 23,204 130 23,334
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ----------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
Loss for the
period - - (738) - - - - - (738) 6 (732)
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ----------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
Other comprehensive
income
(net of tax) - - (62) (371) (510) 313 - 354 (276) 5 (271)
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ----------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
* debt instruments at fair value through other
comprehensive income - - - (370) - - - - (370) - (370)
----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - (1) - - - - (1) - (1)
----------------------------------------------------------
- cash flow hedges - - - - (510) - - - (510) - (510)
----------------------------------------------------------
* remeasurement of defined benefit asset/liability - - (26) - - - - - (26) - (26)
----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(2) - - (36) - - - - - (36) - (36)
----------------------------------------------------------
* insurance finance income/ (expense) recongnised in
other comprehensive income - - - - - - - 354 354 - 354
----------------------------------------------------------
* exchange differences - - - - - 313 - - 313 5 318
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ----------------- ----------------- ----------------- ---------------- ------------------ --------------------
Total comprehensive
income/(expense)
for the period - - (800) (371) (510) 313 - 354 (1,014) 11 (1,003)
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ----------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
Capital securities
issued during
the period 420 - - - - - - - 420 - 420
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ----------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
Dividends paid(3) - - (993) - - - - - (993) - (993)
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ----------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
Net impact of
equity-settled
share-based payments - - 8 - - - - - 8 - 8
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ----------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
Capital contribution(4) - - 1,465 - - - - - 1,465 - 1,465
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ----------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
Change in business
combinations
and other movements - - 13 (1) - - - - 12 (10) 2
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ----------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
At 31 Dec 2022 1,217 3,930 24,368 (278) (950) 1,613 (7,692) 894 23,102 131 23,233
---------------------------------------------------------- ------------------ ------------------ -------------------- -------------------- ----------------- ----------------- ----------------- ---------------- ------------------ -------------------- -----------------
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
2 The cumulative amount of change in fair value attributable to
changes in own credit risk of financial liabilities designated at
fair value was a gain of GBP166m (H1 2022 :was a gain of GBP320m
and H2 2022: loss of GBP28m).
3 The dividends to the parent company includes dividend on
ordinary share capital GBP750m (H1 2022: nil and H2 2022: GBP850m),
coupon payment on additional tier 1 instrument GBP66m (H1 2022:
GBP59m and H2 2022: GBP143m).
4 HSBC Holdings plc injected GBP1.5bn of CET1 capital into HSBC
Bank plc during November 2022 which in turn injected into HSBC
Continental Europe for funding the acquisition of HSBC Bank Malta
plc and HSBC Trinkaus & Burkhardt GmbH.
5 The Group reorganisation reserve ('GRR') is an accounting
reserve resulting from the ring-fencing implementation.
Consolidated statement of cash flows
Half-year to(2)
---------------------------------------------------------
30 Jun 30 Jun
2023 2022
GBPm GBPm
----------------------------------------------------------- --------------------------- ----------------------------
Profit before tax 2,860 203
----------------------------------------------------------- --------------------------- ----------------------------
Adjustments for non-cash items:
----------------------------------------------------------- --------------------------- ----------------------------
Depreciation, amortisation and impairment 3 66
----------------------------------------------------------- --------------------------- ----------------------------
Net (losses)/gain from investing activities (1,739) 218
----------------------------------------------------------- --------------------------- ----------------------------
Share of loss in associates and joint ventures 35 21
----------------------------------------------------------- --------------------------- ----------------------------
Change in expected credit losses gross of recoveries and
other credit impairment charges 56 210
----------------------------------------------------------- --------------------------- ----------------------------
Provisions including pensions 46 44
----------------------------------------------------------- --------------------------- ----------------------------
Share-based payment expense 29 11
----------------------------------------------------------- --------------------------- ----------------------------
Other non-cash items included in profit before tax (65) 3
----------------------------------------------------------- --------------------------- ----------------------------
Elimination of exchange differences(1) 5,932 (3,372)
----------------------------------------------------------- --------------------------- ----------------------------
Change in operating assets (20,459) (20,115)
----------------------------------------------------------- --------------------------- ----------------------------
Change in operating liabilities 16,934 57,286
Dividends received from associates - 7
----------------------------------------------------------- --------------------------- ----------------------------
Contributions paid to defined benefit plans (4) (6)
----------------------------------------------------------- --------------------------- ----------------------------
Tax (paid)/credit (645) 750
----------------------------------------------------------- --------------------------- ----------------------------
Net cash from operating activities 2,983 35,326
----------------------------------------------------------- --------------------------- ----------------------------
Purchase of financial investments (14,534) (8,323)
----------------------------------------------------------- --------------------------- ----------------------------
Proceeds from the sale and maturity of financial
investments 7,574 7,697
----------------------------------------------------------- --------------------------- ----------------------------
Net cash flows from the purchase and sale of property,
plant and equipment and RoU (9) (16)
----------------------------------------------------------- --------------------------- ----------------------------
Net investment in intangible assets (38) (10)
----------------------------------------------------------- --------------------------- ----------------------------
Net cash outflow from investment in associates and from (1) -
acquisition of businesses and subsidiaries
Net cash from investing activities (7,008) (652)
----------------------------------------------------------- --------------------------- ----------------------------
Issue of ordinary share capital and other equity
instruments - 208
Subordinated loan capital issued 932 1,847
----------------------------------------------------------- --------------------------- ----------------------------
Subordinated loan capital repaid (834) (582)
----------------------------------------------------------- --------------------------- ----------------------------
Dividends to the parent company (816) (59)
Dividend paid to non-controlling interests (3) (2)
----------------------------------------------------------- --------------------------- ----------------------------
Net cash from financing activities (721) 1,412
----------------------------------------------------------- --------------------------- ----------------------------
Net (decrease)/increase in cash and cash equivalents (4,746) 36,086
----------------------------------------------------------- --------------------------- ----------------------------
Cash and cash equivalents at the beginning of the period 189,907 140,923
----------------------------------------------------------- --------------------------- ----------------------------
Exchange differences in respect of cash and cash
equivalents (5,409) 4,264
----------------------------------------------------------- --------------------------- ----------------------------
Cash and cash equivalents at the end of the period 179,752 181,273
----------------------------------------------------------- --------------------------- ----------------------------
1 Adjustment to bring changes between opening and closing
balance sheet amounts to average rates. This is not done on a
line-by-line basis, as details cannot be determined without
unreasonable expense.
2 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
Notes on the interim condensed financial statements
Contents
Basis of preparation and material Contingent liabilities, contractual
45 1 accounting policies 56 9 commitments and guarantees
Legal proceedings and regulatory
48 2 Dividends 57 10 matters
Assets held for sale and liabilities
of disposal groups held for
48 3 Segmental analysis 59 11 sale
50 4 Net fee income 60 12 Transactions with related parties
Fair values of financial instruments Effects of adoption of IFRS
51 5 carried at fair value 61 13 17
Fair values of financial instruments Events after the balance sheet
55 6 not carried at fair value 64 14 date
Interim Report 2023 and statutory
56 7 Goodwill and Intangible assets 64 15 accounts
56 8 Provisions
1 Basis of preparation and material accounting policies
(a) Compliance with International Financial Reporting Standards
The interim condensed consolidated financial statements of HSBC
Bank plc ('the bank') and its subsidiaries (together 'the group')
have been prepared on the basis of the policies set out in the 2022
annual financial statements except for those relating to IFRS 17
'Insurance Contracts' and amendments to IAS 12 'Income Taxes' as
set out below. They have also been prepared in accordance with IAS
34 'Interim Financial Reporting' as adopted by the UK, IAS 34
'Interim Financial Reporting' as issued by the International
Accounting Standards Board ('IASB'), IAS 34 'Interim Financial
Reporting' as adopted by the EU and the Disclosure Guidance and
Transparency Rules sourcebook of the UK's Financial Conduct
Authority. Therefore, they include an explanation of events and
transactions that are significant to an understanding of the
changes in the group's financial position and performance since the
end of 2022.
These financial statements should be read in conjunction with
the Annual Report and Accounts 2022 which was prepared in
accordance with UK-adopted international accounting standards in
conformity with the requirements of the Companies Act 2006 and
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union.
These financial statements were also prepared in accordance with
International Financial Reporting Standards ('IFRSs') as issued by
the IASB, including interpretations issued by the IFRS
Interpretations Committee. These financial statements should be
read in conjunction with the information about the application of
IFRS 17 'Insurance Contracts' set out below.
At 30 June 2023, there were no IFRS standards effective for the
half-year to 30 June 2023 affecting these financial statements that
were not approved for adoption in the UK by the UK Endorsement
Board. With the exception of amendments to IAS 12 'International
Tax Reform - Pillar Two Model Rules' which is expected to be
endorsed by the EU in the second half of 2023, there was no
difference between IFRSs adopted by the UK, IFRSs as adopted by the
EU and IFRSs issued by the IASB in terms of their application to
the group.
Standards applied during the half-year to 30 June 2023
IFRS 17 'Insurance Contracts'
On 1 January 2023, the group adopted the requirements of IFRS 17
'Insurance Contracts' retrospectively with comparatives restated
from the transition date, 1 January 2022. At transition, the
group's total equity reduced by GBP570m.
On adoption of IFRS 17, balances based on IFRS 4, including the
present value of in-force long-term insurance business ('PVIF')
asset in relation to the upfront recognition of future profits of
in-force insurance contracts, were derecognised. Insurance contract
liabilities have been remeasured under IFRS 17 based on groups of
insurance contracts, which include the fulfilment cash flows
comprising the best estimate of the present value of the future
cash flows (for example premiums and payouts for claims, benefits,
and expenses), together with a risk adjustment for non-financial
risk, as well as the contractual service margin ('CSM'). The CSM
represents the unearned profits that will be released and
systematically recognised in Insurance revenue as services are
provided over the expected coverage period.
In addition, the group has made use of the option under the
standard to re-designate certain eligible financial assets held to
support insurance contract liabilities, which were predominantly
measured at amortised cost, as financial assets measured at fair
value through profit of loss, with comparatives restated from the
transition date.
Summary of material accounting policies
In the financial statements of the Annual Report and Accounts
2023, the following policies will substantially replace the
policies disclosed in Section 1.2 (j) 'Insurance contracts' in the
financial statements of the Annual Report and Accounts 2022.
IFRS 17 sets out the requirements that the group applies in
accounting for insurance contracts it issues, reinsurance contracts
it holds and investment contracts with discretionary participation
features it issues.
An insurance contract is a contract under which the group
accepts significant insurance risk from another party by agreeing
to compensate that party if it is adversely affected by a specified
uncertain future event.
Aggregation of insurance contracts
Individual insurance contracts that are managed together and
subject to similar risks are identified as a portfolio. Contracts
that are managed together usually belong to the same product group,
and have similar characteristics such as being subject to a similar
pricing framework or similar product management, and are issued by
the same legal entity. If a contract is exposed to more than one
risk, the dominant risk of the contract is used to assess whether
the contract features similar risks. Each portfolio is further
separated by profitability group and issue date, with contracts the
group issues after the transition date being grouped into either
calendar quarter or annual cohorts depending on the characteristics
of the portfolio. For multi-currency groups of contracts, the group
considers its groups of contracts as being denominated in a single
currency.
The measurement of the insurance contract liability is based on
groups of insurance contracts as established at initial
recognition, and will include fulfilment cash flows as well as the
CSM representing the unearned profit. The group has elected to
update the estimates used in the measurement on a year-to-date
basis.
Fulfilment cash flows
The fulfilment cash flows comprise the following:
(i) Best estimates of future cash flows
These cash flows include amounts expected to be collected from
premiums and payouts for claims, benefits and expenses, and are
projected using a range of scenarios and assumptions in an unbiased
way based on the group's demographic and operating experience along
with external mortality data where the group's own experience data
is not sufficiently large in size to be credible.
(ii) Adjustment for the time value of money (i.e. discounting)
and financial risks associated with the future cash flows
The estimates of future cash flows are adjusted to reflect the
time value of money and the financial risks to derive an expected
present value. The group generally makes use of stochastic
modelling techniques in the estimation for products with options
and guarantees.
A bottom-up approach is used to determine the discount rate to
be applied to a given set of expected future cash flows. This is
derived as the sum of the risk-free yield and an illiquidity
premium. The risk-free yield is determined based on observable
market data, where such markets are considered to be deep, liquid
and transparent. When information is not available, management
judgement is applied to determine the appropriate risk-free yield.
Illiquidity premiums reflect the liquidity characteristics of the
associated insurance contracts.
(iii) Risk adjustment for non-financial risk
The risk adjustment reflects the compensation required for
bearing the uncertainty about the amount and timing of future cash
flows that arises from non-financial risk. It is calculated as a
75th percentile level of stress over a one year period. The level
of the stress is determined with reference to external regulatory
stresses and internal economic capital stresses.
The group does not disaggregate changes in the risk adjustment
between insurance service result (comprising insurance revenue and
insurance service expense) and insurance finance income or
expenses. All changes are included in insurance service result.
Measurement models
The variable fee approach ('VFA') measurement model is used for
most of the contracts issued by the group, which is mandatory upon
meeting the following eligibility criteria at inception:
a. the contractual terms specify that the policyholder
participates in a share of a clearly identified pool of underlying
items;
b. the group expects to pay to the policyholder a substantial
share of the fair value returns on the underlying items. The group
considers that a substantial share is a majority of returns;
and
c. the group expects a substantial proportion of any change in
the amounts to be paid to the policyholder to vary with the change
in fair value of the underlying items. The group considers that a
substantial proportion is a majority proportion of change on a
present value probability-weighted average of all scenarios.
For some contracts measured under VFA, the other comprehensive
income ('OCI') option is used. The OCI option is applied where the
underlying items held by the group are not accounted for at fair
value through profit or loss. Under this option, only the amount
that matches income or expenses recognised in profit or loss on
underlying items is included in finance income or expenses for
these insurance contracts, and hence results in the elimination of
accounting mismatches. The remaining amount of finance income or
expenses for these insurance contracts issued for the period is
recognised in OCI.
The remaining contracts issued and the reinsurance contracts
held are accounted for under the general measurement model
('GMM').
CSM and coverage units
The CSM represents the unearned profit and results in no income
or expense at initial recognition when the group of contracts is
profitable. The CSM is adjusted at each subsequent reporting period
for changes in fulfilment cash flows relating to future service
(e.g. changes in non-economic assumptions, including mortality and
morbidity rates). For initial recognition of onerous groups of
contracts and when groups of contracts become onerous subsequently,
losses are recognised in insurance service expense immediately.
For groups of contracts measured using the VFA, changes in the
group's share of the underlying items, and economic experience and
economic assumption changes adjust the CSM, whereas these changes
do not adjust the CSM under the GMM, but are recognised in profit
or loss as they arise.
The CSM is systematically recognised in insurance revenue to
reflect the insurance contract services provided, based on the
coverage units of the group of contracts. Coverage units are
determined by the quantity of benefits and the expected coverage
period of the contracts.
The group identifies the quantity of the benefits provided as
follows:
- For insurance coverage - based on the expected net
policyholder insurance benefit at each period after allowance for
decrements, where net policyholder insurance benefit refers to the
amount of sum assured less the fund value or surrender value.
- For investment services (including both investment-return
service and investment-related service) - based on a constant
measure basis which reflects the provision of access for the
policyholder to the facility.
For contracts that provide both insurance coverage and
investment services, coverage units are weighted according to the
expected present value of the future cash outflows for each
service.
Insurance service result
Insurance revenue reflects the consideration to which the group
expects to be entitled in exchange for the provision of coverage
and other insurance contract services (excluding any investment
components). Insurance service expenses comprise the incurred
claims and other incurred insurance service expenses (excluding any
investment components), and losses on onerous groups of contracts
and reversals of such losses.
Insurance finance income and expenses
Insurance finance income or expenses comprise the change in the
carrying amount of the group of insurance contracts arising from
the effects of the time value of money, financial risk and changes
therein. For VFA contracts, changes in the fair value of underlying
items (excluding additions and withdrawals) are recognised in
insurance finance income or expenses, except where the OCI option
applies as described above.
The key differences between IFRS 4 and IFRS 17 are summarised in
the following table:
Balance sheet - Insurance contract liabilities - Insurance contract liabilities
for non-linked life insurance are measured for groups of insurance
contracts are calculated by contracts at current value, comprising
local actuarial principles. the fulfilment cash flows and
Liabilities under unit-linked the CSM.
life insurance contracts are - The fulfilment cash flows
at least equivalent to the comprise the best estimate of
surrender or transfer value, the present value of the future
by reference to the value cash flows, together with a risk
of the relevant underlying adjustment for non-financial
funds or indices. Grouping risk.
requirements follow local - The CSM represents the unearned
regulations. profit.
- An intangible asset for
the PVIF is recognised, representing
the upfront recognition of
future profits associated
with in-force insurance contracts.
Profit emergence - The value of new business - The CSM is systematically
/ recognition is reported as revenue on recognised in revenue as services
Day 1 as an increase in PVIF. are provided over the expected
- The impact of the majority coverage period of the group
of assumption changes is recognised of contracts (i.e. no Day 1 profit).
immediately in the income - Contracts are measured using
statement. the GMM or VFA model for insurance
- Variances between actual contracts with direct participation
and expected cash flows are features upon meeting the eligibility
recognised in the period they criteria. Under the VFA model,
arise. the group's share of the investment
experience and assumption changes
are absorbed by the CSM and released
over time to profit or loss.
For contracts measured under
GMM, the group's share of the
investment volatility is recorded
in profit or loss as it arises.
- Losses from onerous contracts
are recognised in the income
statement immediately.
------------------- ------------------------------------- ---------------------------------------
Investment - PVIF is calculated based - Under the market consistent
return assumptions on long-term investment return approach, expected future investment
(discount assumptions based on assets spreads are not included in the
rate) held. It therefore includes investment return assumption.
investment margins expected Instead, the discount rate includes
to be earned in future. an illiquidity premium that reflects
the nature of the associated
insurance contract liabilities.
------------------- ------------------------------------- ---------------------------------------
Expenses - Total expenses to acquire - Projected lifetime expenses
and maintain the contract that are directly attributable
over its lifetime are included costs are included in the insurance
in the PVIF calculation. contract liabilities and recognised
- Expenses are recognised in the insurance service result.
across operating expenses - Non-attributable costs are
and fee expense as incurred reported in operating expenses.
and the allowances for those
costs released from the PVIF
simultaneously.
------------------- ------------------------------------- ---------------------------------------
Transition
In applying IFRS 17 for insurance contracts retrospectively, the
full retrospective approach ('FRA') has been used unless it was
impracticable. When the FRA is impracticable such as when there is
a lack of sufficient and reliable data, an entity has an accounting
policy choice to use either the modified retrospective approach
('MRA') or the fair value approach ('FVA'). The group has applied
the MRA in France prior to 2019, and the FVA for the UK insurance
business prior to 2019. The FVA has been applied for all other
businesses prior to 2020 when the FRA is impracticable to
apply.
Under the FVA, the valuation of insurance liabilities on
transition is based on the applicable requirements of IFRS 13 'Fair
Value Measurement'. This requires consideration of the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date (an exit price). The CSM is calculated as the
difference between what a market participant would demand for
assuming the unexpired risk associated with insurance contracts,
including required profit, and the fulfilment cash flows that are
determined using IFRS 17 principles.
In determining the fair value, the group considered the
estimated profit margin that a market participant would demand in
return for assuming the insurance liabilities with the
consideration of the level of capital that a market participant
would be required to hold, and the discount rate with an allowance
for an illiquidity premium that takes into account the level of
'matching' between the group's assets and related liabilities.
These assumptions were set taking into account the assumptions that
a hypothetical market participant operating in each local
jurisdiction would consider.
Amendments to IAS 12 'International Tax Reform - Pillar Two
Model Rules'
On 23 May 2023, the IASB issued amendments to IAS 12
'International Tax Reform - Pillar Two Model Rules', which became
effective immediately and were approved for adoption by all members
of the UK Endorsement Board on 19 July 2023. On 20 June 2023,
legislation was substantively enacted in the UK to introduce the
OECD's Pillar Two global minimum tax rules and a UK qualified
domestic minimum top-up tax, with effect from 1 January 2024. The
group has applied the IAS 12 exception from recognising and
disclosing information on associated deferred tax assets and
liabilities. As noted above, the EU has not yet endorsed these IAS
12 amendments but is expected to do so in the second half of
2023.
There were no other new standards or amendments to standards
that had an effect on these interim condensed financial
statements.
(b) Use of estimates and judgements
Management believes that the critical accounting estimates and
judgements applicable to the group are those which relate to
impairment of amortised cost and FVOCI financial assets, impairment
of investments in subsidiaries, the valuation of financial
instruments, deferred tax assets, provisions for liabilities and
non-current assets held for sale. There were no material changes in
the current period to any of the critical accounting estimates and
judgements disclosed in 2022, which are stated on pages 124 to 135
of the Annual Report and Accounts 2022.
(c) Composition of the group
There were no material changes in the composition of the group
in the half-year to 30 June 2023. For further details of future
business disposals see Note 11: 'Assets held for sale and
liabilities of disposal groups held for sale'.
(d) Going concern
The financial statements are prepared on a going concern basis
as the Directors are satisfied that the group and parent company
have the resources to continue in business for the next 12 months
after the signing date and for the foreseeable future. In making
this assessment, the Directors have considered a wide range of
information relating to present and future conditions, including
future projections of profitability, cash flows, capital
requirements and capital resources.
These considerations include internal stress tests incorporating
PRA scenarios, as well as considering potential impacts from the
strategic review and other top and emerging risks and the related
impact on profitability, capital and liquidity.
(e) Accounting policies
The accounting policies applied by the group for these interim
condensed consolidated financial statements are consistent with
those described on pages 124 to 135 of the Annual Report and
Accounts 2022, as are the methods of computation, with the
exception of those relating to IFRS 17 and amendments to IAS 12 as
described above.
2 Dividends
Dividends to the parent company
Half-year to
-----------------------------------------------------------------------------------------------
30 Jun 2023 30 Jun 2022
GBP GBPm GBP per
per share share GBPm
--------------------- ---------------------- ---------------------- ---------------------- -----------------------
Dividends paid on
ordinary shares
In respect of current
year:
--------------------- ---------------------- ---------------------- ---------------------- -----------------------
Current year
--------------------- ---------------------- ---------------------- ---------------------- -----------------------
- first special
dividend(1) 0.94 750
---------------------
- second special - -
dividend - -
--------------------- ---------------------- ---------------------- ----------------------
Total 0.94 750 - -
Total coupons on
capital securities
classified
as equity 66 59
--------------------- ---------------------- ---------------------- ---------------------- -----------------------
Dividends to parent 816 59
--------------------- ---------------------- ---------------------- ---------------------- -----------------------
1 Special dividend paid on CET1 capital in 2023.
3 Segmental analysis
The Chief Executive, supported by the rest of the Executive
Committee, is considered the Chief Operating Decision Maker
('CODM') for the purposes of identifying the group's reportable
segments.
Our operations are closely integrated and, accordingly, the
presentation of data includes internal allocations of certain items
of income and expense. These allocations include the costs of
certain support services and functions to the extent that they can
be meaningfully attributed to businesses and countries. While such
allocations have been made on a systematic and consistent basis,
they necessarily involve a degree of subjectivity. Costs that are
not allocated to businesses are included in Corporate Centre.
Where relevant, income and expense amounts presented include the
results of inter-segment funding along with inter-company and
inter-business line transactions. All such transactions are
undertaken on arm's length terms. The intra-group elimination items
for the businesses are presented in Corporate Centre.
Our global businesses
HSBC provides a comprehensive range of banking and related
financial services to its customers through its global businesses.
The products and services offered to customers are organised by
these global businesses.
Our operating model has the following material segments: a GBM
business which is further split into three reportable segments;
MSS, GB and GBM Other (as defined in our global businesses
segment), CMB, WPB and a Corporate Centre. These segments are
supported by Digital Business Services and eleven global functions,
including Risk, Finance, Compliance, Legal and Human Resources.
These business segments are our reportable segments under IFRS 8
'Operating Segments'.
By operating segment:
Reported profit/(loss) before tax
Half-year to 30 Jun 2023
----------------------------------------------------------------------------------------------------------------------------
GBM Corporate
MSS GB Other CMB WPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ----------------- -------------- ----------------- -------------- -------------- ---------------------- --------------
Net operating
income/(expense)
before
change in
expected credit
losses and other
credit
impairment
charges(1) 1,082 1,061 39 874 2,347 57 5,460
----------------- ----------------- -------------- ----------------- -------------- -------------- ---------------------- --------------
- of which: net
interest
income/(expense) 89 696 (21) 648 491 (763) 1,140
----------------- ----------------- -------------- ----------------- -------------- -------------- ---------------------- --------------
Change in
expected credit
losses and other
credit
impairment
charges - (87) - 18 12 (1) (58)
----------------- ----------------- -------------- ----------------- -------------- -------------- ---------------------- --------------
Net operating
income/(expense) 1,082 974 39 892 2,359 56 5,402
----------------- ----------------- -------------- ----------------- -------------- -------------- ---------------------- --------------
Total operating
expenses (1,094) (512) (65) (305) (451) (80) (2,507)
----------------- ----------------- -------------- ----------------- -------------- -------------- ---------------------- --------------
Operating
profit/(loss) (12) 462 (26) 587 1,908 (24) 2,895
----------------- ----------------- -------------- ----------------- -------------- -------------- ---------------------- --------------
Share of loss in
associates and
joint ventures - - - - - (35) (35)
----------------- ----------------- -------------- ----------------- -------------- -------------- ---------------------- --------------
Reported
profit/(loss)
before tax (12) 462 (26) 587 1,908 (59) 2,860
----------------- ----------------- -------------- ----------------- -------------- -------------- ---------------------- --------------
Reported cost
efficiency ratio
% 101.1 48.3 166.7 34.9 19.2 45.9
----------------- ----------------- -------------- ----------------- -------------- -------------- ---------------------- --------------
Half-year to 30 Jun 2022(2)
Net operating
income before
change in
expected
credit losses
and other credit
impairment
charges(1) 1,294 733 102 627 473 (286) 2,943
- of which: net
interest
income/(expense) (69) 351 75 387 295 (48) 991
----------------- ----------------------------- ----------------------------- ------------------------------ ----------------- ----------------- ---------------------- -----------------
Change in
expected credit
losses and other
credit
impairment
charges 1 (158) (1) (23) (5) (1) (187)
----------------- ----------------------------- ----------------------------- ------------------------------ ----------------- ----------------- ---------------------- -----------------
Net operating
income/(expense) 1,295 575 101 604 468 (287) 2,756
----------------- ----------------------------- ----------------------------- ------------------------------ ----------------- ----------------- ---------------------- -----------------
Total operating
expenses (970) (456) (178) (309) (425) (194) (2,532)
Operating
profit/(loss) 325 119 (77) 295 43 (481) 224
----------------- ----------------------------- ----------------------------- ------------------------------ ----------------- ----------------- ---------------------- -----------------
Share of loss in
associates and
joint ventures - - - - - (21) (21)
----------------- ----------------------------- ----------------------------- ------------------------------ ----------------- ----------------- ---------------------- -----------------
Reported
profit/(loss)
before tax 325 119 (77) 295 43 (502) 203
----------------- ----------------------------- ----------------------------- ------------------------------ ----------------- ----------------- ---------------------- -----------------
Reported cost
efficiency ratio
% (75.0) (62.2) (174.5) (49.3) (89.9) (86.0)
----------------- ----------------------------- ----------------------------- ------------------------------ ----------------- ----------------- ---------------------- -----------------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
2 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
Reported external net operating income is attributed to
countries on the basis of the location of the branch responsible
for reporting the results or advancing the funds:
Half-year to(1)
--------------------------------------------------
30 Jun 30 Jun
2023 2022
GBPm GBPm
----------------------------------------------------- ------------------------ ------------------------
Reported external net operating income by country(2) 5,460 2,943
----------------------------------------------------- ------------------------ ------------------------
- United Kingdom 1,853 1,622
-----------------------------------------------------
- France 2,618 761
-----------------------------------------------------
- Germany 427 373
- Other countries 562 187
----------------------------------------------------- ------------------------
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
2 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
Balance sheet by business
GBM Corporate
MSS GB Other CMB WPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- ------------------- ----------------- --------------------- ----------------- ------------------- ---------------------- -----------------
30 Jun
2023
----------
Loans and
advances
to
customers 2,234 35,831 179 24,350 26,016 98 88,708
---------- ------------------- ----------------- --------------------- ----------------- ------------------- ---------------------- -----------------
Customer
accounts 40,445 75,218 8,472 53,581 51,444 114 229,274
---------- ------------------- ----------------- --------------------- ----------------- ------------------- ---------------------- -----------------
31 Dec 2022
Loans and
advances
to
customers 2,785 37,523 115 25,219 6,826 146 72,614
---------- ------------------- ----------------- --------------------- ----------------- ------------------- ---------------------- -----------------
Customer
accounts 45,320 79,606 5,903 55,749 29,211 159 215,948
---------- ------------------- ----------------- --------------------- ----------------- ------------------- ---------------------- -----------------
Notable Items
Half-year to
------------------------------------------------------
30 Jun 30 Jun
2023 2022
GBPm GBPm
----------------------------------------- -------------------------- --------------------------
Revenue
----------------------------------------- -------------------------- --------------------------
Disposals,acquisitions and investment - (15)
Restructuring and other related costs(1) 1,729 (222)
----------------------------------------- -------------------------- --------------------------
Operating expenses
Restructuring and other related costs 39 193
----------------------------------------- -------------------------- --------------------------
1 Reversal of GBP1.7bn impairment loss relating to the planned
sale of the retail banking operations in France, recognised in
3Q22, which is no longer classified as held for sale.
4 Net fee income
Half-year to(1)
------------------------------------------------------
30 Jun 30 Jun
2023 2022
GBPm GBPm
---------------------------------------------- -------------------------- --------------------------
Net fee income by product
---------------------------------------------- -------------------------- --------------------------
Account services 169 142
---------------------------------------------- -------------------------- --------------------------
Funds under management 208 219
---------------------------------------------- -------------------------- --------------------------
Cards 29 27
---------------------------------------------- -------------------------- --------------------------
Credit facilities 137 117
---------------------------------------------- -------------------------- --------------------------
Broking income 167 192
Underwriting 138 92
---------------------------------------------- -------------------------- --------------------------
Imports/exports 19 21
---------------------------------------------- -------------------------- --------------------------
Remittances 55 45
---------------------------------------------- -------------------------- --------------------------
Global custody 98 97
Corporate finance 35 61
---------------------------------------------- -------------------------- --------------------------
Securities others - (including stock lending) 52 39
---------------------------------------------- -------------------------- --------------------------
Trust income 27 25
---------------------------------------------- -------------------------- --------------------------
Other 224 229
---------------------------------------------- -------------------------- --------------------------
Fee income 1,358 1,306
---------------------------------------------- -------------------------- --------------------------
Less: fee expense (684) (644)
---------------------------------------------- -------------------------- --------------------------
Net fee income 674 662
---------------------------------------------- -------------------------- --------------------------
Net fee income by global business
GBM Corporate
MSS GB Other CMB WPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- ---------------------- ---------------------- ---------------------- ------------------------ --------------------- ------------------------ ---------------------
Half-year
to 30 Jun
2023
---------- ---------------------- ---------------------- ---------------------- ------------------------ --------------------- ------------------------ ---------------------
Fee income 670 446 70 216 279 (323) 1,358
---------- ---------------------- ---------------------- ---------------------- ------------------------ --------------------- ------------------------ ---------------------
Less: fee
expense (751) (93) (45) (8) (103) 316 (684)
---------- ---------------------- ---------------------- ---------------------- ------------------------ --------------------- ------------------------ ---------------------
Net fee
income (81) 353 25 208 176 (7) 674
Half-year
to 30 Jun
2022
(1)
---------- ---------------------- ---------------------- ---------------------- ------------------------ --------------------- ------------------------ ---------------------
Fee income 664 416 20 210 295 (299) 1,306
---------- ---------------------- ---------------------- ---------------------- ------------------------ --------------------- ------------------------ ---------------------
Less: fee
expense (705) (86) (33) (14) (101) 295 (644)
---------- ---------------------- ---------------------- ---------------------- ------------------------ --------------------- ------------------------ ---------------------
Net fee
income (41) 330 (13) 196 194 (4) 662
---------- ---------------------- ---------------------- ---------------------- ------------------------ --------------------- ------------------------ ---------------------
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
5 Fair values of financial instruments carried at fair value
The accounting policies, control framework, and the hierarchy
used to determine fair values are consistent with those applied for
the Annual Report and Accounts 2022.
Financial instruments carried at fair value and bases of valuation(1)
At 30 Jun 2023 At 31 Dec 2022
--------------------------------------------------------------------------- ---------------------------------------------------------------------------
With With
Quoted Using significant Quoted Using significant
market observ-able unobserv-able market observ-able unobserv-able
price inputs inputs price inputs inputs
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------------------ ---------------- --------------------- -------------- ------------------ ---------------- --------------------- --------------
Recurring
fair value
measurements
------------- ------------------ ---------------- --------------------- -------------- ------------------ ---------------- --------------------- --------------
Assets
------------- ------------------ ---------------- --------------------- -------------- ------------------ ---------------- --------------------- --------------
Trading
assets 61,318 24,488 2,413 88,219 52,493 24,647 2,738 79,878
------------- ------------------ ---------------- --------------------- -------------- ------------------ ---------------- --------------------- --------------
Financial
assets
designated
and
otherwise
mandatorily
measured at
fair value
through
profit or
loss 6,531 6,900 3,071 16,502 6,183 6,380 3,318 15,881
------------- ------------------ ---------------- --------------------- -------------- ------------------ ---------------- --------------------- --------------
Derivatives 1,776 200,422 1,466 203,664 2,296 221,205 1,737 225,238
------------- ------------------ ---------------- --------------------- -------------- ------------------ ---------------- --------------------- --------------
Financial
investments 20,426 9,005 1,394 30,825 19,007 8,902 1,447 29,356
------------- ------------------ ---------------- --------------------- -------------- ------------------ ---------------- --------------------- --------------
Liabilities
------------- ------------------ ---------------- -------------- ------------------ ---------------- --------------------- --------------
Trading
liabilities 31,452 13,657 444 45,553 26,258 14,592 415 41,265
------------- ------------------ ---------------- --------------------- -------------- ------------------ ---------------- --------------------- --------------
Financial
liabilities
designated
at fair
value 952 27,674 2,820 31,446 933 23,888 2,461 27,282
------------- ------------------ ---------------- --------------------- -------------- ------------------ ---------------- --------------------- --------------
Derivatives 1,943 195,647 1,860 199,450 1,744 214,645 2,478 218,867
------------- ------------------ ---------------- --------------------- -------------- ------------------ ---------------- --------------------- --------------
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts',
which replaced IFRS 4 'Insurance Contracts'. Comparative data have
been restated accordingly.
Fair value adjustments
At 30 Jun 2023 At 31 Dec 2022
--------------------------------------------------------
Corporate Corporate
MSS Centre MSS Centre
GBPm GBPm GBPm GBPm
-------------------------- --------------------------- -------------------------- ----------------------------
Type of adjustment
-------------------------- --------------------------- -------------------------- ----------------------------
Risk-related 320 39 359 33
-------------------------- --------------------------- -------------------------- ----------------------------
- bid-offer 163 - 188 -
- uncertainty 44 1 50 -
- credit valuation
adjustment 77 35 98 29
- debit valuation
adjustment (38) - (64) -
- funding fair value
adjustment 74 3 87 4
- other - - - -
-------------------------- ---------------------------
Model-related 44 - 31 -
-------------------------- --------------------------- -------------------------- ----------------------------
- model limitation 44 - 31 -
- other - - - -
-------------------------- ---------------------------
Inception profit (Day
1 P&L reserves) 51 - 64 -
-------------------------- --------------------------- -------------------------- ----------------------------
415 39 454 33
-------------------------- --------------------------- -------------------------- ----------------------------
Transfers between Level 1 and Level 2 fair values
Assets Liabilities
Designated
and otherwise
mandatorily
measured at
fair value Designated
Financial Trading through profit Trading at fair
investments assets or loss Derivatives liabilities value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ----------------- ------------------------- --------------------------- ------------------------- -------------------------
At 30 Jun
2023
-------------------------- ----------------- ------------------------- --------------------------- ------------------------- -------------------------
Transfers 26 135 - - 3 - -
from
Level
1 to
Level 2
-------------------------- ----------------- --------------------------------------------- ------------------------- --------------------------- ------------------------- -------------------------
Transfers 121 211 - - 5 - -
from
Level
2 to
Level 1
Full year
to 31 Dec
2022
-------------------------- ----------------- ------------------------- --------------------------- ------------------------- -------------------------
Transfers 126 1,194 - - 39 - -
from
Level
1 to
Level 2
-------------------------- ----------------- ------------------------- --------------------------- ------------------------- -------------------------
Transfers 189 682 - - 32 - -
from
Level
2 to
Level 1
-------------------------- ----------------- ------------------------- --------------------------- ------------------------- -------------------------
Transfers between levels of the fair value hierarchy are deemed
to occur at the end of each quarterly reporting period. Transfers
into and out of levels of the fair value hierarchy are normally
attributable to observability of valuation inputs and price
transparency.
Fair value valuation bases
Financial instruments measured at fair value using a valuation technique
with significant unobservable inputs - Level 3
Assets Liabilities
Designated
and otherwise
mandatorily
measured
Held at fair value Held Designated
Financial for through profit for at fair
investments trading or loss Derivatives Total trading value Derivatives Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- -------------- ---------------------- ---------------------- -----------------------
Private
equity
including
strategic
investments 84 72 2,904 - 3,060 191 - - 191
-------------- -------------- ------------------
Asset-backed
securities 209 292 - - 501 - - - -
Structured
notes - - - - - - 2,820 - 2,820
-------------------------- -------------- ------------------
Derivatives - - - 1,466 1,466 - - 1,860 1,860
Other
portfolios 1,101 2,049 167 - 3,317 253 - - 253
-------------------------- -------------- ------------------
At 30 Jun
2023 1,394 2,413 3,071 1,466 8,344 444 2,820 1,860 5,124
-------------------------- -------------- -------------- ------------------
Private
equity
including
strategic
investments 85 59 3,058 - 3,202 104 - - 104
Asset-backed
securities 275 170 78 - 523 - - - -
Structured
notes - - - - - - 2,461 - 2,461
--------------------------
Derivatives - - - 1,737 1,737 - - 2,478 2,478
Other
portfolios 1,087 2,509 182 - 3,778 311 - - 311
--------------------------
At 31 Dec
2022 1,447 2,738 3,318 1,737 9,240 415 2,461 2,478 5,354
Reconciliation of fair value measurements in Level 3 of the fair
value hierarchy
Movement in Level 3 financial instruments
Assets Liabilities
Designated
and otherwise
mandatorily
measured
at fair value Designated
Financial Trading through profit Trading at fair
investments assets or loss Derivatives liabilities value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ---------------------- ------------------------- -------------------- ------------------------ -------------------------
At 1 Jan 2023 1,447 2,738 3,318 1,737 415 2,461 2,478
--------------------------- ---------------------- --------------------
Total gains/(losses)
on assets and total (gains)/losses
on liabilities recognised
in profit or loss (2) 37 64 238 (180) 65 408
---------------------- --------------------
* net income/(losses) from financial instruments held
for trading or managed on a fair value basis - 37 - 238 (180) - 408
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 64 - - 65 -
* gains/(losses) from financial investments at fair
value through other comprehensive income (2) - - - - - -
Total gains/(losses)
recognised in other comprehensive
income (9) (33) (113) (2) - (21) (7)
- financial investments: 34 - - - - - -
fair value gains/(losses)
- exchange differences (43) (33) (113) (2) - (21) (7)
--------------------------- ----------------------
Purchases 48 428 105 - 92 - -
--------------------------- ---------------------- --------------------
New issuances - - - - 2 1,227 -
--------------------------- ---------------------- --------------------
Sales (100) (884) (231) - (142) (2) -
--------------------------- ---------------------- --------------------
Settlements (16) (10) 35 (492) 244 (807) (961)
--------------------------- ---------------------- --------------------
Transfers out (87) (186) (108) (95) (25) (243) (141)
--------------------------- ---------------------- --------------------
Transfers in 113 323 1 80 38 140 83
--------------------------- ---------------------- --------------------
At 30 Jun 2023 1,394 2,413 3,071 1,466 444 2,820 1,860
--------------------------- ---------------------- --------------------
Unrealised gains/(losses)
recognised in profit
or loss relating to assets
and liabilities held
at 30 Jun 2023 - (6) (55) 424 (3) (88) (473)
---------------------- --------------------
* trading income/(expense) excluding net interest
income - - - - - - -
* net income/(expense) from other financial instruments
designated at fair value - (6) - 424 (3) - (473)
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - (55) - - (88) -
Movement in Level 3 financial instruments (continued)
Assets Liabilities
Designated
and otherwise
mandatorily
measured
at fair value Designated
Financial Trading through profit Trading at fair
investments assets or loss Derivatives liabilities value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 Jan 2022 1,387 1,344 3,171 1,816 580 2,121 2,454
--------------------------- ---------------------- --------------------
Total gains/(losses)
on assets and total (gains)/losses
on liabilities recognised
in profit or loss (7) 51 47 531 (19) (450) 12
---------------------- --------------------
* net income/(losses) from financial instruments held
for trading or managed on a fair value basis - 51 - 531 (19) - 12
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 47 - - (450) -
* gains/(losses) from financial investments at fair
value through other comprehensive income (7) - - - - - -
Total gains/(losses)
recognised in other comprehensive
income (120) 6 152 2 - 10 2
- financial investments: (170) - - - - - -
fair value gains/(losses)
- exchange differences 50 6 152 2 - 10 2
Purchases 289 579 289 - 10 - -
New issuances - - - - 3 1,075 -
--------------------------- ---------------------- --------------------
Sales (98) (441) (212) - (71) (18) -
--------------------------- ---------------------- --------------------
Settlements (52) (38) (8) (369) (473) (294) (380)
--------------------------- ---------------------- --------------------
Transfers out (198) (152) - (335) (5) (243) (414)
--------------------------- ---------------------- --------------------
Transfers in 26 390 23 180 281 356 262
--------------------------- ---------------------- --------------------
At 30 Jun 2022 1,227 1,739 3,462 1,825 306 2,557 1,936
--------------------------- ---------------------- --------------------
Unrealised gains/(losses)
recognised in profit
or loss relating to assets
and liabilities held
at 30 Jun 2022 - - 42 748 1 78 2,992
---------------------- --------------------
* trading income/(expense) excluding net interest
income - - - 748 1 - 2,992
* net income/(expense) from other financial instruments
designated at fair value - - 42 - - 78 -
At 1 Jul 2022 1,227 1,739 3,462 1,825 306 2,557 1,936
--------------------------- ---------------------- --------------------
Total gains/(losses)
on assets and total (gains)/losses
on liabilities recognised
in profit or loss 1 (466) (131) 33 (204) (188) 711
---------------------- --------------------
* net income/(losses) from financial instruments held
for trading or managed on a fair value basis - (466) - 33 (204) - 711
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - (131) - - (188) -
* gains/(losses) from financial investments at fair
value through other comprehensive income 1 - - - - - -
Total gains/(losses)
recognised in other comprehensive
income (25) 6 86 1 1 19 15
---------------------- --------------------
- financial investments: (62) - - - - - -
fair value gains/(losses)
- exchange differences 37 6 86 1 1 19 15
----------------------
Purchases 312 1,488 273 - 141 - -
--------------------------- ---------------------- --------------------
New issuances - - - - 4 630 -
--------------------------- ---------------------- --------------------
Sales (44) (275) (382) - (49) (60) -
--------------------------- ---------------------- --------------------
Settlements (38) (285) (43) (362) 66 (281) (321)
--------------------------- ---------------------- --------------------
Transfers out (1) (131) (2) (138) (10) (321) (168)
--------------------------- ---------------------- --------------------
Transfers in 15 662 55 378 160 105 305
--------------------------- ---------------------- --------------------
At 31 Dec 2022 1,447 2,738 3,318 1,737 415 2,461 2,478
--------------------------- ---------------------- --------------------
Unrealised gains/(losses)
recognised in profit
or loss relating to assets
and liabilities held
31 Dec 2022 - (5) 7 (183) 1 (48) (653)
---------------------- --------------------
* trading income/(expense) excluding net interest
income - (5) - (183) 1 - (653)
* net income/(expense) from other financial instruments
designated at fair value - - 7 - - (48) -
Effect of changes in significant unobservable assumptions to
reasonably possible alternatives
Sensitivity of Level 3 fair values to reasonably possible alternative
assumptions
At
30 Jun 2023 31 Dec 2022
Reflected Reflected in
in profit or
profit or Reflected loss Reflected in
loss in OCI OCI
Un- Un- Un- Un-
Favourable favourable Favourable favourable Favourable favourable Favourable favourable
changes changes changes changes changes changes changes changes
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------------------------ ----------------------- -----------------------
Derivatives,
trading
assets and
trading
liabilities(1) 258 (369) - - 201 (261) - -
------------------------ ------------------------ ---------------------- ---------------------- ------------------------ ------------------------ ----------------------- -----------------------
Designated and
otherwise
mandatorily
measured
at fair value
through
profit or loss 196 (196) - - 236 (235) - -
------------------------ ------------------------ ---------------------- ---------------------- ------------------------ ------------------------ ----------------------- -----------------------
Financial
investments 8 (8) 20 (22) 9 (9) 27 (19)
------------------------ ------------------------ ---------------------- ---------------------- ------------------------ ------------------------ ----------------------- -----------------------
Total 462 (573) 20 (22) 446 (505) 27 (19)
------------------------ ------------------------ ---------------------- ---------------------- ------------------------ ------------------------ ----------------------- -----------------------
1 Derivatives, trading assets and trading liabilities are
presented as one category to reflect the manner in which these
instruments are risk managed.
Sensitivity of Level 3 fair values to reasonably possible alternative
assumptions by instrument type
At
30 Jun 2023 31 Dec 2022
Reflected Reflected in
in profit or
profit or Reflected loss Reflected in
loss in OCI OCI
Favourable Un-favourable Favourable Un-favourable Favourable Un-favourable Favourable Un-favourable
changes changes changes changes changes changes changes changes
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------------------------ ------------------------ ------------------------
Private
equity
including
strategic
investments 184 (399) 8 (8) 225 (389) 8 (7)
------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------
Asset-backed
securities 36 (19) 5 (5) 28 (17) 12 (5)
Structured
notes 9 (9) - - 5 (5) - -
------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------
Derivatives 99 (92) - - 44 (44) - -
Other
portfolios 134 (54) 7 (9) 144 (50) 7 (7)
------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------
Total 462 (573) 20 (22) 446 (505) 27 (19)
------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------
The sensitivity analysis aims to measure a range of fair values
consistent with the application of a 95% confidence interval.
Methodologies take account of the nature of the valuation technique
employed, as well as the availability and reliability of observable
proxy and historical data. When the fair value of a financial
instrument is affected by more than one unobservable assumption,
the above table reflects the most favourable or the most
unfavourable change from varying the assumptions individually.
Key unobservable inputs to Level 3 financial instruments
Quantitative information about significant unobservable inputs in Level
3 valuations
At
30 Jun 2023 31 Dec
2022
Fair value
Key
Valuation unobservable Full range Full range
Assets Liabilities techniques inputs of inputs of inputs
GBPm GBPm Lower Higher Lower Higher
------------------- ------------------- ----------- ------
Private equity
including strategic
investments 3,060 191 See notes(1) See notes(1) N/A N/A N/A N/A
-------------------------------------- ------------------- -------------------
Asset-backed 501
securities -
-------------------------------------- -------------------
* CLO/CDO(2) 59 - Market proxy Bid quotes - 89 - 92
* other ABSs 442 - Market proxy Bid quotes 98 - 99
Structured notes - 2,820
-------------------------------------- ------------------- -------------------
Model-Option Equity
- 2,414 model volatility 6% 74% 6% 99%
Model-Option Equity
* equity-linked notes model correlation 28% 99% 32% 99%
Model-Option FX
* FX-linked notes - 12 model volatility 2% 32% 3% 20%
--------------------------------------
* other - 394
--------------------------------------
Derivatives 1,466 1,860
Interest rate
derivatives: 415 609
-------------------------------------- ------------------- -------------------
Constant
Model-Discounted Prepayment
* securitisation swaps 90 126 cash flow rate 5% 10% 5% 10%
--------------------------------------
Model-Option IR
* long-dated swaptions 50 59 model volatility 9% 27% 9% 33%
--------------------------------------
* other 275 424
--------------------------------------
FX derivatives: 277 322
-------------------------------------- ------------------- -------------------
Model-Option FX
* FX options 220 279 model volatility 2% 44% 3% 46%
* FX other 57 43
--------------------------------------
Equity derivatives: 608 704
-------------------------------------- ------------------- -------------------
Model-Option Equity
* long-dated single stock options 407 484 model volatility 7% 77% 7% 153%
--------------------------------------
* other 201 220
--------------------------------------
Credit derivatives 166 225
Other portfolios: 3,317 253
-------------------------------------- ------------------- -------------------
Model-Discounted
* repurchase agreements 438 231 cash flow IR Curve 0% 10% 1% 9%
* other 2,879 22
--------------------------------------
At 30 Jun 8,344 5,124
-------------------------------------- ------------------- -------------------
1 See notes on page 149 of the Annual Report and Accounts 2022 .
2 Collateralised loan obligation/collateralised debt obligation.
6 Fair values of financial instruments not carried at fair value
The bases for measuring the fair values of loans and advances to
banks and customers, financial investments, deposits by banks,
customer accounts, debt securities in issue, subordinated
liabilities, non-trading repurchase and reverse repurchase
agreements are consistent with those detailed in the Annual Report
and Accounts 2022 .
Fair values of financial instruments not carried at fair value on the
balance sheet
At 30 Jun 2023 At 31 Dec 2022
Carrying Carrying
amount Fair value amount Fair value
GBPm GBPm GBPm GBPm
Assets
Loans and
advances to
banks 15,112 15,116 17,109 17,112
Loans and
advances to
customers 88,708 87,050 72,614 72,495
Reverse
repurchase
agreements -
non-trading 77,246 77,246 53,949 53,949
Financial
investments
- at
amortised
cost 7,490 7,346 3,248 3,192
Liabilities
Deposits by
banks 24,567 24,580 20,836 20,900
Customer
accounts 229,274 229,278 215,948 215,955
Repurchase
agreements -
non-trading 47,568 47,568 32,901 32,902
Debt
securities
in issue 8,605 8,539 7,268 7,256
Subordinated
liabilities 14,096 14,420 14,528 14,434
Other financial instruments not carried at fair value are
typically short term in nature and reprice to current market rates
frequently. Accordingly, their carrying amount is a reasonable
approximation of fair value. They include cash and balances at
central banks and items in the course of collection from and
transmission to other banks, all of which are measured at amortised
cost.
7 Goodwill and intangible assets
At
30 Jun 31 Dec
2023 2022
GBPm GBPm
Other intangible assets(1) 118 91
---------------------------
Intangible assets 118 91
--------------------------- ------------------------------- ---------------------------------
1 Included within the group's other intangible assets is
internally generated software with a net carrying value of GBP115m
(2022: GBP87m). During the year, capitalisation of internally
generated software was GBP37m (2022: GBP47m), amortisation and
impairment of other intangible assets totalled GBP(10)m for the
group (2022: GBP21m).
8 Provisions
Legal
proceedings
Restructuring and regulatory Customer Other
costs matters remediation provisions Total
GBPm GBPm GBPm GBPm GBPm
---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Provisions (excluding
contractual
commitments)
---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
At 1 Jan 2023 126 77 13 103 319
---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Additions 9 37 1 26 73
---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Amounts utilised (25) (49) (2) (13) (89)
---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Unused amounts reversed (13) (10) (2) (12) (37)
Exchange and other
movements (6) (2) - 3 (5)
At 30 Jun 2023 91 53 10 107 261
Contractual
commitments(1)
At 1 Jan 2023 105
---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Net change in expected
credit
loss provisions (32)
---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
At 30 Jun 2023 73
---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Total provisions
---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
At 31 Dec 2022 424
---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
At 30 Jun 2023 334
---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
1 The contractual commitments provision includes off-balance
sheet loan commitments and guarantees, for which expected credit
losses are provided under IFRS 9. Further analysis of the movement
in the expected credit loss is disclosed within the 'Reconciliation
of changes in gross carrying/nominal amount and allowances for
loans and advances to banks and customers including loan
commitments and financial guarantees' table on page 26.
Legal proceedings and regulatory matters
Further details of legal proceedings and regulatory matters are
set out in Note 10: 'Legal proceedings and regulatory matters'.
Legal proceedings include civil court, arbitration or tribunal
proceedings brought against HSBC companies (whether by way of claim
or counterclaim), or civil disputes that may, if not settled,
result in court, arbitration or tribunal proceedings. Regulatory
matters refer to investigations, reviews and other actions carried
out by, or in response to the actions of, regulatory or law
enforcement agencies in connection with alleged wrongdoing.
9 Contingent liabilities, contractual commitments and guarantees
At
30 Jun 31 Dec
2023 2022
GBPm GBPm
---------------------------------------------------- -------------------------------
Guarantees and other contingent liabilities:
---------------------------------------------------- -------------------------------
- financial guarantees 5,263 5,327
---------------------------------------------------- ------------------------------- -------------------------------
- performance and other guarantees 16,629 17,136
---------------------------------------------------- ------------------------------- -------------------------------
- other contingent liabilities 277 353
---------------------------------------------------- ------------------------------- -------------------------------
At the end of the period 22,169 22,816
---------------------------------------------------- ------------------------------- -------------------------------
Commitments:(1)
----------------------------------------------------
- documentary credits and short-term trade-related
transactions 1,722 2,317
---------------------------------------------------- ------------------------------- -------------------------------
- forward asset purchases and forward deposits
placed 48,490 33,684
---------------------------------------------------- ------------------------------- -------------------------------
- standby facilities, credit lines and other
commitments
to lend 91,567 91,912
---------------------------------------------------- ------------------------------- -------------------------------
At the end of the period 141,779 127,913
---------------------------------------------------- ------------------------------- -------------------------------
1 Includes GBP134,690m of commitments (2022: GBP126,457m), to
which the impairment requirements in IFRS 9 are applied where the
group has become party to an irrevocable commitment.
The above table discloses the nominal principal amounts, which
represents the maximum amounts at risk should the contracts be
fully drawn upon and clients default. As a significant portion of
guarantees and commitments is expected to expire without being
drawn upon, the total of the nominal principal amounts is not
indicative of future liquidity requirements.
In December 2017, HM Revenue & Customs ('HMRC') challenged
the VAT status of certain UK branches of HSBC overseas entities.
HMRC has also issued notices of assessment covering the period from
1 October 2013 to 31 December 2017 totalling GBP262m, with interest
to be
determined. No provision has been recognised in respect of these
notices. In first quarter of 2019, HMRC reaffirmed its assessment
that the UK branches are ineligible to be members of the UK VAT
group and, consequently, HSBC paid HMRC the sum of GBP262m and
filed appeals. In February 2022, the Upper Tribunal issued a
judgement addressing several preliminary legal issues, which was
partially in favour of HMRC and partially in favour of HSBC. HSBC
has applied for permission to appeal to the Court of Appeal and is
awaiting the Court's decision. If permission is denied, the case
will be further heard by the First Tier Tax Tribunal. Since January
2018, HSBC's returns have been prepared on the basis that the UK
branches are not in the UK VAT group. In the event that HSBC's
appeals are successful, HSBC will seek a refund of this VAT, of
which GBP167m is estimated to be attributable to HSBC Bank plc.
Contingent liabilities arising from legal proceedings,
regulatory and other matters against group companies are disclosed
in Note 10: 'Legal proceedings and regulatory matters'. The
expected credit loss provisions relating to guarantees and
commitments under IFRS 9 are disclosed in Note 8: 'Provisions'.
10 Legal proceedings and regulatory matters
The group is party to legal proceedings and regulatory matters
in a number of jurisdictions arising out of its normal business
operations. Apart from the matters described below, the group
considers that none of these matters are material. The recognition
of provisions is determined in accordance with the accounting
policies set out in Note 1 of the Annual Report and Accounts 2022.
While the outcomes of legal proceedings and regulatory matters are
inherently uncertain, management believes that, based on the
information available to it, appropriate provisions have been made
in respect of these matters as at 30 June 2023 (see Note 9:
'Provisions'). Where an individual provision is material, the fact
that a provision has been made is stated and quantified, except to
the extent that doing so would be seriously prejudicial. Any
provision recognised does not constitute an admission of wrongdoing
or legal liability. It is not practicable to provide an aggregate
estimate of potential liability for our legal proceedings and
regulatory matters as a class of contingent liabilities.
Bernard L. Madoff Investment Securities LLC
Various non-US HSBC companies provided custodial, administration
and similar services to a number of funds incorporated outside the
US whose assets were invested with Bernard L. Madoff Investment
Securities LLC ('Madoff Securities'). Based on information provided
by Madoff Securities as at 30 November 2008, the purported
aggregate value of these funds was $8.4bn, including fictitious
profits reported by Madoff. Based on information available to HSBC,
the funds' actual transfers to Madoff Securities minus their actual
withdrawals from Madoff Securities during the time HSBC serviced
the funds are estimated to have totalled approximately $4bn.
Various HSBC companies have been named as defendants in lawsuits
arising out of Madoff Securities' fraud.
US litigation: The Madoff Securities Trustee has brought
lawsuits against various HSBC companies and others, seeking
recovery of transfers from Madoff Securities to HSBC in an amount
not specified, and these lawsuits remain pending in the US
Bankruptcy Court for the Southern District of New York (the 'US
Bankruptcy Court').
Certain Fairfield entities (together, 'Fairfield') (in
liquidation since July 2009) have brought a lawsuit in the US
against fund shareholders, including HSBC companies that acted as
nominees for clients, seeking restitution of redemption payments.
In August 2022, the US District Court for the Southern District of
New York affirmed earlier decisions by the US Bankruptcy Court that
dismissed the majority of the liquidators' claims (against most of
the HSBC companies). In September 2022, the remaining defendants
before the US Bankruptcy Court sought leave to appeal and the
liquidators filed appeals to the US Court of Appeals for the Second
Circuit, which are currently pending. Meanwhile, proceedings before
the US Bankruptcy Court with respect to the remaining claims are
ongoing.
UK litigation: The Madoff Securities Trustee has filed a claim
against various HSBC companies in the High Court of England and
Wales, seeking recovery of transfers from Madoff Securities to
HSBC. The claim has not yet been served and the amount claimed has
not been specified.
Cayman Islands litigation: In February 2013, Primeo Fund
('Primeo') (in liquidation since April 2009) brought an action
against HSBC Securities Services Luxembourg ('HSSL') and Bank of
Bermuda (Cayman) Limited (now known as HSBC Cayman Limited),
alleging breach of contract and breach of fiduciary duty and
claiming monetary damages. Following dismissal of Primeo's action
by the lower and appellate courts in the Cayman Islands, in 2019,
Primeo appealed to the UK Privy Council. During 2021, the UK Privy
Council held two separate hearings in connection with Primeo's
appeal. Judgment was given against HSBC in respect of the first
hearing and judgment is pending in respect of the second
hearing.
Luxembourg litigation: In April 2009, Herald Fund SPC ('Herald')
(in liquidation since July 2013) brought an action against HSSL
before the Luxembourg District Court, seeking restitution of cash
and securities that Herald purportedly lost because of Madoff
Securities' fraud, or money damages. The Luxembourg District Court
dismissed Herald's securities restitution claim, but reserved
Herald's cash restitution and money damages claims. Herald has
appealed this judgment to the Luxembourg Court of Appeal, where the
matter is pending.
In late 2018, Herald brought additional claims against HSSL and
HSBC Bank plc before the Luxembourg District Court, seeking further
restitution and damages.
In October 2009, Alpha Prime Fund Limited ('Alpha Prime')
brought an action against HSSL before the Luxembourg District
Court, seeking the restitution of securities, or the cash
equivalent, or money damages. In December 2018, Alpha Prime brought
additional claims seeking damages against various HSBC companies.
These matters are currently pending before the Luxembourg District
Court.
In December 2014, Senator Fund SPC ('Senator') brought an action
against HSSL before the Luxembourg District Court, seeking
restitution of securities, or the cash equivalent, or money
damages. In April 2015, Senator commenced a separate action against
the Luxembourg branch of HSBC Bank plc asserting identical
claims.
In December 2018, Senator brought additional claims against HSSL
and HSBC Bank plc Luxembourg branch, seeking restitution of
Senator's securities or money damages. These matters are currently
pending before the Luxembourg District Court.
There are many factors that may affect the range of possible
outcomes, and any resulting financial impact, of the various
Madoff-related proceedings described above, including but not
limited to the multiple jurisdictions in which the proceedings have
been brought. Based upon the information currently available,
management's estimate of the possible aggregate damages that might
arise as a result of all claims in the various Madoff-related
proceedings is around $600m, excluding costs and interest. Due to
uncertainties and limitations of this estimate, any possible
damages that might ultimately arise could differ significantly from
this amount.
Anti-money laundering and sanctions-related matters
Since November 2014, a number of lawsuits have been filed in
federal courts in the US against various HSBC companies and others
on behalf of plaintiffs who are, or are related to, victims of
terrorist attacks in the Middle East. In each case, it is alleged
that the defendants aided and abetted the unlawful conduct of
various sanctioned parties in violation of the US Anti-Terrorism
Act. Nine actions remain pending in federal courts and HSBC Bank
plc's motions to dismiss have been granted in five of these cases.
In September 2022 and January 2023, respectively, the appellate
courts affirmed the dismissals of two of the cases, and the
plaintiffs are seeking review of these decisions by the US Supreme
Court. The dismissals in the other cases are subject to appeal. The
four remaining actions are at an early stage.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, which could be
significant.
Interbank offered rates investigation and litigation
Euro interest rate derivatives: In December 2016, the European
Commission ('EC') issued a decision finding that HSBC, among other
banks, engaged in anti-competitive practices in connection with the
pricing of euro interest rate derivatives, and the EC imposed a
fine on HSBC based on a one-month infringement in 2007. The fine
was annulled in 2019 and a lower fine was imposed in 2021. In
January 2023, the European Court of Justice dismissed an appeal by
HSBC and upheld the EC's findings on HSBC's liability. A separate
appeal by HSBC concerning the amount of the fine remains pending
before the General Court of the European Union.
US dollar Libor: Beginning in 2011, HSBC and other panel banks
have been named as defendants in a number of private lawsuits filed
in federal and state courts in the US with respect to the setting
of US dollar Libor. The complaints assert claims under various US
federal and state laws, including antitrust and racketeering laws
and the Commodity Exchange Act ('US CEA'). The lawsuits include
individual and putative class actions, most of which have been
transferred and/or consolidated for pre-trial purposes before the
US District Court for the Southern District of New York. HSBC has
reached class settlements with five groups of plaintiffs, and the
court has approved these settlements. HSBC has also resolved
several of the individual actions, although a number of other US
dollar Libor-related actions remain pending.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, which could be
significant.
Foreign exchange-related investigations and litigation
In June 2020, the Competition Commission of South Africa, having
initially referred a complaint for proceedings before the South
African Competition Tribunal in February 2017, filed a revised
complaint against 28 financial institutions, including HSBC Bank
plc, for alleged anti-competitive behaviour in the South African
foreign exchange market. In March 2023, HSBC Bank plc's application
to dismiss the revised complaint was denied and, in April 2023,
HSBC Bank plc appealed the decision to the South African
Competition Appeal Court.
Beginning in 2013, various HSBC companies and other banks have
been named as defendants in a number of putative class actions
filed in, or transferred to, the US District Court for the Southern
District of New York arising from allegations that the defendants
conspired to manipulate foreign exchange rates. HSBC has reached
class settlements with two groups of plaintiffs, including direct
and indirect purchasers of foreign exchange products, and the court
has granted final approval of these settlements.
In 2018, complaints alleging foreign exchange-related misconduct
were filed in the US District Court for the Southern District of
New York and the High Court of England and Wales against HSBC and
other defendants by certain plaintiffs that opted out of the direct
purchaser class action settlement in the US. HSBC has reached a
settlement with the plaintiffs to resolve these claims. These
matters are now closed. In January 2023, HSBC reached a
settlement-in-principle with plaintiffs in Israel to resolve a
class action filed in the local courts alleging foreign
exchange-related misconduct. The settlement remains subject to the
negotiation of definitive documentation and court approval.
Lawsuits alleging foreign exchange-related misconduct remain
pending against HSBC and other banks in courts in Brazil. It is
possible that additional civil actions will be initiated against
HSBC in relation to its historical foreign exchange activities.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of the pending matters, which
could be significant.
Precious metals fix-related litigation
Gold: Since 2015, numerous putative class actions have been
filed in the Ontario and Quebec Superior Courts of Justice against
various HSBC companies and other financial institutions. The
plaintiffs allege that, among other things, from January 2004 to
March 2014, the defendants conspired to manipulate the price of
gold and gold derivatives in violation of the Canadian Competition
Act and common law. These actions are ongoing.
Silver: HSBC and other members of The London Silver Market
Fixing Limited are defending a class action pending in the US
District Court for the Southern District of New York alleging that,
from January 2007 to December 2013, the defendants conspired to
manipulate the price of silver and silver derivatives for their
collective benefit in violation of US antitrust laws, the US CEA
and New York state law. In May 2023, the court granted the
defendants' motion to dismiss. The plaintiffs have appealed the
dismissal, and this appeal remains pending.
In April 2016, two putative class actions were filed in the
Ontario and Quebec Superior Courts of Justice against various HSBC
companies and other financial institutions. The plaintiffs in both
actions allege that, from January 1999 to August 2014, the
defendants conspired to manipulate the price of silver and silver
derivatives in violation of the Canadian Competition Act and common
law. These actions are ongoing.
Platinum and palladium: HSBC and other members of The London
Platinum and Palladium Fixing Company Limited are defending a class
action pending in the US District Court for the Southern District
of New York alleging that, from January 2008 to November 2014, the
defendants conspired to manipulate the price of platinum group
metals and related financial products for their collective benefit
in violation of US antitrust laws and the US CEA. In February 2023,
the court reversed an earlier dismissal of the plaintiffs' third
amended complaint, and this matter is proceeding.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, which could be
significant.
Gilts trading investigation and litigation
Since 2018, the UK Competition and Markets Authority ('CMA') has
been investigating HSBC and four other banks for suspected
anti-competitive conduct in relation to the historical trading of
gilts and related derivatives. In May 2023, the CMA announced its
case against HSBC Bank plc, and HSBC Bank plc is contesting the
CMA's allegations.
In June 2023, HSBC Bank plc, among other banks, was named as a
defendant in a putative class action filed in the US District Court
for the Southern District of New York by plaintiffs alleging
anti-competitive conduct in the gilts market. This matter is at an
early stage. It is possible that additional civil actions will be
initiated against HSBC in relation to its historical gilts trading
activities.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, which could be
significant.
Other regulatory investigations, reviews and litigation
HSBC Bank plc and/or certain of its affiliates are subject to a
number of other investigations and reviews by various regulators
and competition and law enforcement authorities, as well as
litigation, in connection with various matters relating to the
firm's businesses and operations, including:
- an investigation by the PRA in connection with depositor protection arrangements in the UK;
- an investigation by the FCA in connection with collections and recoveries operations in the UK;
- investigations by prosecuting authorities in Germany and
France in connection with the dividend withholding tax treatment of
certain trading activities;
- an investigation by the US Commodity Futures Trading
Commission ('CFTC') concerning compliance with records preservation
requirements relating to the use of unapproved electronic messaging
platforms for business communications. HSBC Bank plc has reached a
settlement with the CFTC to resolve this investigation, and this
matter is now closed; and
- two group actions pending in federal courts in the US and a
claim issued in the High Court of England and Wales in connection
with HSBC Bank plc's role as a correspondent bank to Stanford
International Bank Ltd from 2003 to 2009. HSBC Bank plc has reached
settlements with the plaintiffs in the US and UK to resolve these
claims. The US settlement is subject to court approval and the UK
settlement has concluded.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of the pending matters, which
could be significant.
11 Assets held for sale and liabilities of disposal groups held for
sale
Held for sale
At
30 Jun 31 Dec
2023 2022
GBPm GBPm
--------------------------------- --------------------------------
Disposal groups 1,389 23,179
--------------------------------- -------------------------------- ---------------------------------
Unallocated impairment losses(1) (233) (1,978)
--------------------------------- -------------------------------- ---------------------------------
Non-current assets held for sale 14 13
--------------------------------- -------------------------------- ---------------------------------
Total assets 1,170 21,214
--------------------------------- -------------------------------- ---------------------------------
Liabilities of disposal groups 1,178 24,711
--------------------------------- -------------------------------- ---------------------------------
1 This represents impairment losses in excess of the carrying
value on the non-current assets, excluded from the measurement
scope of IFRS 5.
Disposal groups
Planned sale of our retail banking operations in France
On 25 November 2021, HSBC Continental Europe signed a framework
agreement with Promontoria MMB SAS ('My Money Group') and its
subsidiary Banque des Caraïbes SA, regarding the planned sale of
HSBC Continental Europe's retail banking operations in France. The
sale, which is subject to information and consultation processes
with respective works councils, regulatory approvals and the
satisfaction of other relevant conditions, included: HSBC
Continental Europe's French retail banking operations; the Crédit
Commercial de France ('CCF') brand; and HSBC Continental Europe's
100% ownership interest in HSBC SFH (France) and its 3% ownership
interest in Crédit Logement.
During 1Q23, the completion of the planned transaction became
less certain. This was due to a significant rise in interest rates
in France, which is expected to increase the amount of capital
required by the buyer on completion. Given the completion of the
sale had become less certain, we were required by IFRS 5 to change
the accounting classification of our retail banking operations in
France to be no longer classified as held for sale, resulting in a
GBP1.7bn reversal of the previously recognised impairment in
respect of the sale.
On 14 June 2023, HSBC Continental Europe signed a further
memorandum of understanding with the buyer regarding certain
potential changes to the terms of the sale, which are designed to
enable the buyer to satisfy its future capital requirements and to
obtain regulatory approval for the transaction. The potential
changes foresee: the retention of EUR7.0bn of home and other loans
by HSBC Continental Europe that were originally planned to transfer
as part of the sale, the inclusion in the perimeter for sale of a
cash amount equivalent to the carrying value of the retained
portfolio of loans, and the setting of the net asset value of the
transferred business by reference to relevant prevailing market
rates at completion. In addition, depending on the prevailing
market rates at completion, HSBC Continental Europe may receive a
profit participation interest in exchange for investing capital
into the top holding company of My Money Group, such that the
aggregate of the actual net asset value delivered at completion and
the investment made in the profit participation interest would not
exceed EUR1.768bn. The potential changes also foresee the retention
of the CCF brand, the entry into a long-term agreement to license
it to the buyer and certain enhancements to the insurance and asset
management distribution agreements with the buyer. The transaction
remains subject to information and consultation processes with
respective works councils and regulatory approvals, and the parties
aim to complete on 1 January 2024.
Taking into account the potential changes, the transaction is
expected to result in the recognition of a pre-tax loss on sale
estimated up to EUR2.0bn (GBP1.7bn) upon reclassification of the
business as held for sale. This is expected during the second half
of 2023 provided sufficient progress is demonstrated to support the
appropriate level of probability of successful completion. Once
that threshold is achieved, the disposal group will be reclassified
as held for sale and will be remeasured at the lower of carrying
amount and fair value less costs to sell at each reporting period.
Any remaining gains or losses not previously recognised and the
reversal of any remaining deferred tax assets and liabilities, will
be recognised on completion.
At 30 June 2023, a deferred tax liability of GBP0.3bn was
recognised as a consequence of the temporary difference in tax and
accounting treatment in respect of the provision for loss on
disposal, which was deductible in the French tax return in 2021 but
will be accounted for when the disposal group is classified as held
for sale in accordance with IFRS 5, at which time the deferred tax
liability will reverse.
Planned sale of our branch operations in Greece
On 24 May 2022, HSBC Continental Europe signed a sale and
purchase agreement for the sale of its branch operations in Greece
to Pancreta Bank SA. In the second quarter of 2022, we recognised a
loss of GBP0.1bn upon reclassification as held for sale in
accordance with IFRS 5. At
30 June 2023, the disposal group included GBP0.2bn of loans and
advances to customers and GBP1.1bn of customer accounts.
Planned sale of our business in Russia
On 30 June 2022, following a strategic review of our business in
Russia, HSBC Europe BV (a wholly-owned subsidiary of HSBC Bank plc)
entered into an agreement for the planned sale of its wholly-owned
subsidiary HSBC Bank (RR) (Limited Liability Company). Completion
of the transaction is subject to regulatory and governmental
approvals. In 2022, a GBP0.2bn loss on the planned sale was
recognised, upon reclassification as held for sale in accordance
with IFRS 5. Completion is currently expected to occur in the
second half of 2023. At 30 June 2023, the business remained
classified as held for sale.
At 30 June 2023, the major classes of assets and associated
liabilities of disposal groups held for sale, including allocated
impairment losses, were as follows:
Branch
operations Business
in Greece in Russia Total
GBPm GBPm GBPm
---------------------------------- ---------------------------------- --------------------------------
Assets of
disposal
groups held
for sale
------------- ----------------------------------
Cash and
balances at
central
banks 871 - 871
Loans and
advances to
banks 19 124 143
-------------
Loans and
advances to
customers 238 - 238
------------- ---------------------------------- ---------------------------------- --------------------------------
Reverse
repurchase
agreements - 98 98
------------- ---------------------------------- ---------------------------------- --------------------------------
Financial
investments - 17 17
Prepayments,
accrued
income and
other assets 4 18 22
-------------
Total Assets
at 30 Jun
2023 1,132 257 1,389
------------- ---------------------------------- ---------------------------------- --------------------------------
Liabilities
of disposal
groups held
for sale
------------- ----------------------------------
Customer
accounts 1,146 4 1,150
Accruals,
deferred
income and
other
liabilities 21 7 28
-------------
Total
Liabilities
at 30 Jun
2023 1,167 11 1,178
Third Second
Expected date quarter Half of
of of 2023
completion 2023
Operating All global
segment businesses CMB, GBM
12 Transactions with related parties
There were no other changes to the related party transactions
described in Note 33 of the Annual Report and Accounts 2022 that
have had a material effect on the financial position or performance
of the group in the half-year to 30 June 2023.
All related party transactions that took place in the half-year
to 30 June 2023 were similar in nature to those disclosed in the
Annual Report and Accounts 2022.
13 Effects of adoption of IFRS 17
On 1 January 2023 the group adopted IFRS 17 'Insurance
Contracts' and as required by the standard applied the requirements
retrospectively with comparatives restated from the transition
date, 1 January 2022. The tables below provide the transition
restatement impact on the group's consolidated balance sheet as at
1 January 2022, as well as the group consolidated income statement
and the group consolidated statement of comprehensive income for
the six-month period ended 30 June 2022.
Further information about the effect of adoption of IFRS 17 is
provided in Note 1: Basis of preparation of material accounting
policies on page 43.
IFRS 17 transition impact on the consolidated balance sheet at 1
January 2022
IFRS
Removal Remeasure-ment 17
of PVIF effect fulfilment IFRS
IFRS and IFRS of IFRS cash 17 Tax IFRS Total
4 4 9 re-designations flows CSM effect 17 movements
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- -------------------- ---------------------
Assets
-------------------- --------------------
Financial assets
designated
and otherwise
mandatorily
measured at
fair value
through profit
or loss 18,649 18,649 -
Loans and
advances to
banks 10,784 10,784 -
---------------- -------------------- -------------------- ---------------------
Loans and
advances to
customers 91,177 91,177 -
---------------- -------------------- -------------------- ---------------------
Financial
investments 41,300 41,300 -
---------------- -------------------- -------------------- ---------------------
Goodwill and
intangible
assets 894 (811) 83 (811)
---------------- -------------------- -------------------- ---------------------
Deferred tax
assets 599 199 798 199
---------------- -------------------- -------------------- ---------------------
All other assets 433,208 (114) 142 433,236 28
---------------- ---------------------- -------------------- -------------------- ---------------------
Total assets 596,611 (925) - 142 - 199 596,027 (584)
---------------- --------------------------- ---------------------- -------------------- -------------------- ---------------------
Liabilities and
equity
---------------- -------------------- --------------------
Liabilities
---------------- -------------------- --------------------
Insurance
contract
liabilities 22,264 (22,264) 21,311 890 22,201 (63)
---------------- ---------------------- -------------------- -------------------- ---------------------
Deferred tax
liabilities 15 (10) 5 (10)
---------------- -------------------- -------------------- ---------------------
All other
liabilities 550,617 4 68 (13) 550,676 59
---------------- ---------------------- -------------------- -------------------- ---------------------
Total
liabilities 572,896 (22,260) 21,379 877 (10) 572,882 (14)
---------------- ---------------------- -------------------- -------------------- ---------------------
Total
shareholders'
equity 23,584 21,335 - (21,237) (877) 209 23,014 (570)
---------------- --------------------------- ---------------------- -------------------- -------------------- ---------------------
Non-controlling
interests 131 131 -
---------------- -------------------- -------------------- ---------------------
Total equity 23,715 21,335 - (21,237) (877) 209 23,145 (570)
---------------- --------------------------- ---------------------- -------------------- -------------------- ---------------------
Total
liabilities and
equity 596,611 (925) - 142 - 199 596,027 (584)
---------------- --------------------------- ---------------------- -------------------- -------------------- ---------------------
Transition drivers
Removal of PVIF and IFRS 4 balances
The PVIF intangible asset of GBP811m previously reported under
IFRS 4 within 'Goodwill and intangible assets' arose from the
upfront recognition of future profits associated with in-force
insurance contracts. PVIF is no longer reported following the
transition to IFRS 17, as future profits are deferred within the
CSM. Other IFRS 4 insurance contract assets (shown above within
'All other assets') and insurance contract liabilities are removed
on transition, to be replaced with IFRS 17 balances.
Recognition of the IFRS 17 fulfilment cash flows
The measurement of the insurance contracts liabilities under
IFRS 17 is based on groups of insurance contracts and includes a
liability for fulfilling the insurance contract, such as premiums,
expenses, insurance benefits and claims including policyholder
returns and the cost of guarantees. These are recorded within the
fulfilment cash flow component of the insurance contract liability,
together with the risk adjustment for non-financial risk.
Recognition of the IFRS 17 CSM
The CSM is a component of the insurance contract liability and
represents the future unearned profit associated with insurance
contracts which will be released to the profit and loss over the
expected coverage period.
Tax effect
The removal of deferred tax liabilities primarily results from
the removal of the associated PVIF intangible, and new deferred tax
assets are reported, where appropriate, on temporary differences
between the new IFRS 17 accounting balances and their associated
tax bases.
IFRS 17 transition impact on the reported consolidated income
statement for the 6 months ended 30 June 2022
Removal
of PVIF
and Insurance IFRS Experience Attribut-
IFRS IFRS finance 17 Onerous variance able Tax IFRS
4 4 income/expense CSM contracts and other expenses effect 17
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------------------- -------------------- ------------------------ ---------------------- --------------
Net interest
income 991 991
--------------- --------------------- -------------------- ------------------------ ---------------------- --------------
Net fee income 644 18 662
Net income from
financial
instruments held
for trading
or managed on a
fair value
basis 1,545 1,545
--------------- --------------------- -------------------- ------------------------ ---------------------- --------------
Net expense from
assets
and liabilities
of insurance
businesses,
including
related
derivatives,
measured
at fair value
through
profit or loss (1,326) (1,326)
--------------
Losses recognised
on assets
held for sale (219) (219)
Net insurance
premium
income 1,036 (1,036) -
Insurance finance
income/(expense) - 1,168 1,168
Insurance service
result - 57 (5) 10 62
- insurance
revenue - 57 120 177
- insurance
service expense - (5) (110) (115)
------------------------ ---------------------- --------------
Other operating
income/(loss) 218 (161) 8 (5) 60
--------------- --------------------- -------------------- ------------------------ ---------------------- --------------
Total operating
income 2,889 (1,197) 1,176 57 (5) 5 18 - 2,943
--------------- ---------------------- --------------
Net insurance
claims and
benefits paid
and movement
in liabilities
to policyholders 233 (233) -
--------------- --------------------- -------------------- ------------------------ ---------------------- --------------
Net operating
income
before change in
expected
credit losses
and other
credit
impairment
charges 3,122 (1,430) 1,176 57 (5) 5 18 - 2,943
--------------- --------------------- -------------------- ------------------------ ---------------------- --------------
Change in
expected credit
losses and other
credit
impairment
charges (187) (187)
--------------- --------------------- -------------------- ------------------------ ---------------------- --------------
Net operating
income 2,935 (1,430) 1,176 57 (5) 5 18 - 2,756
-------------------- ---------------------- --------------
Total operating
expenses (2,587) - - - - 55 - (2,532)
--------------- --------------------- -------------------- ------------------------ ---------------------- --------------
Operating profit 348 (1,430) 1,176 57 (5) 5 73 - 224
-------------------- ---------------------- --------------
Share of loss in
associates
and joint
ventures (21) (21)
--------------- --------------------- -------------------- ------------------------ ---------------------- --------------
Profit before tax 327 (1,430) 1,176 57 (5) 5 73 - 203
-------------------- ---------------------- --------------
Tax expense (86) 62 (24)
--------------- --------------------- -------------------- ------------------------ ---------------------- --------------
Profit for the
period 241 (1,430) 1,176 57 (5) 5 73 62 179
-------------------- ---------------------- --------------
Transition drivers
Removal of IFRS 4 based revenue items
As a result of the removal of the PVIF intangible asset and IFRS
4 results, the associated revenue of GBP161m for the six months to
30 June 2022 that was previously reported within 'Other operating
income' is no longer reported under IFRS 17. This includes the
removal of the value of new business and changes to in-force book
PVIF from valuation adjustments and experience variances.
On the implementation of IFRS 17 new income statement line items
associated with insurance contract accounting were introduced.
Consequently, the previously reported IFRS 4 line items 'Net
insurance premium income', and 'Net insurance claims and benefits
paid and movement in liabilities to policyholders' were also
removed.
Introduction of IFRS 17 income statement
Insurance finance income/(expense)
Insurance finance income/(expense) of GBP1,168m for the six
months to 30 June 2022 represents the change in the carrying amount
of insurance contracts arising from the effect of, and changes in,
the time value of money and financial risk. For VFA contracts,
which represent more than 98% of HSBC's insurance contracts, the
insurance finance income/(expense) includes the changes in the fair
value of underlying items (excluding additions and withdrawals). It
therefore has an offsetting impact to investment income earned on
underlying assets supporting insurance contracts. This includes an
offsetting impact to the gains and losses on assets held at fair
value through profit or loss, and which is now included in 'Net
expense from assets and liabilities of insurance businesses,
including related derivatives, measured at fair value through
profit or loss'.
CSM
Revenue is recognised for the release of the CSM associated with
the in-force business, which was allocated at a rate of
approximately 14% during the six months to 30 June 2022. The CSM
release is largely impacted by the constant measure allocation
approach for investment services, but may vary over time primarily
due to changes in the total amount of CSM reported on the balance
sheet from factors such as new business written, changes to levels
of actual returns earned on underlying assets, or changes to
assumptions.
Onerous contracts
Losses on onerous contracts are taken to the income statement as
incurred.
Experience variance and other
Experience variance and other represents the expected expenses,
claims and amortisation of acquisition cash flows which are
reported as part of the insurance service revenue. This is offset
with the actual expenses and claims incurred in the period and
recovery of acquisition cash flows.
Attributable expenses
Directly attributable expenses are the costs associated with
originating and fulfilling an identified portfolio of insurance
contracts. These costs include distribution fees paid to third
parties as part of originating insurance contracts together with
appropriate allocations of fixed and variable overheads which are
included within the fulfilment cash flows and are no longer shown
on the operating expenses line.
IFRS 17 transition impact on the consolidated statement of
comprehensive income
Half year to
31 Dec 31 Dec 30 Jun 30 Jun
2022 2022 2022 2022
IFRS IFRS
17 IFRS 4 17 IFRS 4
GBPm GBPm GBPm GBPm
Opening equity
for the period 23,334 23,992 23,145 23,715
of which
- Retained
earnings 24,675 25,323 24,157 24,735
- Financial
assets at FVOCI
reserve 94 632 1,603 1,081
- Insurance
finance reserve 540 - (514) -
Profit for the
period (732) (639) 179 241
Debt instruments
at fair value
through other
comprehensive
income (370) 2 (1,516) (456)
Equity
instruments
designated at
fair value
through other
comprehensive
income (1) (1) 1 1
Insurance finance
income/
(expense)
recognised
in other
comprehensive
income 354 - 1,054 -
Other
comprehensive
expense for the
period,
net of tax (254) (237) 350 362
Total
comprehensive
(expense)/income
for
the period (1,003) (875) 68 148
Other movements 902 899 121 129
Closing equity
for the period 23,233 24,016 23,334 23,992
Transition drivers
Insurance finance reserve
The insurance finance reserve reflects the impact of the
adoption of the other comprehensive income option for our insurance
business in France. Underlying assets supporting these contracts
are measured at fair value through other comprehensive income.
Under this option, only the amount that matches income or expenses
recognised in profit or loss on underlying items is included in
finance income or expenses, resulting in the elimination of income
statement accounting mismatches. The remaining amount of finance
income or expenses for these insurance contracts is recognised in
OCI. At the transition date an insurance finance reserve of
GBP(514)m was recognised and following transition, gains net of tax
of GBP1,054m and GBP354m were recorded in the six months to 30 June
2022 and 31 December 2022 respectively. An offsetting fair value
through OCI reserve of GBP522m recorded on transition represents
the accumulated fair value movements on assets supporting these
insurance liabilities, with associated losses net of taxes of
GBP1,116m recorded within the fair value through other
comprehensive income reserve during the six months to 30 June 2022
and GBP390m during the six months to 31 December 2022.
Consolidated balance sheet as at transition date and at 31
December 2022.
Consolidated balance sheet
IFRS 17 IFRS 4
31 Dec 1 Jan 31 Dec 31 Dec
2022 2022 2022 2021
$m $m $m $m
------------------------- -------------------------
Assets
Cash and
balances at
central banks 131,433 108,482 131,433 108,482
Items in the
course of
collection from
other
banks 2,285 346 2,285 346
Trading assets 79,878 83,706 79,878 83,706
Financial assets
designated and
otherwise
mandatorily
measured at
fair value
through
profit or loss 15,881 18,649 15,881 18,649
Derivatives 225,238 141,221 225,238 141,221
Loans and
advances to
banks 17,109 10,784 17,109 10,784
Loans and
advances to
customers 72,614 91,177 72,614 91,177
Reverse
repurchase
agreements -
non-trading 53,949 54,448 53,949 54,448
Financial
investments 32,604 41,300 32,604 41,300
Assets held for
sale 21,214 9 21,214 9
Prepayments,
accrued income
and other
assets 61,444 43,146 61,379 43,118
Current tax
assets 595 1,135 595 1,135
Interests in
associates and
joint ventures 728 743 728 743
Goodwill and
intangible
assets 91 83 1,167 894
Deferred tax
assets 1,583 798 1,279 599
Total assets 716,646 596,027 717,353 596,611
Liabilities and
equity
Liabilities
Deposits by
banks 20,836 32,188 20,836 32,188
Customer
accounts 215,948 205,241 215,948 205,241
Repurchase
agreements -
non-trading 32,901 27,259 32,901 27,259
Items in the
course of
transmission to
other
banks 2,226 489 2,226 489
Trading
liabilities 41,265 46,433 41,265 46,433
Financial
liabilities
designated at
fair value 27,282 33,608 27,287 33,608
Derivatives 218,867 139,368 218,867 139,368
Debt securities
in issue 7,268 9,428 7,268 9,428
Liabilities of
disposal groups
held for sale 24,711 - 24,711 -
Accruals,
deferred income
and other
liabilities 67,020 43,515 66,945 43,456
Current tax
liabilities 130 97 130 97
Insurance
contract
liabilities 20,004 22,201 19,987 22,264
Provisions 424 562 424 562
Deferred tax
liabilities 3 5 14 15
Subordinated
liabilities 14,528 12,488 14,528 12,488
Total
liabilities 693,413 572,882 693,337 572,896
Equity
Called up share
capital 797 797 797 797
Share premium
account 420 - 420 -
Other equity
instruments 3,930 3,722 3,930 3,722
Other reserves (6,413) (5,662) (6,368) (5,670)
Retained
earnings 24,368 24,157 25,096 24,735
Total
shareholders'
equity 23,102 23,014 23,875 23,584
Non-controlling
interests 131 131 141 131
Total equity 23,233 23,145 24,016 23,715
Total
liabilities and
equity 716,646 596,027 717,353 596,611
14 Events after the balance sheet date
On 28 July 2023, HSBC Continental Europe completed the sale of
its branch operations in Greece to Pancreta Bank SA. A loss of
GBP0.1bn was recognised upon reclassification to held for sale in
the second quarter of 2022, in accordance with IFRS 5.
In its assessment of events after the balance sheet date, the
group has considered and concluded that no material events have
occurred resulting in adjustments to the financial statements.
15 Interim Report 2023 and statutory accounts
The information in this Interim Report 2023 is unaudited and
does not constitute statutory accounts within the meaning of
section 434 of the Companies Act 2006. This Interim Report 2023 was
approved by the Board of Directors on 31 July 2023. The unaudited
interim condensed financial statements included in the Interim
Report 2023 have been reviewed by the group's auditor,
PricewaterhouseCoopers LLP ('PwC'), in accordance with
International Standard on Review Engagements (UK) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Financial Reporting Council for use in
the United Kingdom. The statutory accounts of HSBC Bank plc for the
year ended 31 December 2022 have been delivered to the Registrar of
Companies in England and Wales in accordance with section 447 of
the Companies Act 2006. The group's auditor, PwC has reported on
those accounts. Its report was unqualified, did not include a
reference to any matters to which PwC drew attention by way of
emphasis without qualifying its report, and did not contain a
statement under section 498(2) or (3) of the Companies Act
2006.
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END
IR EAPPFEDPDEEA
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August 01, 2023 05:02 ET (09:02 GMT)
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