TIDMHSBA
RNS Number : 4551Q
HSBC Holdings PLC
19 February 2019
HSBC Holdings plc
Pillar 3 Disclosures at 31 December 2018
Market risk
Overview of market risk in global
businesses
Market risk is the risk that movements in market factors, such
as foreign exchange rates, interest rates, credit spreads, equity
prices and commodity prices, will reduce our income or the value of
our portfolios.
Exposure to market risk
Exposure to market risk is separated into two portfolios:
-- Trading portfolios: these comprise positions arising from market-making.
-- Non-trading portfolios: these comprise positions that
primarily arise from the interest rate management of our retail and
commercial banking assets and liabilities, financial investments
measured at fair value through other comprehensive income, debt
instruments measured at amortised cost, and exposures arising from
our insurance operations.
Where appropriate, we apply similar risk management policies and
measurement techniques to both trading and non-trading portfolios.
Our objective is to manage and control market risk exposures in
order to optimise return on risk while maintaining a market profile
consistent within our established risk appetite.
The nature of the hedging and risk mitigation strategies
performed across the Group corresponds to the market risk
management instruments available within each operating
jurisdiction. These strategies range from the use of traditional
market instruments, such as interest rate swaps, to more
sophisticated hedging strategies to address a combination of risk
factors arising at portfolio level.
For a discussion on hedging risk and monitoring the continuing
effectiveness of hedges, refer to page 229 of the Annual Report and
Accounts 2018.
The tables below reflect the components of capital requirement
under the standardised approach, table 41 and the internal model
approach, table 42 for market risk.
Table 41: Market risk under standardised approach (MR1)
At 31 Dec
2018 2017 2018
Capital
RWAs RWAs requirements
$bn $bn $bn
Outright products
1 Interest rate risk (general and specific) 2.5 2.2 0.2
2 Equity risk (general and specific) 0.1 0.1 -
3 Foreign exchange risk 1.4 0.2 0.1
4 Commodity risk - 0.1 -
Options
6 Delta-plus method 0.1 - -
7 Scenario approach - - -
8 Securitisation 1.6 1.8 0.1
---
9 Total 5.7 4.4 0.4
---
Table 42: Market risk under IMA (MR2-A)
2018 2017
Capital Capital
RWAs required RWAs required
$bn $bn $bn $bn
------
1 VaR (higher of values a and b) 7.1 0.6 8.3 0.7
(a) Previous day's VaR 0.1 -
(b) Average daily VaR 0.6 0.7
------
2 Stressed VaR (higher of values a and b) 12.1 1.0 14.3 1.1
(a) Latest SVaR 0.2 -
(b) Average SVaR 1.0 1.1
------
Incremental risk charge (higher of values
3 a and b) 6.4 0.5 10.0 0.8
(a) Most recent IRC value 0.4 0.1
(b) Average IRC value 0.5 0.8
------
5 Other 4.5 0.3 1.9 0.2
---- ---- ---------
6 Total at 31 Dec 30.1 2.4 34.5 2.8
---- ---- ---------
Market risk RWAs under the standardised approach increased in
the current year mainly due to an increase in Hong Kong dollar
denominated exposure. Under the IMA approach, the decrease in IRC
is mainly due to lower sovereign and corporate exposure.
Market risk governance
The majority of the total VaR, stressed VaR ('SVaR') and
incremental risk charge ('IRC') of HSBC (excluding insurance) and
almost all trading VaR resides in GB&M. GB&M manages the
Group's market risk, using risk limits approved by the GMB.
For a discussion on market risk governance refer to page 81 of
the Annual Report and Accounts 2018.
Market risk measures
Monitoring and limiting market risk exposures
Our objective is to manage and control market risk exposures
while maintaining a market profile consistent with our risk
appetite.
We use a range of tools to monitor and limit market risk
exposures including sensitivity analysis, VaR and stress
testing.
Sensitivity analysis
We use sensitivity measures to monitor the market risk positions
within each risk type. Sensitivity limits are set for portfolios,
products and risk types, with the depth of the market being one of
the principal factors in determining the level of limits set.
Value at risk
Value at risk ('VaR') is a technique that estimates the
potential losses on risk positions in the trading portfolio as a
result of movements in market rates and prices over a specified
time horizon and to a given level of confidence. The use of VaR is
integrated into market risk management and is calculated for all
trading positions regardless of how we capitalise those
exposures.
Where there is not an approved internal model, we use the
appropriate local rules to capitalise exposures locally.
In addition, we calculate VaR for non-trading portfolios to have
a complete picture of risk. Our models are predominantly based on
historical simulation. VaR is calculated at a 99% confidence level
for a one-day holding period. Where we do not calculate VaR
explicitly, we use alternative tools as described in the stress
testing section below.
Our VaR models derive plausible future scenarios from past
series of recorded market rates and prices, taking into account
inter-relationships between different markets and rates such as
interest rates and foreign exchange rates. Our models use a mixed
approach when applying changes in market rates and prices:
-- For equity, credit and foreign exchange risk factors, the
potential movements are typically represented on a relative return
basis.
-- For interest rates, a mixed approach is used. Curve movements
are typically absolute, whereas volatilities are on a relative
return basis.
We use the past two years as the data set in our VaR models,
which is updated on a fortnightly basis, and these scenarios are
then applied to the market baselines and trading positions on a
daily basis. The models also incorporate the effect of option
features on the underlying exposures.
The valuation approach used in our models values:
-- non-linear instruments using a full revaluation approach; and
-- linear instruments, such as bonds and swaps, using a sensitivity-based approach.
The nature of the VaR models means that an increase in observed
market volatility will lead to an increase in VaR even without any
changes in the underlying positions.
VaR model limitations
Although a valuable guide to risk, VaR should always be viewed
in the context of its limitations, for example:
-- The use of historical data as a
proxy for estimating future events
may not encompass all potential
events, particularly those which
are extreme in nature.
-- The use of a holding period assumes
that all positions can be liquidated
or the risks offset during that
period. This may not fully reflect
the market risk arising at times
of severe illiquidity, when the
holding period may be insufficient
to liquidate or hedge all positions
fully.
-- The use of a 99% confidence level
by definition does not take into
account losses that might occur
beyond this level of confidence.
-- VaR is calculated on the basis
of exposures outstanding at close
of business and therefore does
not necessarily reflect intra-day
exposures.
Risk not in VaR framework
The risks not in VaR ('RNIV') framework captures risks from
exposures in the HSBC trading book that are not captured well by
the VaR model. Our VaR model is designed to capture significant
basis risk such as CDS versus bond, asset swap spreads and
cross-currency basis. Other basis risks that are not completely
covered in VaR, such as CCP swap basis risks, are complemented by
our RNIV calculations and are integrated into our capital
framework.
Risk factors are reviewed on a regular basis and are either
incorporated directly in the VaR models, where possible, or
quantified through the VaR-based RNIV approach or a stress test
approach within the RNIV framework. The severity of the scenarios
is calibrated to be in line with the capital adequacy requirements.
The outcome of the VaR-based RNIV approach is included in the
overall VaR calculation but excluded from the VaR measures used for
regulatory back-testing. In addition, a stressed VaR RNIV is also
computed for the risk factors considered in the VaR-based RNIV
approach.
Stress-type RNIVs include a gap risk exposure measure to capture
risk on non-recourse margin loans and a de-peg risk measure to
capture risk to pegged and heavily managed currencies.
Back-testing
We routinely validate the accuracy of our VaR models by
back-testing them against both actual and hypothetical profit and
loss. Hypothetical profit and loss excludes non-modelled items such
as fees, commissions and revenues of intra-day transactions.
The actual number of profits or losses in excess of VaR over
this period can therefore be used to gauge how well the models are
performing.
We back-test our VaR at various levels of our Group entity
hierarchy. Back-testing using the regulatory hierarchy includes
entities which have approval to use VaR in the calculation of
market risk regulatory capital requirement.
HSBC submits separate back-testing results to regulators,
including the PRA and the European Central Bank, based on
applicable frequencies ranging from two business days after an
exception occurs, to quarterly submissions.
In terms of the CRD IV rules, VaR back-testing loss, and not
profit, exceptions count towards the multiplier determined by the
PRA for the purposes of the capital requirement calculation for
market risk. The multiplier does not get increased if there are
less than five loss exceptions.
The following graphs show a one-year history for VaR
back-testing exceptions against both actual and hypothetical profit
and loss.
In 2018, the Group experienced three back-testing exceptions
against actual profit and loss: a profit exception in February,
driven by gains on short positions on falling index and stock
exposures; a profit exception in August, driven by volatility in
Turkish lira spot; and a loss exception in December, driven by
month end adjustments that are not in scope of the market risk
model.
The Group also experienced one back-testing profit exception
against hypothetical profit and loss in August based on the same
driver described above in exceptions against actual profit and
loss.
There was no evidence of model errors or control failures.
The back-testing result excludes exceptions due from changes in
fair value adjustments.
Comparison of VaR estimates with gains/losses
VaR back-testing exceptions against actual profit and loss ($m)
http://www.rns-pdf.londonstockexchange.com/rns/4551Q_1-2019-2-19.pdf
Actual profit w Back-testing profit
and loss VaR exception
VaR back-testing exceptions against hypothetical profit and loss ($m)
http://www.rns-pdf.londonstockexchange.com/rns/4551Q_1-2019-2-19.pdf
Hypothetical profit w Back-testing profit
and loss VaR exception
Stress testing
Stress testing is an important procedure that is integrated into
our market risk management framework to evaluate the potential
impact on portfolio values of more extreme, although plausible,
events or movements in a set of financial variables. In such
scenarios, losses can be greater than those predicted by VaR
modelling.
Stress testing is implemented at legal entity, regional and
overall Group levels. A set of scenarios is used consistently
across all regions within the Group. Scenarios are tailored to
capture the relevant events or market movements at each level. The
risk appetite around potential stress losses for the Group is set
and monitored against referral limits.
Market risk reverse stress tests are designed to identify
vulnerabilities in our portfolios by looking for scenarios that
lead to loss levels considered severe for the relevant portfolio.
These scenarios may be quite local or idiosyncratic in nature, and
complement the systematic top-down stress testing.
Stressed VaR and stress testing, together with reverse stress
testing and the management of gap risk, provide management with
insights regarding the 'tail risk' beyond VaR, for which HSBC's
appetite is limited.
The market risk stress testing incorporates the historical and
hypothetical events. During 2018 we ran stress hypothetical
scenarios for specific geopolitical and economic events including
several Brexit scenarios, Emerging Markets decoupling, Global Trade
war, Italian Elections and NAFTA renegotiation. These new scenarios
were run in addition to existing scenarios that capture potential
events of concern.
Market risk capital models
There are a number of measures that HSBC has permission to use
in calculating regulatory capital which are listed in the table
below. For regulatory purposes, the trading book comprises all
positions in CRD financial instruments and commodities held with
trading intent, and taken with the intention of benefiting from
short-term gains or positions where it can be demonstrated that
they hedge positions in the trading book. Trading book positions
must either be free of any restrictive covenants on their
tradability or be capable of being hedged.
A CRD financial instrument is defined as any contract that gives
rise to both a financial asset to one party and a financial
liability or equity instrument to another party.
HSBC maintains a trading book policy, which defines the minimum
requirements for trading book positions and the process for
classifying positions as trading or non-trading book. Positions in
the trading book are subject to market risk-based rules, i.e.
market risk capital, computed using regulatory approved models.
Otherwise, the market risk capital is calculated using the
standardised approach.
If any of the policy criteria are not met, then the position is
categorised as a non-trading book exposure.
VaR 99% 10 day Uses most recent two years' history of daily
returns to determine a loss distribution. The
result is scaled, using the square root of 10,
to provide an equivalent 10-day loss.
Stressed 99% 10 day Stressed VaR is calibrated to a one-year period
VaR of stress observed in history.
IRC 99.9% 1 year Uses a multi-factor Gaussian Monte-Carlo simulation,
which includes product basis, concentration,
hedge mismatch, recovery rate and liquidity as
part of the simulation process. A minimum liquidity
horizon of three months is applied and is based
on a combination of factors, including issuer
type, currency and size of exposure.
Options n/a n/a Uses a standard charge scenario approach based
on a spot volatility grid where, for each point
on the grid, there is a full revaluation of the
portfolio. The regulators prescribe the ranges,
therefore there is no equivalence with confidence
level and liquidity horizon.
Non-proprietary details of these models are available in the
Financial Services Register on the PRA website.
Table 43: IMA values for trading
portfolios (MR3)
At 31 Dec
2018 2017
$m $m
VaR (10 day
99%)
Maximum
1 value 249.0 319.1
Average
2 value 178.5 197.0
Minimum
3 value 160.8 163.7
4 Period end 193.5 228.2
Stressed VaR
(10 day 99%)
Maximum
5 value 408.3 439.7
Average
6 value 304.6 284.7
Minimum
7 value 191.2 193.3
8 Period end 408.3 251.3
Incremental
risk charge
(99.9%)
Maximum
9 value 945.5 1,042.7
Average
10 value 516.5 828.5
Minimum
11 value 424.3 673.4
12 Period end 491.9 803.4
VaR
VaR used for regulatory purposes differs from VaR used for
management purposes with key differences listed below.
Broader population
Regulatory of trading and
approval non-trading book
Scope (PRA) positions
Confidence
interval 99% 99%
Liquidity
horizon 10 day 1 day
Past 2
Data set years Past 2 years
The trading books that received approval from the regulator to
be covered via an internal model are used to calculate VaR for
regulatory purposes. Regulatory VaR levels contribute to the
calculation of market risk RWAs.
The regulatory VaR table is based on the regulatory permissions
received, plus aggregated sites. This differs from the daily VaR
reported in the Annual Report and Accounts 2018, which shows a
fully diversified view used for internal risk management.
There were no material changes in the VaR used for regulatory
purposes; this is in line with expectation.
Stressed VaR
Stressed VaR is primarily used for regulatory capital purposes
and is integrated into the risk management process to ensure
prudent capital management. Stressed VaR complements other risk
measures by providing the potential losses under stressed market
conditions.
Stressed VaR modelling follows the same approach as our VaR risk
measure except that:
-- potential market movements employed for stressed VaR
calculations are based on a continuous one-year period of stress
for the trading portfolio;
-- the choice of period is based on the assessment at the Group
level of the most volatile period in recent history. This is
assessed quarterly and changed during 2018 as follows:
- to (November 2007 to November 2008) in March 2018; and
- to (January 2010 to December 2010) in September 2018.
-- it is calculated to a 99% confidence using a 10-day holding period; and
-- it is based on an actual 10-day holding period, whereas
regulatory VaR is based on a one-day holding period scaled to 10
days.
The increase in stressed VaR was primarily due to the change of
scenario window, recalibrated quarterly, under the new January 2010
to December 2010 window.
Incremental risk charge
The incremental risk charge ('IRC') measures the default and
migration risk of issuers of traded instruments.
IRC risk factors include credit migration, default, product
basis, concentration, hedge mismatch, recovery rate and liquidity.
The PDs are floored to reflect the lack of historical data on
defaults and a period of stress is used to calibrate the spread
changes for the relevant ratings. The IRC model is validated
quarterly by stressing key model parameters and reviewing the
response of the model.
The IRC is a stand-alone charge generating no diversification
benefit with other charges. We do not use weighted averages for
calculating the liquidity horizon for the IRC measure. IRC relies
on a range of liquidity horizons from three months, corresponding
to the regulatory floor, to one year. A wide range of criteria can
indicate the liquidity of a position. The liquidity horizon for the
IRC measure depends on a set of factors such as issuer features,
including rating, sector, geography and size of positions,
including product, maturity and concentration.
The IRC transition matrices are calibrated using transition and
default data published by three rating agencies (Standard &
Poor's, Moody's and Fitch) as the starting point, in combination
with internal rules for flooring. The average of the three matrices
is computed for each sector, ignoring zero transition
probabilities. The PDs are then floored: sovereign PDs are
consistent with IRB, while a 3 basis point floor is applied to
corporates' and banks' PDs.
The IRC correlation matrix is derived from historical CDS
spreads data, covering the latest two-year VaR period. The returns
estimation window is set equal to either three or 12 months,
depending on the liquidity horizon of each obligor. First, each
obligor is mapped to six sector/rating categories; then the
correlation matrix is obtained by computing the arithmetic mean of
correlations for each category.
The decrease in the period end IRC measure was driven from lower
contribution from a number of issuers, including Brazil, Indonesia,
UK, Mexico and Argentina sovereigns.
Prudent valuation adjustment
HSBC has documented policies and maintains systems and controls
for the calculation of prudent valuation adjustment ('PVA').
Prudent value represents a conservative estimate with a 90% degree
of certainty of a price that would be received to sell an asset or
paid to transfer a liability in orderly transactions occurring
between market participants at the balance sheet date. HSBC's
methodology addresses fair value uncertainties arising from a
number of sources; market price uncertainty, bid offer,
uncertainty, model risk, concentration, administrative cost,
unearned credit spreads and investing and funding costs.
Table 44: Prudential valuation adjustments (PV1)
Of which: Of which:
in the in the
Interest trading banking
Equity rates FX Credit Commodities Total book book
$m $m $m $m $m $m $m $m
Closeout uncertainty 196 360 29 149 2 736 470 266
- of which:
mid-market value 127 98 4 54 - 283 127 156
closeout cost 21 94 10 9 2 136 123 13
concentration 48 168 15 86 - 317 220 97
Early termination - - - 5 - 5 5 -
Model risk 21 116 4 5 - 146 146 -
Operational risk 15 29 2 11 - 57 39 18
Investing and funding
costs - 95 1 2 - 98 98 -
Unearned credit spreads 1 90 7 19 3 120 120 -
Future administrative
costs - 5 - 4 - 9 9 -
Other - - - - - - - -
Total adjustment
at 31 Dec 2018 233 695 43 195 5 1,171 887 284
Closeout uncertainty 200 391 32 182 4 809 486 323
- of which:
mid-market value 111 95 7 83 3 299 135 164
closeout cost 19 79 7 8 1 114 101 13
concentration 70 217 18 91 - 396 250 146
Early termination - - - 6 - 6 6 -
Model risk 30 73 5 13 - 121 118 3
Operational risk 13 24 2 13 1 53 33 20
Investing and funding
costs - 72 - 1 1 74 74 -
Unearned credit spreads - 62 4 7 1 74 74 -
Future administrative
costs - 5 - 4 - 9 9 -
Other - - - - - - - -
Total adjustment
at 31 Dec 2017 243 627 43 226 7 1,146 800 346
The PVA charge has increased by 2% over 2018. PVA movements were
primarily driven by:
-- a $79m decrease in concentration reflecting exposure
reduction and improved liquidity conditions;
-- a $46m increase related to unearned credit spreads
uncertainty including close out costs, arising from an increase in
accounting CVA and changes in recovery assumptions.
The types of financial instruments for which the highest PVA is
observed include (i) multi callable interest rate derivatives, (ii)
asset backed securities and valuation adjustments related to
non-collateralised derivatives.
Structural foreign exchange exposures
Structural foreign exchange exposures represent net investments
in subsidiaries, branches and associates whose functional currency
is not the US dollar. An entity's functional currency is normally
that of the primary economic environment in which it operates.
Exchange differences on structural exposures are recognised in
'Other comprehensive income'. We use the US dollar as our
presentation currency in our consolidated financial statements
because the US dollar and currencies linked to it form the major
currency bloc in which we transact and fund our business.
Our consolidated balance sheet is, therefore, affected by
exchange differences between the US dollar and all the non-US
dollar functional currencies of underlying subsidiaries.
Our structural foreign exchange exposures are managed with the
primary objective of ensuring, where practical, that our
consolidated capital ratios and the capital ratios of individual
banking subsidiaries are largely protected from the effect of
changes in exchange rates. We hedge structural foreign exchange
exposures only in limited circumstances.
Details of our structural foreign exchange exposures are
provided in the Market risk section, on page 138 of the Annual
Report and Accounts 2018.
Interest rate risk in the banking
book
Interest rate risk in the banking book ('IRRBB') is the
potential adverse impact of changes in interest rates on earnings
and capital. The component of IRRBB that can be economically
neutralised in the market is transferred to BSM to manage, in
accordance with internal transfer pricing rules. In its management
of IRRBB, the Group aims to balance mitigating the effect of future
interest rate movements, which could reduce net interest income
against the cost of hedging. The monitoring of the projected net
interest income and economic value of equity ('EVE') sensitivity
under varying interest rate scenarios is a key part of this.
More details on our IRRBB may be found on page 83 of the Annual
Report and Accounts 2018.
Operational risk
Overview and objectives
Operational risk is the risk to achieving our strategy or
objectives as a result of inadequate or failed internal processes,
people and systems, or from external events.
Operational risk is relevant to every aspect of our business. It
covers a wide spectrum of issues, such as compliance, operational
resilience, legal, security and fraud. Losses arising from breaches
of regulation and law, unauthorised activities, error, omission,
inefficiency, fraud, systems failure or external events all fall
within the definition of operational risk.
We have historically experienced operational risk losses in the
following major categories:
-- mis-selling of payment protection insurance;
-- external criminal activities, including fraud;
-- breakdowns in processes/procedures due to human error, misjudgement or malice;
-- system failure or non-availability;
-- breach of regulatory and/or legislative requirements; and
-- information and cyber security.
Table 45: Operational risk RWAs
2018 2017
Capital Capital
RWAs required RWAs required
$bn $bn $bn $bn
By global business
Retail Banking and Wealth Management 27.3 2.2 27.2 2.2
Commercial Banking 24.3 1.9 23.7 1.9
Global Banking and Markets 31.5 2.5 30.9 2.5
Global Private Banking 2.8 0.2 2.8 0.2
Corporate Centre 5.2 0.5 8.1 0.6
At 31 Dec 91.1 7.3 92.7 7.4
By geographical region
Europe 27.3 2.2 29.0 2.3
Asia 39.5 3.2 37.1 3.0
Middle East and North Africa 6.8 0.5 7.0 0.5
North America 11.7 0.9 12.1 1.0
Latin America 5.8 0.5 7.5 0.6
At 31 Dec 91.1 7.3 92.7 7.4
Requirements under CRD IV include a capital requirement for
operational risk, utilising three levels of sophistication as
explained on page 17; we use the standardised approach. Table 45
reports our operational risk capital requirements by region and
global business. RWAs decreased by $1.6bn primarily due to reduced
contributions from the retail banking and payment and settlement
business lines, partly offset by growth in commercial banking.
Developments during 2018
During 2018, our operational risk profile continued to be driven
by compliance risks. Operational risk losses in 2018 are higher
than in 2017, reflecting an increase in losses incurred relating to
legacy conduct-related events.
Conduct-related costs included in significant items are outlined
on page 66 of the Annual Report and Accounts 2018.
In 2018 we continued our ongoing work to strengthen those
controls that manage our most material risks. We further developed
controls to help ensure that we know our customers, ask the right
questions, monitor transactions and escalate concerns to detect,
prevent and deter financial crime risk.
Refer also to the 'Top and emerging risks' section on page 69 of
the Annual Report and Accounts 2018 and to the 'Regulatory
compliance risk management' section on page 84 of the Annual Report
and Accounts 2018.
We recognise that operational risk losses can be incurred for a
wide variety of reasons, including rare but extreme events.
The objective of our operational risk management is to manage
and control operational risk in a cost-effective manner and within
our risk appetite, as defined by GMB.
Organisation and responsibilities
Responsibility for managing operational risk lies with HSBC's
employees. During 2018 we continued to strengthen our approach to
managing operational risk as set out in the operational risk
management framework ('ORMF'). The approach sets out governance,
appetite and provides a single view of non-financial risks that
matter the most, and associated controls. It incorporates a risk
management system to enable active risk management. The enhancement
and embedding of the risk appetite framework for non-financial
risk, and the improvement of the consistency of the adoption of the
end-to-end risk and control assessment processes were a particular
focus in 2018. While there remains more to do, we made progress in
strengthening the control environment and the management of
non-financial risk. Activity to strengthen the three lines of
defence model, continued to be a key focus in 2018.
The first line of defence owns the risk and is responsible for
identifying, recording, reporting, managing the risks and ensuring
that the right controls and assessments are in place to mitigate
these risks. The second line of defence sets the policy and
guidelines for managing the risks and provides advice, guidance and
challenge to the first line of defence on effective risk
management. The third line of defence is Internal Audit, which
independently ensures we are managing risk effectively.
More details on our ORMF may be found on page 84 of the Annual
Report and Accounts 2018.
The Global Operational Risk Committee, which is a sub-committee
of the GRMM, meets to discuss key risk issues and review the
effective implementation of the ORMF.
Operational risk is organised as a specific risk discipline
within Global Risk. The Group Head of Operational Risk is
responsible for establishing and maintaining the ORMF, monitoring
the level of operational losses and the effectiveness of the
internal control environment supported by their second line of
defence functions. The Group Head of Operational Risk is
accountable to the Group Chief Risk Officer in respect of this
element of the overall enterprise-wide risk management
framework.
Measurement and monitoring
We have codified our ORMF in a high level standard, supplemented
by detailed policies. These policies explain our approach to
identifying, assessing, monitoring and controlling operational
risk, and give guidance on mitigating actions to be taken when
weaknesses are identified.
Monitoring operational risk exposure against risk appetite on a
regular basis, and setting out our risk acceptance process, drives
risk awareness in a more forward-looking manner. It assists
management in determining whether further action is required.
Risk scenario analysis across material legal entities provides a
top down, forward-looking assessment of risks to help determine
whether they are being effectively managed within our risk appetite
or whether further management action is required.
In each of our subsidiaries, business managers are responsible
for maintaining an appropriate level of internal control,
commensurate with the scale and nature of operations. They are
responsible for identifying and assessing risks, designing controls
and monitoring the effectiveness of these controls. The ORMF helps
managers to fulfil these responsibilities by defining a standard
risk assessment methodology and providing a tool for the systematic
reporting of operational loss data.
Operational risk and control assessment approach
Operational risk and control assessments are performed by
individual business units and functions. The risk and control
assessment process is designed to provide business areas and
functions with a forward-looking view of operational risks, an
assessment of the effectiveness of controls, and a tracking
mechanism for action plans so that they can proactively manage
operational risks within acceptable levels.
Appropriate means of mitigation and controls are considered.
These include:
-- making specific changes to strengthen the internal control environment; and
-- investigating whether cost-effective insurance cover is available to mitigate the risk.
Recording
We use a Group-wide risk management system to record the results
of our operational risk management process. Operational risk and
control assessments, as described above, are input and maintained
by business units. Business management monitors and follow up the
progress of documented action plans.
Operational risk loss reporting
To ensure that operational risk losses are consistently reported
and monitored at Group level, all Group companies are required to
report individual losses when the net loss is expected to exceed
$10,000 and to aggregate all other operational risk losses under
$10,000. Losses are entered into the group-wide risk management
system and are reported to governance on a monthly basis.
Other risks
Pension risk
We operate a number of pension plans throughout the world for
our employees. Our plans are either defined benefit or defined
contribution plans, which expose the Group to different types of
risks. We have a global pension risk management framework and
accompanying global policies on the management of these risks,
which is overseen by the Global Pensions Oversight Forum.
Details of our management of pension risk may be found in
'Pension risk management' on page 87 of the Annual Report and
Accounts 2018.
Table 46: Non-trading book equity investments
2018 2017
Mandatorily
Fair value measured
through at fair
other value
comprehensive through Designated
income profit Available at fair
(FVOCI) and loss Total for sale value Total
Footnotes $bn $bn $bn $bn $bn $bn
Private equity holdings - 1.9 1.9 1.0 0.3 1.3
Investment to facilitate
ongoing business 1 1.7 1.1 2.8 1.6 - 1.6
---------
Other strategic investments - 0.3 0.3 1.3 - 1.3
--------- --------------
At 31 Dec 1.7 3.3 5.0 3.9 0.3 4.2
---------
1 Includes holdings in government-sponsored enterprises and local stock exchanges.
Non-trading book exposures in equities
At 31 December
2018
, we had equity investments in the non-trading book of $
5.0
bn (
2017
: $4.2bn). These consist of investments held for the purposes
shown in table
46
.
We make investments in private equity primarily through managed
funds that are subject to limits on the amount of investment. We
risk-assess these commitments to ensure that industry and
geographical concentrations remain within acceptable levels for the
portfolio as a whole, and perform regular reviews to substantiate
the valuation of the investments within the portfolio.
Exchange traded investments amounted to $0.7bn (2017: $0.7bn),
with the remainder being unlisted. These investments are held at
fair value in line with market prices and are mainly strategic in
nature. The implementation of IFRS 9 resulted in the removal of the
available-for-sale category; the majority of equity exposures
therein have been classified as mandatorily measured at fair value
through profit and loss, as have equities formerly classified
within designated at fair value through profit and loss. A number
of exposures formerly reported as other strategic investments have
been reassessed as investments to facilitate ongoing business in
the process.
Unrealised gains on FVOCI equities of $0.4bn at 31 December 2018
were fully recognised in CET1.
Details of our accounting policy for equity investments measured
at FVOCI and the valuation of financial instruments may be found on
page 228 of the Annual Report and Accounts 2018. A detailed
description of the valuation techniques applied to private equity
may be found on page 253 of the Annual Report and Accounts
2018.
Risk management of insurance operations
We operate an integrated bancassurance model that provides
insurance products principally for customers with whom we have a
banking relationship.
The insurance contracts we sell relate to the underlying needs
of our banking customers, which we can identify from our
point-of-sale contacts and customer knowledge. The majority of
sales are of savings and investment products and term and credit
life contracts.
By focusing largely on personal and small- and medium-sized
enterprises ('SMEs') lines of business, we are able to optimise
volumes and diversify individual insurance risks.
We choose to manufacture these insurance products in HSBC
subsidiaries based on an assessment of operational scale and risk
appetite. Manufacturing insurance allows us to retain the risks and
rewards associated with writing insurance contracts by keeping
part of the underwriting profit and investment income within the
Group.
We have life insurance manufacturing subsidiaries in Argentina,
mainland China, France, Hong Kong, Malaysia, Malta, Mexico,
Singapore and the UK. We also have a life insurance manufacturing
associate in India.
Where we do not have the risk appetite or operational scale to
be an effective insurance manufacturer, we engage with a handful of
leading external insurance companies in order to provide insurance
products to our customers through our banking network and direct
channels. These arrangements are generally structured with our
exclusive strategic partners and earn the Group a combination of
commissions, fees and a share of profits. We distribute insurance
products in all of our geographical regions.
Insurance products are sold through all global businesses, but
predominantly by RBWM and CMB through our branches and direct
channels worldwide.
The risk profile of our insurance manufacturing businesses is
measured using an economic capital approach. Assets and liabilities
are measured on a market value basis, and a capital requirement is
defined to ensure that there is a less than one-in-200 chance of
insolvency over a one-year time horizon, given the risks to which
the businesses are exposed. The methodology for the economic
capital calculation is largely aligned to the pan-European Solvency
II insurance capital regulations.
Subsidiaries engaged in insurance activities are excluded from
the regulatory consolidation by excluding assets, liabilities and
post-acquisition reserves, leaving the investment of these
insurance subsidiaries to be recorded at cost and deducted from
CET1 subject to thresholds (amounts below the thresholds are
risk-weighted).
Further details of the management of financial risks and
insurance risk arising from the insurance operations are provided
on page 86 of the Annual Report and Accounts 2018.
Liquidity and funding risk
Strategies and processes in the management of liquidity risk
HSBC has an internal liquidity and funding risk management
framework ('LFRF'), which aims to allow it to withstand very severe
liquidity stresses. It is designed to be adaptable to changing
business models, markets and regulations. The management of
liquidity and funding is primarily undertaken locally (by country)
in our operating entities in compliance with the Group's LFRF, and
with practices and limits set by the GMB through the RMM and
approved by the Board. Our general policy is that each defined
operating entity should be self-sufficient in funding its own
activities.
Structure and organisation of the liquidity risk management
function
The Group Treasurer, who reports to the Group Chief Financial
Officer, has responsibility for the oversight of the LFRF. Asset,
Liability and Capital Management ('ALCM') teams are responsible for
the application of the LFRF at a local operating entity level.
The elements of the LFRF are underpinned by a robust governance
framework, the two major elements of which are:
-- Group, regional and entity level asset and liability management committees ('ALCOs'); and
-- annual internal liquidity adequacy assessment process
('ILAAP') used to validate risk tolerance and set risk
appetite.
Liquidity and funding are predominantly managed at a country
level. Where appropriate, management may be expanded to cover a
consolidated group of legal entities or narrowed to a principal
office (branch) of a wider legal entity to reflect the management
under internal or regulatory definitions.
The RMM reviews and agrees annually the list of countries, legal
entities or consolidated groups it directly oversees and the
composition of these entities ('principal operating entities').
This list forms the basis of liquidity and funding risk
disclosures.
Asset, Liability and Capital Management
Asset, Liability and Capital Management ('ALCM') teams provide
oversight at both an individual entity and Group level. Regional
and local ALCM teams are responsible for the implementation of
Group-wide and local regulatory policy at a legal entity level.
Liquidity Risk Assurance
Liquidity risk assurance is provided by Risk in HSBC Bank plc,
HSBC UK Bank plc, HSBC North America Holdings and Hongkong and
Shanghai Banking Corporation. For all other operating entities, it
is provided by the local Finance and ALCM teams. Second line
liquidity risk assurance performs the following activities:
-- reviews and challenges assumptions of current liquidity and
funding risk management framework;
-- reviews and challenges methods and calculation processes of
all aspects of liquidity and funding risk;
-- reviews results of liquidity and funding metrics against
limits and proposed limit changes prior to approval at governance
forums; and
-- reviews risk items that require escalation.
There are plans in place to broaden Risk's assurance role across
more operating entities in 2019.
Scope and nature of liquidity risk reporting and measurement
Where possible, the Group maintains standardised platforms
utilising common data feeds in order to ensure consistency of
standard internal and regulatory reporting and flexibility to
deliver ad hoc requests.
Hedging and mitigating liquidity risk at HSBC
Management of liquidity and funding risk
Liquidity coverage ratio
The liquidity coverage ratio ('LCR') aims to ensure that a bank
has sufficient unencumbered high-quality liquid assets ('HQLA') to
meet its liquidity needs in a 30 calendar day liquidity stress
scenario. For the calculation of the LCR, HSBC follows the
guidelines set by the European Commission.
Net stable funding ratio
HSBC uses the net stable funding ratio ('NSFR') as a basis for
establishing stable funding around the Group. The NSFR requires
institutions to maintain sufficient stable funding and reflects a
bank's long-term funding profile (funding with a term of more than
one year).
Liquid assets of HSBC's principal operating entities
Liquid assets are held and managed on a stand-alone operating
entity basis. Most are held directly by each operating entity's BSM
department, primarily for the purpose of managing liquidity risk in
line with the LFRF.
The liquid asset buffer may also include securities in held-to-
maturity portfolios. To qualify as part of the liquid asset buffer,
held-to-maturity portfolios must have a deep and liquid repo market
in the underlying security. Liquid assets also include any
unencumbered liquid assets held outside BSM departments for any
other purpose. The LFRF gives ultimate control of all unencumbered
assets and sources of liquidity to BSM.
Overall adequacy of liquidity risk management at HSBC
All operating entities are required to prepare an internal
liquidity adequacy assessment ('ILAA') document, in order to ensure
that:
-- liquidity resources are adequate, both as to the amount and quality;
-- there is no significant risk that liabilities cannot be met as they fall due;
-- a prudent structural funding profile is maintained;
-- adequate liquidity resources continue to be maintained; and
-- the operating entity's liquidity risk framework is adequate and robust.
The key objectives of the ILAAP are to:
-- demonstrate that all material liquidity and funding risks are
captured within the internal framework;
-- validate the operating entity's risk tolerance/appetite by
demonstrating that reverse stress testing scenarios are acceptably
remote and vulnerabilities have been assessed through the use of
severe stress scenarios; and
-- provide review and challenge of the operating entity's ILAA document.
The final conclusion of the Group ILAAP, approved by the Board
of Directors, is that each operating entity:
-- maintains liquidity resources, which are adequate in both
amount and quality at all times, and ensures that there is no
significant risk that its liabilities cannot be met as they fall
due; and
-- ensures its liquidity resources contain an adequate amount of
HQLA and maintains a prudent funding profile.
HSBC's business strategy and overall liquidity risk profile
The key aspects of the internal LFRF which is used to ensure
that HSBC maintains an appropriate overall liquidity risk profile
are:
-- stand-alone management of liquidity and funding by operating entity;
-- minimum LCR requirement;
-- minimum NSFR requirement;
-- legal entity depositor concentration limit;
-- three-month and 12-month cumulative rolling term contractual
maturity limits covering deposits from banks, deposits from
non-bank financial institutions and securities issued;
-- annual individual liquidity adequacy assessment by principal operating entity;
-- minimum LCR requirement by currency;
-- intra-day liquidity;
-- liquidity funds transfer pricing; and
-- forward-looking funding assessments.
The internal LFRF and the risk tolerance limits were approved by
the RMM and the Board on the basis of recommendations made by the
Group Risk Committee.
Concentration of funding and liquidity sources
Depositor concentration and term funding maturity
concentration
The LCR and NSFR metrics assume a stressed outflow based on a
portfolio of depositors within retail, corporate and financial
deposit segments. The validity of these assumptions is challenged
if the portfolio of depositors is not large enough to avoid
depositor concentration.
Operating entities are exposed to term re-financing
concentration risk if the current maturity profile results in
future maturities being overly concentrated in any defined
period.
At 31 December 2018, all principal operating entities were
within the risk tolerance levels set for depositor concentration
and term funding maturity concentration. These risk tolerances were
established by the Board and are applicable under the LFRF.
Currency mismatch in the LCR
In times of stress it cannot automatically be assumed that one
currency can always be converted for another, even if those
currencies are 'hard' currencies. LCR must therefore be assessed by
currency, if the currency is material.
In some currencies, convertibility is restricted by regulators
and central banks and this restriction results in local currency
not being convertible offshore or even onshore.
In the vast majority of cases, the only way to convert
currencies for funding purposes is via deliverable foreign exchange
swaps and, to a lesser extent, cross-currency repo. Access to
foreign exchange swaps markets can be impacted by both market wide
stress and idiosyncratic stress. Idiosyncratic stress arises from
the fact that settlement of the two currency legs occurs at
different times during the day, exposing the counterparty who has
to settle (pay) first to intra-day credit risk on the entire
principal amount, until the other counterparty pays the other
currency; this is often referred to as 'Herstatt Risk'.
The Group's internal liquidity and funding risk management
framework requires all operating entities to monitor single
currency LCR. Limits are set in consultation with Group Treasury
and approved by Group Treasury before being approved by
local ALCO.
Liquidity management across HSBC
The structure of the Group means that liquidity and funding risk
cannot practically be managed on a consolidated Group basis and can
only be managed by entity on a standalone basis. The Group's LFRF
requires all operating entities to manage liquidity and funding
risk on a standalone basis in accordance with the Group's LFRF and
the liquidity and funding risk tolerances set out in the Group
RAS.
The Group's internal LFRF does not therefore seek to manage
liquidity and funding risk on a consolidated basis, other than to
ensure that the position of the consolidated group meets the
minimum regulatory requirements.
Liquid assets of HSBC's principal operating entities
The unweighted liquidity value of assets categorised as liquid
for HSBC's principal operating entities is shown on page 133 of the
Annual Report and Accounts 2018. This information is used for the
purposes of calculating the LCR metric for the Group for which the
weighted value of assets is shown in the table on the following
page. This reflects the stock of unencumbered liquid assets at the
reporting date, using the regulatory definition of liquid assets.
The amount recognised by entity at the Group level is different
from the amount recognised at a solo entity level, reflecting where
liquidity cannot be freely transferred across HSBC.
Table 47: Level and components of HSBC Group consolidated liquidity
coverage ratio (LIQ1)
Quarter ended Quarter ended Quarter ended Quarter ended
31 Dec 2018 30 Sep 2018 30 Jun 2018 31 Mar 2018
Total Total Total Total Total Total Total Total
unweighted weighted unweighted weighted unweighted weighted unweighted weighted
value value value value value value value value
$m $m $m $m $m $m $m $m
Number of data points
used in the calculation
of averages 12 12 12 12
High quality liquid
assets
Total high quality
liquid assets ('HQLA') 534,179 524,596 511,709 495,669
Cash outflows
Retail deposits and
small business funding 741,411 76,615 741,913 76,674 740,245 77,213 731,827 77,117
- of which:
stable deposits 287,536 14,242 287,497 14,213 274,684 13,571 260,992 12,888
less stable deposits 453,229 62,193 453,929 62,330 465,196 63,541 470,590 64,156
---------- -------- ---------- -------- ---------- --------
Unsecured wholesale
funding 607,166 284,286 600,879 282,783 597,418 283,398 580,629 277,055
---------- --------
* operational deposits (all counterparties) and
deposits in networks of cooperative banks 193,015 46,773 188,451 45,473 184,319 44,496 175,839 42,504
* non-operational deposits (all counterparties) 404,498 227,860 402,004 226,886 402,288 228,091 393,154 222,915
- unsecured debt 9,653 9,653 10,424 10,424 10,811 10,811 11,636 11,636
-------- ---------- -------- -------- ---------- --------
Secured wholesale
funding 13,715 13,891 13,232 12,459
Additional requirements 310,452 92,082 307,886 92,078 305,162 92,292 298,534 89,956
---------- -------- ---------- -------- ---------- --------
* outflows related to derivative exposures and other
collateral requirements 42,877 41,792 44,036 42,700 44,778 43,549 43,395 42,381
* outflows related to loss of funding on debt products - - - - - - - -
* credit and liquidity facilities 267,575 50,290 263,849 49,378 260,385 48,743 255,140 47,575
-------- ---------- -------- -------- ---------- --------
Other contractual
funding obligations 91,238 34,808 90,509 35,833 87,183 36,916 81,249 36,266
Other contingent funding
obligations 353,187 12,663 356,545 12,750 356,876 12,725 346,555 12,349
---------- -------- ---------- -------- ---------- -------- ---------- --------
Total cash outflows 514,169 514,009 515,776 505,202
Cash inflows
Secured lending transactions
(including reverse
repos) 286,098 42,100 274,982 43,404 265,368 41,443 252,539 37,666
Inflows from fully
performing exposures 116,612 85,698 116,346 85,452 112,998 83,420 107,814 79,999
Other cash inflows 86,832 46,413 79,620 46,530 81,346 48,566 79,168 47,273
(Difference between
total weighted inflows
and total weighted
outflows arising from
transactions in third
countries where there
are transfer restrictions
or which are denominated
in non-convertible
currencies) - - - -
(Excess inflows from
a related specialised
credit institution) - - - -
Total cash inflows 489,542 174,211 470,948 175,386 459,712 173,429 439,521 164,938
---------- --------
Fully exempt inflows - - - - - - - -
Inflows Subject to
90% Cap - - - - - - - -
Inflows Subject to
75% Cap 455,505 174,211 436,698 175,386 431,838 173,429 421,442 164,938
Liquidity coverage
ratio (Adjusted value)
Liquidity Buffer 534,179 524,596 511,709 495,669
Total net cash outflows 339,959 338,623 342,347 340,264
--------
Liquidity coverage
ratio (%) 157.1% 155.0% 150.0% 146.0%
Analysis of on-balance sheet encumbered and unencumbered assets
and off-balance sheet collateral
On-balance sheet encumbered and unencumbered assets
Thetable on the following page summarises the total on-balance
sheet assets capable of supporting future funding and collateral
needs, and shows the extent to which they are currently pledged for
this purpose. This disclosure aims to facilitate an understanding
of available and unrestricted assets that could be used to support
potential future funding and collateral needs.
Off-balance sheet collateral
The fair value of assets accepted as collateral that we are
permitted to sell or repledge in the absence of default was $483bn
at 31 December 2018 (2017: $409bn). The fair value of any such
collateral actually sold or repledged was $329bn (2017: $242bn). We
are obliged to return equivalent securities. These transactions are
conducted under terms that are usual and customary to standard
reverse repo, stock borrowing and derivative transactions.
The fair value of collateral received and re-pledged in relation
to reverse repos, stock borrowing and derivatives is reported on a
gross basis. The related balance sheet receivables and payables are
reported on a net basis where required under IFRS offset criteria.
As a consequence of reverse repo, stock borrowing and derivative
transactions where the collateral received could be sold or
re-pledged but had not been, we held $154bn (2017: $166bn) of
unencumbered collateral available to support potential future
funding and collateral needs at 31 December 2018.
Under the terms of our current collateral obligations under
derivative contracts (which are ISDA compliant CSA contracts and
contracts entered into for pension obligations), and based on an
estimate of the positions at 31 December 2018, we calculate that we
could be required to post additional collateral of up to $0.2bn
(2017: $0.3bn) in the event of a one-notch downgrade in third-
party agencies' credit rating of HSBC's debt. This would
increase to $0.4bn (2017: $0.5bn) in the event of a two-notch
downgrade.
For further details on liquidity and funding risk management,
see page 80 onwards of the Annual Report and Accounts 2018.
Table 48: Analysis of on-balance sheet encumbered and unencumbered
assets
Assets encumbered
as a result
of transactions
with counterparties
other than central Unencumbered assets not
banks positioned at central banks
Assets
positioned Reverse
at central repos/stock
As a banks Assets Other borrowing Assets
result As a (i.e. readily assets receivables that
of result pre-positioned available capable and cannot
covered of plus for of being derivative be
bonds securitisations Other encumbered) encumbrance encumbered assets encumbered Total
$m $m $m $m $m $m $m $m $m
Cash and balances
at central banks - - - 493 155,813 24 - 6,513 162,843
Items in the
course of collection
from other banks - - - - - - - 5,787 5,787
Hong Kong Government
certificates
of indebtedness - - - - - - - 35,859 35,859
Trading assets - - 68,877 3,221 137,589 8,493 18,279 1,671 238,130
* treasury and other eligible bills - - 2,367 2,357 17,707 209 - 34 22,674
* debt securities - - 44,000 864 83,640 1,803 - 232 130,539
* equity securities - - 22,510 - 36,242 2,070 - 74 60,896
* loans and advances to banks - - - - - 2,768 6,753 904 10,425
* loans and advances to customers - - - - - 1,643 11,526 427 13,596
Financial assets
designated and
otherwise mandatorily
measured at
fair value through
profit or loss - - 1,177 - 2,135 7,601 605 29,593 41,111
* treasury and other eligible bills - - 627 - - - - 43 670
* debt securities - - - - 297 4 - 6,246 6,547
* equity securities - - - - 1,676 1,035 - 22,638 25,349
* loans and advances to banks and customers - - - - 162 6,331 605 619 7,717
* other assets - - 550 - - 231 - 47 828
---------- ---------
Derivatives - - - - - - 207,825 - 207,825
Loans and advances
to banks - - 170 2,367 1,947 45,992 - 21,691 72,167
Loans and advances
to customers 6,621 7,653 4,036 58,737 15,867 847,301 28 41,453 981,696
Reverse repurchase
agreements -
non-trading - - - - - - 242,804 - 242,804
Financial investments - 670 28,723 21,310 285,374 5,157 - 66,199 407,433
* treasury and other eligible bills - 276 1,079 5,377 88,556 1,235 - 798 97,321
* debt securities - 394 27,644 15,933 196,436 3,466 - 64,485 308,358
* equity securities - - - - 382 456 - 819 1,657
* other investments - - - - - - - 97 97
---------- ---------
Prepayments,
accrued income
and other assets - 3 35,407 88 3,609 33,060 - 38,404 110,571
Current tax
assets - - - - - - - 684 684
Interest in
associates and
joint ventures - - - - 15 21,994 - 398 22,407
Goodwill and
intangible assets - - - - - - - 24,357 24,357
--------------- ----------- ---------- ---------
Deferred tax - - - - - - - 4,450 4,450
--------------- ----------- ----------
At 31 Dec 2018 6,621 8,326 138,390 86,216 602,349 969,622 469,541 277,059 2,558,124
--------------- ----------- ----------
Table 48: Analysis of on-balance sheet encumbered and unencumbered
assets (continued)
Assets encumbered
as a result
of transactions
with counterparties
other than central Unencumbered assets not
banks positioned at central banks
Assets
positioned
at central Reverse
banks repos/stock
As a (i.e. Assets Other borrowing Assets
result As a pre- readily assets receivables that
of result positioned available capable and cannot
covered of plus for of being derivative be
bonds securitisations Other encumbered) encumbrance encumbered assets encumbered Total
$m $m $m $m $m $m $m $m $m
--------------- ---------- ----------- ----------
Cash and balances
at central banks - - 7 128 172,567 206 - 7,716 180,624
Items in the
course of collection
from other banks - - - - - - - 6,628 6,628
Hong Kong Government
certificates
of indebtedness - - - - - - - 34,186 34,186
Trading assets - - 93,867 4,630 143,811 10,234 17,120 18,333 287,995
* treasury and other eligible bills - - 2,017 4,210 11,233 71 - 2 17,533
* debt securities - - 36,367 420 69,934 657 - 108 107,486
* equity securities - - 33,209 - 62,644 3,407 - - 99,260
* loans and advances to banks - - 8,215 - - 2,430 7,611 7,799 26,055
* loans and advances to customers - - 14,059 - - 3,669 9,509 10,424 37,661
Financial assets
designated at
fair value - - - - 1,331 64 - 28,069 29,464
* treasury and other eligible bills - - - - 540 - - 65 605
* debt securities - - - - 447 - - 3,644 4,091
* equity securities - - - - 344 64 - 24,352 24,760
* loans and advances to banks and customers - - - - - - - 8 8
Derivatives - - - - - - 219,818 - 219,818
Loans and advances
to banks - - 3,599 5,699 1,906 56,542 1,160 21,487 90,393
Loans and advances
to customers 4,990 8,296 7,851 69,768 11,923 834,177 3,719 22,240 962,964
Reverse repurchase
agreements -
non-trading - - - - - - 201,553 - 201,553
Financial investments - 44 26,772 22,285 264,587 8,815 - 66,573 389,076
* treasury and other eligible bills - - 315 3,848 73,098 1,297 - 292 78,850
* debt securities - 44 26,457 18,437 190,119 5,951 - 65,300 306,308
* equity securities - - - - 1,370 1,567 - 981 3,918
Prepayments,
accrued income
and other assets - - 2,876 - 5,527 25,647 - 33,141 67,191
Current tax
assets - - - - - - - 1,006 1,006
Interest in
associates and
joint ventures - - 310 - 55 22,101 - 278 22,744
Goodwill and
intangible assets - - - - - - - 23,453 23,453
--------------- ---------- ----------- ----------
Deferred tax - - - - - - - 4,676 4,676
--------------- ---------- ----------- ----------
At 31 Dec 2017 4,990 8,340 135,282 102,510 601,707 957,786 443,370 267,786 2,521,771
--------------- ---------- ----------- ----------
Reputational risk
Reputational risk is the risk of failing to meet stakeholder
expectations as a result of any event, behaviour, action or
inaction, either by HSBC, our employees or those with whom we are
associated. Any material lapse in standards of integrity,
compliance, customer service or operating efficiency may represent
a potential reputational risk. Stakeholder expectations constantly
evolve, and so reputational risk is dynamic and varies between
geographical regions, groups and individuals. We have an unwavering
commitment to operate at the high standards we set for ourselves in
every jurisdiction.
For further details of our reputational risk management, see
page 86 of the Annual Report and Accounts 2018.
Sustainability risk
Sustainability risk arises from the provision of financial
services to companies or projects which indirectly result in
unacceptable impacts on people or on the environment.
Sustainability risk is:
-- measured by assessing the potential sustainability effect of
a customer's activities and assigning a sustainability risk rating
to all high-risk transactions;
-- monitored quarterly by the RMM and monthly by the Group's Sustainability Risk function; and
-- managed using sustainability risk policies covering project finance lending and sector-based sustainability policies for sectors and themes with potentially large environmental or social impacts.
For further details on sustainability risk management, see page
87 of the Annual Report and Accounts 2018.
Business risk
The PRA specifies that banks, as part of their ICAAP, should
review their exposure to business risk.
Business risk is the potential negative effect on profits and
capital from the Group not meeting our strategic objectives, as a
result of unforeseen changes in the business and regulatory
environment, exposure to economic cycles and technological
changes.
We manage and mitigate business risk through our risk appetite,
business planning and stress testing processes, so that our
business model and planned activities are monitored, resourced and
capitalised in a way that is consistent with the commercial,
economic and risk environment in which the Group operates. This
also means that any potential vulnerabilities of our business plans
can be identified at an early stage so that mitigating actions can
be taken.
Dilution risk
Dilution risk is the risk that an amount receivable is reduced
through cash or non-cash credit to the obligor, and arises mainly
from factoring and invoice discounting transactions.
Where there is recourse to the seller, we treat these
transactions as loans secured by the collateral of the debts
purchased and do not report dilution risk for them. For our
non-recourse portfolio we obtain an indemnity from the seller that
indemnifies us against this risk. Moreover, factoring transactions
involve lending at a discount to the face-value of the receivables,
which provides protection against dilution risk.
Remuneration
The Group's remuneration policy, including the remuneration
committee membership and activities, remuneration strategy and
remuneration details of HSBC's Identified Staff and Material Risk
Takers, is set out in the Directors' Remuneration Report on
page
172
of the
Annual Report and Accounts
2018
. An overview of our Group approach to remuneration is available
on our website
(http://www.hsbc.com/our-approach/corporate-governance/remuneration).
Appendix I
Additional tables
Table 49 sets out IRB exposures by obligor grade for central
governments and central banks, institutions and corporates, all of
which are assessed using our 23-grade CRR master scale. We
benchmark the master scale against the ratings of external rating
agencies. Each CRR band is associated with an external rating grade
by reference to long-run default rates for that grade, represented
by the average of issuer-weighted historical default rates.
The correspondence between the agency long-run default rates and
the PD ranges of our master scale is obtained by matching a
smoothed curve based on those default rates with our master scale
reference PDs. This association between internal and external
ratings is indicative and may vary over time. In these tables, the
ratings of S&P are cited for illustration purposes, although we
also benchmark against other agencies' ratings in an equivalent
manner.
Table 49: Wholesale IRB exposure - by obligor grade
Central governments
and central banks Institutions Corporates(2)
Average Average Average
net Undrawn Mapped net Undrawn Mapped net Undrawn Mapped
Default PD carrying commit- external carrying commit- external carrying commit- external
risk CRR range values(1) ments rating values(1) ments rating values(1) ments rating
% $bn $bn $bn $bn $bn $bn
0.000
to
Minimal 0.1 0.010 182.6 1.0 AAA 2.4 - AAA - -
0.011
to AA+ to AA+ to AAA to
1.1 0.028 77.4 0.9 AA 32.1 2.1 AA 28.7 12.6 AA
0.029
to AA- to
1.2 0.053 22.5 0.4 A+ 17.6 1.4 AA- 64.6 39.1 AA-
0.054
to A+ to A+ to
Low 2.1 0.095 8.1 0.3 A 13.1 2.8 A 89.9 50.3 A
0.096
to
2.2 0.169 10.6 - A- 11.9 3.3 A- 106.9 73.1 A-
0.170
to
Satisfactory 3.1 0.285 2.6 - BBB+ 3.1 0.7 BBB+ 125.2 68.9 BBB+
0.286
to
3.2 0.483 1.9 - BBB 3.7 0.3 BBB 113.8 59.8 BBB
0.484
to
3.3 0.740 2.8 0.2 BBB- 2.4 0.2 BBB- 104.4 47.5 BBB-
0.741
to
Fair 4.1 1.022 1.8 0.1 BB+ 0.9 0.2 BB+ 75.9 33.7 BB+
1.023
to
4.2 1.407 0.3 0.1 BB 0.4 0.2 BB 54.2 28.8 BB
1.408
to
4.3 1.927 1.5 0.1 BB- 0.3 0.1 BB- 49.4 19.8 BB-
1.928
to
Moderate 5.1 2.620 2.6 - BB- 0.1 - BB- 82.2 30.8 BB-
2.621
to
5.2 3.579 - - B+ 0.2 - B+ 24.0 10.1 B+
3.580
to
5.3 4.914 0.2 - B - - B 19.6 8.5 B
4.915
to
Significant 6.1 6.718 0.1 - B - - B- 11.7 4.8 B-
6.719
to
6.2 8.860 0.3 0.1 B- - - B- 6.0 1.9 B-
8.861
to
High 7.1 11.402 0.1 - CCC+ - - CCC+ 3.1 1.0 CCC+
11.403
to
7.2 15.000 - - CCC+ 0.1 0.1 CCC+ 2.0 0.6 CCC+
15.001
Special to
Management 8.1 22.000 - - CCC+ - - CCC 2.5 1.5 CCC
22.001
to CCC- CCC-
8.2 50.000 - - CCC+ - - to CC 1.0 0.4 to CC
50.001
to CCC to
8.3 99.999 - - C - - C 0.4 0.2 C
Default 9/10 100.000 - - Default - - Default 4.3 1.2 Default
-------
At 31 Dec 2018 315.4 3.2 88.3 11.4 969.8 494.6
0.000
to
Minimal 0.1 0.010 195.2 0.7 AAA 2.4 - AAA - -
0.011
to AA+ to AA+ to AAA to
1.1 0.028 70.6 0.8 AA 20.7 1.6 AA 27.7 10.4 AA
0.029
to AA- to
1.2 0.053 23.3 0.5 A+ 29.3 2.5 AA- 61.3 39.3 AA-
0.054
to A+ to A+ to
Low 2.1 0.095 9.3 0.1 A 17.2 2.6 A 82.2 53.1 A
0.096
to
2.2 0.169 10.1 - A- 10.8 3.9 A- 101.5 65.6 A-
0.170
to
Satisfactory 3.1 0.285 2.4 - BBB+ 4.2 1.0 BBB+ 112.8 70.9 BBB+
0.286
to
3.2 0.483 2.3 - BBB 3.5 0.5 BBB 105.8 57.6 BBB
0.484
to
3.3 0.740 1.4 - BBB- 1.7 0.7 BBB- 91.1 46.5 BBB-
0.741
to
Fair 4.1 1.022 1.0 - BB+ 1.3 0.4 BB+ 75.0 34.4 BB+
1.023
to
4.2 1.407 1.0 - BB 0.5 0.2 BB 49.0 23.6 BB
1.408
to
4.3 1.927 1.5 - BB- 0.2 0.1 BB- 48.0 22.2 BB-
1.928
to
Moderate 5.1 2.620 0.7 - BB- 0.2 - BB- 71.5 28.9 BB-
2.621
to
5.2 3.579 1.8 - B+ 0.1 - B+ 23.6 10.2 B+
3.580
to
5.3 4.914 0.2 0.1 B - - B 19.0 8.8 B
4.915
to
Significant 6.1 6.718 0.1 0.1 B - - B- 14.2 6.6 B-
6.719
to
6.2 8.860 - - B- - - B- 7.6 2.8 B-
8.861
to
High 7.1 11.402 - - CCC+ - - CCC+ 3.2 1.0 CCC+
11.403
to
7.2 15.000 - - CCC+ 0.1 0.1 CCC+ 1.8 0.5 CCC+
15.001
Special to
Management 8.1 22.000 - - CCC+ - - CCC 3.4 1.8 CCC
22.001
to CCC- CCC-
8.2 50.000 - - CCC+ 0.1 - to CC 1.3 0.5 to CC
50.001
to CCC to
8.3 99.999 - - C - - C 0.3 0.1 C
Default 9/10 100.000 - - Default - - Default 4.7 1.4 Default
-------
At 31 Dec 2017 320.9 2.3 92.3 13.6 905.0 486.2
1 Average net carrying value are calculated by aggregating the
net carrying values of the last five quarters and dividing by
five.
2 Corporates excludes specialised lending exposures subject to supervisory slotting approach.
PD, LGD, RWA and exposure by country/territory
The following tables 50. a-n analyse the exposure-weighted
average PD, exposure-weighted average LGD, RWAs and exposure by
location of the lending subsidiary or branch for the Group's IRB
exposures. The tables exclude specialised lending exposures subject
to the supervisory slotting approach, securitisation exposures and
non-credit obligations.
Table 50.a: PD, LGD, RWA and exposure by country/territory - wholesale
IRB advanced approach all asset classes
At 31 Dec 2018 At 31 Dec 2017
Exposure- Exposure- Exposure- Exposure-
weighted weighted weighted weighted
average average Exposure average average Exposure
PD LGD RWAs value PD LGD RWAs value
% % $bn $bn % % $bn $bn
Europe
UK 1.87 35.6 90.4 188.0 2.15 36.0 91.8 181.0
France 1.99 29.0 16.7 36.1 1.88 30.2 15.2 34.7
Germany 0.11 39.5 0.3 1.3 0.16 41.6 0.3 1.5
Switzerland 0.03 42.3 0.5 5.4 0.02 43.6 0.5 8.1
Asia
Hong Kong 0.68 40.2 91.8 315.8 0.67 40.3 86.0 291.8
Australia 0.57 43.8 8.0 24.9 0.67 43.6 9.1 24.9
India 0.91 54.3 9.1 19.0 0.75 54.3 8.4 18.3
Indonesia 4.28 58.7 5.0 6.3 4.40 58.5 5.5 6.4
Mainland China 0.61 48.8 26.2 72.2 0.70 48.8 28.5 76.9
Malaysia 1.50 46.7 6.4 16.1 1.00 47.4 6.9 15.6
Singapore 0.44 42.9 10.9 40.5 0.49 42.0 10.2 40.5
Taiwan 0.18 48.3 3.5 17.4 0.16 47.8 3.0 15.9
Middle East and
North Africa
Egypt 2.57 44.7 2.7 3.6 2.78 44.9 2.8 3.5
Turkey 0.72 39.7 0.6 1.0 0.40 45.1 0.5 1.1
UAE 0.17 40.5 1.8 9.0 0.09 38.7 1.5 9.1
North America
US 0.71 34.8 47.6 134.4 1.27 34.5 44.7 130.1
Canada 1.07 34.5 21.2 53.8 1.38 34.5 21.6 53.7
Latin America
Argentina 2.24 45.0 2.7 2.5 1.66 45.1 1.5 1.5
Mexico 0.19 44.6 5.0 10.4 0.19 44.5 4.3 9.0
Table 50.b: PD, LGD, RWA and exposure by country/territory - wholesale
IRB advanced approach central governments and central banks
At 31 Dec 2018 At 31 Dec 2017
Exposure- Exposure- Exposure- Exposure-
weighted weighted weighted weighted
average average Exposure average average Exposure
PD LGD RWAs value PD LGD RWAs value
% % $bn $bn % % $bn $bn
Europe
UK 0.03 44.7 3.0 26.9 0.03 44.1 2.0 18.0
France 0.02 45.0 0.1 0.9 0.02 45.0 0.2 1.7
Germany 0.03 45.0 0.1 0.4 0.04 45.0 0.1 0.5
Switzerland 0.01 45.0 0.3 4.2 0.01 45.0 0.3 6.8
Asia
Hong Kong 0.01 43.4 5.2 101.4 0.01 44.5 4.6 89.8
Australia 0.01 45.0 0.4 7.9 0.01 45.0 0.4 6.6
India 0.07 45.0 1.6 7.5 0.07 45.0 1.4 6.8
Indonesia 0.18 45.0 0.5 1.6 0.20 45.0 0.6 1.9
Mainland China 0.02 45.0 2.0 28.4 0.02 45.0 2.1 29.0
Malaysia 0.04 45.0 0.7 5.1 0.04 45.0 0.7 4.9
Singapore 0.01 44.2 0.7 14.8 0.01 45.0 0.7 15.8
Taiwan 0.02 45.0 0.6 9.9 0.02 45.0 0.6 10.1
Middle East and
North Africa
Egypt 1.65 45.0 2.3 2.4 2.25 45.0 2.3 2.2
Turkey 0.76 40.2 0.6 0.9 0.42 45.0 0.5 0.9
UAE 0.03 45.0 0.6 5.9 0.04 44.6 0.7 6.0
North America
US 0.01 35.1 3.2 47.9 0.01 33.4 3.2 42.8
Canada 0.02 33.4 2.0 15.6 0.02 33.2 1.8 15.9
Latin America
Argentina 2.25 45.0 2.7 2.5 1.65 45.0 1.4 1.4
Mexico 0.17 45.0 4.4 9.3 0.16 45.0 3.8 8.1
Table 50.c: PD, LGD, RWA and exposure by country/territory - wholesale
IRB advanced approach institutions
At 31 Dec 2018 At 31 Dec 2017
Exposure- Exposure- Exposure- Exposure-
weighted weighted weighted weighted
average average Exposure average average Exposure
PD LGD RWAs value PD LGD RWAs value
% % $bn $bn % % $bn $bn
Europe
UK 0.22 35.4 3.1 11.9 0.21 37.4 3.5 12.1
France 0.18 42.9 0.4 1.2 0.17 38.9 0.5 1.7
Germany 0.12 36.7 0.2 0.9 0.13 39.4 0.2 0.9
Switzerland 0.10 32.9 0.2 1.2 0.06 35.1 0.2 1.2
Asia
Hong Kong 0.05 40.8 4.5 32.0 0.06 42.1 5.4 36.1
Australia 0.06 39.8 0.5 2.2 0.07 41.8 0.5 2.6
India 0.20 45.0 0.5 1.4 0.17 45.0 0.3 1.1
Indonesia 0.26 45.0 - 0.1 0.43 49.7 - 0.1
Mainland China 0.13 46.1 1.0 4.4 0.14 46.4 2.0 8.0
Malaysia 0.09 47.5 0.3 1.8 0.18 47.5 0.5 1.8
Singapore 0.08 41.2 0.5 4.3 0.12 42.0 0.6 3.6
Taiwan 0.08 45.0 - 0.2 0.06 45.0 - 0.2
Middle East and
North Africa
Egypt 0.07 45.0 0.2 0.9 0.08 45.0 0.2 0.9
Turkey 0.25 32.9 - 0.1 0.11 45.2 - 0.2
UAE 0.18 45.4 0.2 0.8 0.18 45.3 0.3 0.8
North America
US 0.23 47.1 0.7 1.6 0.11 44.6 1.4 6.9
Canada 0.04 22.1 0.2 3.1 0.04 22.8 0.3 3.5
Latin America
Argentina 0.09 45.0 - - - - - -
Mexico 0.41 45.0 0.5 0.8 0.45 45.0 0.3 0.6
Table 50.d: PD, LGD, RWA and exposure by country/territory - wholesale
IRB advanced approach corporates
At 31 Dec 2018 At 31 Dec 2017
Exposure- Exposure- Exposure- Exposure-
weighted weighted weighted weighted
average average Exposure average average Exposure
PD LGD RWAs value PD LGD RWAs value
% % $bn $bn % % $bn $bn
Europe
UK 2.34 33.9 84.3 149.2 2.56 34.9 86.3 150.9
France 2.10 28.1 16.2 34.0 2.07 28.9 14.5 31.3
Germany - - - - 1.82 45.0 - 0.1
Switzerland - - - - 0.04 45.0 - 0.1
Asia
Hong Kong 1.16 38.3 82.1 182.4 1.15 37.6 76.0 165.9
Australia 0.95 43.7 7.1 14.8 1.06 43.3 8.2 15.7
India 1.64 62.6 7.0 10.1 1.25 61.4 6.7 10.4
Indonesia 5.82 63.8 4.5 4.6 6.33 64.6 4.9 4.4
Mainland China 1.09 51.9 23.2 39.4 1.30 52.0 24.4 39.9
Malaysia 2.59 47.5 5.4 9.2 1.69 48.7 5.7 8.9
Singapore 0.81 42.3 9.7 21.4 0.92 39.7 8.9 21.1
Taiwan 0.41 52.8 2.9 7.3 0.42 53.0 2.4 5.6
Middle East and
North Africa
Egypt 17.29 41.5 0.2 0.3 11.63 44.5 0.3 0.4
Turkey - - - - - - - -
UAE 0.52 27.2 1.0 2.3 0.21 20.9 0.5 2.3
North America
US 1.11 34.5 43.7 84.9 2.04 34.1 40.1 80.4
Canada 1.62 36.1 19.0 35.1 2.15 36.3 19.5 34.3
Latin America
Argentina - - - - 1.95 46.7 0.1 0.1
Mexico 0.44 28.9 0.1 0.3 0.65 29.2 0.2 0.3
Table 50.e: PD, LGD, RWA and exposure by country/territory - wholesale
IRB foundation approach all asset classes
At 31 Dec 2018 At 31 Dec 2017
Exposure- Exposure- Exposure- Exposure-
weighted weighted weighted weighted
average average Exposure average average Exposure
PD LGD RWAs value PD LGD RWAs value
% % $bn $bn % % $bn $bn
Europe
UK 2.49 41.1 7.1 10.9 2.90 40.8 5.8 9.8
France 2.48 45.0 0.4 0.4 3.22 45.0 0.4 0.4
Germany 1.82 46.8 12.5 21.3 1.37 44.9 11.1 18.4
Switzerland - - - - - - - -
Asia
Hong Kong - - - - - - - -
Australia - - - - - - - -
India - - - - - - - -
Indonesia - - - - - - - -
Mainland China - - - - - - - -
Malaysia - - - - - - - -
Singapore - - - - - - - -
Taiwan - - - - - - - -
Middle East and
North Africa
Egypt - - - - - - - -
Turkey - - - - - - - -
UAE 4.37 42.9 7.7 12.4 4.50 44.8 7.9 12.3
North America
US - - - - - - - -
Canada - - - - - - - -
Latin America
Argentina - - - - - - - -
Mexico - - - - - - - -
Table 50.f: PD, LGD, RWA and exposure by country/territory - wholesale
IRB foundation approach central governments and central banks
At 31 Dec 2018 At 31 Dec 2017
Exposure- Exposure- Exposure- Exposure-
weighted weighted weighted weighted
average average Exposure average average Exposure
PD LGD RWAs value PD LGD RWAs value
% % $bn $bn % % $bn $bn
Europe
UK - - - - - - - -
France - - - - - - - -
Germany - - - - - - - -
Switzerland - - - - - - - -
Asia
Hong Kong - - - - - - - -
Australia - - - - - - - -
India - - - - - - - -
Indonesia - - - - - - - -
Mainland China - - - - - - - -
Malaysia - - - - - - - -
Singapore - - - - - - - -
Taiwan - - - - - - - -
Middle East and
North Africa
Egypt - - - - - - - -
Turkey - - - - - - - -
UAE 0.03 45.0 - 0.1 0.05 45.0 - 0.1
North America
US - - - - - - - -
Canada - - - - - - - -
Latin America
Argentina - - - - - - - -
Mexico - - - - - - - -
Table 50.g: PD, LGD, RWA and exposure by country/territory - wholesale
IRB foundation approach institutions
At 31 Dec 2018 At 31 Dec 2017
Exposure- Exposure- Exposure- Exposure-
weighted weighted weighted weighted
average average Exposure average average Exposure
PD LGD RWAs value PD LGD RWAs value
% % $bn $bn % % $bn $bn
Europe
UK - - - - - - - -
France - - - - - - - -
Germany 0.18 45.0 0.1 0.1 - - - -
Switzerland - - - - - - - -
Asia
Hong Kong - - - - - - - -
Australia - - - - - - - -
India - - - - - - - -
Indonesia - - - - - - - -
Mainland China - - - - - - - -
Malaysia - - - - - - - -
Singapore - - - - - - - -
Taiwan - - - - - - - -
Middle East and
North Africa
Egypt - - - - - - - -
Turkey - - - - - - - -
UAE 0.11 45.0 0.2 0.6 0.11 45.0 0.1 0.2
North America
US - - - - - - - -
Canada - - - - - - - -
Latin America
Argentina - - - - - - - -
Mexico - - - - - - - -
Table 50.h: PD, LGD, RWA and exposure by country/territory - wholesale
IRB foundation approach corporates
At 31 Dec 2018 At 31 Dec 2017
Exposure- Exposure- Exposure- Exposure-
weighted weighted weighted weighted
average average Exposure average average Exposure
PD LGD RWAs value PD LGD RWAs value
% % $bn $bn % % $bn $bn
Europe
UK 2.49 41.1 7.1 10.9 2.90 40.8 5.8 9.8
France 2.48 45.0 0.4 0.4 3.22 45.0 0.4 0.4
Germany 1.83 46.8 12.4 21.2 1.37 44.9 11.1 18.4
Switzerland - - - - - - - -
Asia
Hong Kong - - - - - - - -
Australia - - - - - - - -
India - - - - - - - -
Indonesia - - - - - - - -
Mainland China - - - - - - - -
Malaysia - - - - - - - -
Singapore - - - - - - - -
Taiwan - - - - - - - -
Middle East and
North Africa
Egypt - - - - - - - -
Turkey - - - - - - - -
UAE 4.62 42.7 7.5 11.7 4.60 44.8 7.8 12.0
North America
US - - - - - - - -
Canada - - - - - - - -
Latin America
Argentina - - - - - - - -
Mexico - - - - - - - -
Table 50.i: PD, LGD, RWA and exposure by country/territory - retail
IRB approach all asset classes
At 31 Dec 2018 At 31 Dec 2017
Exposure- Exposure- Exposure- Exposure-
weighted weighted weighted weighted
average average Exposure average average Exposure
PD LGD RWAs value PD LGD RWAs value
% % $bn $bn % % $bn $bn
Europe
UK 1.31 31.5 24.8 186.0 1.48 30.9 23.8 180.7
France 3.96 13.6 3.5 25.2 4.35 14.0 3.5 26.3
Germany - - - - - - - -
Switzerland 1.25 2.3 0.1 6.0 0.74 2.0 0.1 6.7
Asia
Hong Kong 0.74 38.4 27.2 121.6 0.79 38.5 22.7 111.8
Australia 0.85 10.3 0.9 15.5 0.91 10.4 0.9 14.1
India - - - - - - - -
Indonesia - - - - - - - -
Mainland China - - - - - - - -
Malaysia 4.88 11.8 1.3 4.6 4.56 11.8 1.3 5.0
Singapore 0.92 20.1 1.1 6.7 0.91 21.8 1.1 6.3
Taiwan 1.31 11.9 0.7 5.2 1.33 11.7 0.7 4.9
Middle East and
North Africa
Egypt - - - - - - - -
Turkey - - - - - - - -
UAE - - - - - - - -
North America
US 5.26 62.9 9.5 22.4 5.33 63.3 9.1 21.9
Canada 0.77 19.5 2.5 21.3 0.80 19.4 2.4 22.0
Latin America
Argentina - - - - - - - -
Mexico - - - - - - - -
Table 50.j: PD, LGD, RWA and exposure by country/territory - retail
IRB approach - retail secured by mortgages on immovable property
non-SME
At 31 Dec 2018 At 31 Dec 2017
Exposure- Exposure- Exposure- Exposure-
weighted weighted weighted weighted
average average Exposure average average Exposure
PD LGD RWAs value PD LGD RWAs value
% % $bn $bn % % $bn $bn
Europe
UK 1.04 14.5 6.3 137.3 1.20 13.2 6.5 134.4
France 6.21 14.0 0.7 3.5 6.27 14.0 0.7 3.7
Germany - - - - - - - -
Switzerland - - - - - - - -
Asia
Hong Kong 0.59 10.1 16.3 76.1 0.65 10.0 12.7 69.2
Australia 0.85 10.3 0.9 15.5 0.91 10.4 0.9 14.1
India - - - - - - - -
Indonesia - - - - - - - -
Mainland China - - - - - - - -
Malaysia 4.88 11.8 1.3 4.6 4.56 11.8 1.3 5.0
Singapore 0.92 20.1 1.1 6.7 0.91 21.8 1.1 6.3
Taiwan 1.31 11.9 0.7 5.2 1.33 11.7 0.7 4.9
Middle East and
North Africa
Egypt - - - - - - - -
Turkey - - - - - - - -
UAE - - - - - - - -
North America
US 6.08 53.6 7.6 17.2 6.16 54.7 7.5 17.1
Canada 0.68 17.8 2.1 19.7 0.69 17.6 1.9 20.1
Latin America
Argentina - - - - - - - -
Mexico - - - - - - - -
Table 50.k: PD, LGD, RWA and exposure by country/territory - retail
IRB approach retail secured by mortgages on immovable property SME
At 31 Dec 2018 At 31 Dec 2017
Exposure- Exposure- Exposure- Exposure-
weighted weighted weighted weighted
average average Exposure average average Exposure
PD LGD RWAs value PD LGD RWAs value
% % $bn $bn % % $bn $bn
Europe
UK 4.74 37.2 1.3 2.0 - - - -
France 14.26 26.3 0.4 0.6 7.71 25.8 0.4 0.6
Germany - - - - - - - -
Switzerland - - - - - - - -
Asia
Hong Kong 0.91 15.6 - 0.5 0.77 11.4 - 0.6
Australia - - - - - - - -
India - - - - - - - -
Indonesia - - - - - - - -
Mainland China - - - - - - - -
Malaysia - - - - - - - -
Singapore - - - - - - - -
Taiwan - - - - - - - -
Middle East and
North Africa
Egypt - - - - - - - -
Turkey - - - - - - - -
UAE - - - - - - - -
North America
US - - - - - - - -
Canada 1.25 18.4 - 0.2 2.10 28.5 0.1 0.3
Latin America
Argentina - - - - - - - -
Mexico - - - - - - - -
Table 50.l: PD, LGD, RWA and exposure by country/territory - retail
IRB approach retail QRRE
At 31 Dec 2018 At 31 Dec 2017
Exposure- Exposure- Exposure- Exposure-
weighted weighted weighted weighted
average average Exposure average average Exposure
PD LGD RWAs value PD LGD RWAs value
% % $bn $bn % % $bn $bn
Europe
UK 1.31 81.6 7.2 34.1 1.26 85.8 6.8 31.4
France - - - - - - - -
Germany - - - - - - - -
Switzerland - - - - - - - -
Asia
Hong Kong 0.96 100.3 8.6 36.5 1.01 100.2 8.1 34.0
Australia - - - - - - - -
India - - - - - - - -
Indonesia - - - - - - - -
Mainland China - - - - - - - -
Malaysia - - - - - - - -
Singapore - - - - - - - -
Taiwan - - - - - - - -
Middle East and
North Africa
Egypt - - - - - - - -
Turkey - - - - - - - -
UAE - - - - - - - -
North America
US 1.80 93.6 1.4 4.2 1.39 93.6 0.9 3.5
Canada 2.38 64.2 0.1 0.3 2.51 64.4 0.1 0.3
Latin America
Argentina - - - - - - - -
Mexico - - - - - - - -
Table 50.m: PD, LGD, RWA and exposure by country/territory - retail
IRB approach other SME
At 31 Dec 2018 At 31 Dec 2017
Exposure- Exposure- Exposure- Exposure-
weighted weighted weighted weighted
average average Exposure average average Exposure
PD LGD RWAs value PD LGD RWAs value
% % $bn $bn % % $bn $bn
Europe
UK 6.43 81.1 4.0 4.1 6.82 67.7 5.0 6.8
France 16.18 30.6 0.7 1.8 19.77 30.4 0.8 2.3
Germany - - - - - - - -
Switzerland - - - - - - - -
Asia
Hong Kong 0.30 25.6 - 0.1 0.17 15.9 - 0.1
Australia - - - - - - - -
India - - - - - - - -
Indonesia - - - - - - - -
Mainland China - - - - - - - -
Malaysia - - - - - - - -
Singapore - - - - - - - -
Taiwan - - - - - - - -
Middle East and
North Africa
Egypt - - - - - - - -
Turkey - - - - - - - -
UAE - - - - - - - -
North America
US - - - - - - - -
Canada 4.06 47.6 0.1 0.2 5.44 45.5 0.1 0.2
Latin America
Argentina - - - - - - - -
Mexico - - - - - - - -
Table 50.n: PD, LGD, RWA and exposure by country/territory - retail
IRB approach other non-SME
At 31 Dec 2018 At 31 Dec 2017
Exposure- Exposure- Exposure- Exposure-
weighted weighted weighted weighted
average average Exposure average average Exposure
PD LGD RWAs value PD LGD RWAs value
% % $bn $bn % % $bn $bn
Europe
UK 2.54 79.7 6.0 8.5 2.44 80.6 5.5 8.1
France 2.07 11.5 1.7 19.3 2.09 11.8 1.6 19.7
Germany - - - - - - - -
Switzerland 1.25 2.3 0.1 6.0 0.74 2.0 0.1 6.7
Asia
Hong Kong 1.18 27.7 2.3 8.4 1.15 24.2 1.9 7.9
Australia - - - - - - - -
India - - - - - - - -
Indonesia - - - - - - - -
Mainland China - - - - - - - -
Malaysia - - - - - - - -
Singapore - - - - - - - -
Taiwan - - - - - - - -
Middle East and
North Africa
Egypt - - - - - - - -
Turkey - - - - - - - -
UAE - - - - - - - -
North America
US 5.65 96.7 0.5 1.0 4.88 96.6 0.7 1.3
Canada 1.21 33.3 0.2 0.9 1.06 30.8 0.2 1.1
Latin America
Argentina - - - - - - - -
Mexico - - - - - - - -
Table 51: Retail IRB exposure - by internal PD band
At 31 Dec 2018 At 31 Dec 2017
Average Average
net carrying Undrawn net carrying Undrawn
PD range values(1) commitments values(1) commitments
% $bn $bn $bn $bn
Retail SME exposure secured
by mortgages on immovable
property 3.2 0.3 1.5 -
0.000 to
Band 1 0.483 1.0 0.1 0.6 -
0.484 to
Band 2 1.022 0.6 0.1 0.2 -
1.023 to
Band 3 4.914 1.2 0.1 0.4 -
4.915 to
Band 4 8.860 0.2 - 0.2 -
8.861 to
Band 5 15.000 0.1 - 0.1 -
15.001 to
Band 6 50.000 - - - -
50.001 to
Band 7 100.000 0.1 - - -
Retail non-SME exposure
secured by mortgages on
immovable property 280.9 17.3 260.5 18.6
0.000 to
Band 1 0.483 234.9 15.5 213.0 16.9
0.484 to
Band 2 1.022 21.4 1.0 21.2 0.9
1.023 to
Band 3 4.914 17.7 0.7 18.2 0.7
4.915 to
Band 4 8.860 2.4 - 3.0 -
8.861 to
Band 5 15.000 0.5 - 0.5 -
15.001 to
Band 6 50.000 1.6 0.1 1.5 0.1
50.001 to
Band 7 100.000 2.4 - 3.1 -
Qualifying revolving retail
exposure 129.1 111.6 120.2 104.7
0.000 to
Band 1 0.483 102.7 95.0 96.2 91.2
0.484 to
Band 2 1.022 11.5 8.1 10.3 7.1
1.023 to
Band 3 4.914 12.3 7.5 11.1 5.6
4.915 to
Band 4 8.860 1.4 0.6 1.4 0.5
8.861 to
Band 5 15.000 0.5 0.2 0.4 0.1
15.001 to
Band 6 50.000 0.5 0.2 0.5 0.1
50.001 to
Band 7 100.000 0.2 - 0.3 0.1
Other retail SME exposure 8.7 3.8 10.2 4.2
0.000 to
Band 1 0.483 1.2 0.9 1.3 0.8
0.484 to
Band 2 1.022 1.4 0.9 1.8 0.9
1.023 to
Band 3 4.914 4.3 1.6 4.9 1.9
4.915 to
Band 4 8.860 1.0 0.2 1.1 0.3
8.861 to
Band 5 15.000 0.3 0.1 0.5 0.1
15.001 to
Band 6 50.000 0.3 0.1 0.2 0.1
50.001 to
Band 7 100.000 0.2 - 0.4 0.1
Other retail non-SME exposure 54.8 15.9 53.1 16.0
0.000 to
Band 1 0.483 34.1 12.4 33.5 12.8
0.484 to
Band 2 1.022 9.1 1.6 8.2 1.6
1.023 to
Band 3 4.914 9.6 1.7 9.6 1.4
4.915 to
Band 4 8.860 1.1 0.1 0.9 0.1
8.861 to
Band 5 15.000 0.4 - 0.3 -
15.001 to
Band 6 50.000 0.2 - 0.2 -
50.001 to
Band 7 100.000 0.3 0.1 0.4 0.1
Total retail exposure 476.7 149.0 445.5 143.5
0.000 to
Band 1 0.483 373.9 124.0 344.6 121.7
0.484 to
Band 2 1.022 44.0 11.7 41.7 10.5
1.023 to
Band 3 4.914 45.1 11.6 44.2 9.6
4.915 to
Band 4 8.860 6.1 0.9 6.6 0.9
8.861 to
Band 5 15.000 1.8 0.3 1.8 0.2
15.001 to
Band 6 50.000 2.6 0.4 2.4 0.3
50.001 to
Band 7 100.000 3.2 0.1 4.2 0.3
1 Average net carrying values are calculated by aggregating the
net carrying values of the last five quarters and dividing by
five.
Table 52: IRB expected loss and CRAs - by exposure class
CRA
Charge
Expected for the
loss Balances year
$bn $bn $bn
---------- ---------- ----------
1 Total IRB approach
---------- ---------- ----------
2 Central governments and central banks 0.1 0.1 -
-------- -------- -------
3 Institutions - - -
-------- -------- -------
4 Corporates 5.0 4.1 0.5
-------- -------- -------
5 Retail 2.4 1.8 0.9
-------- -------- -------
- secured by mortgages on immovable property
SME 0.1 0.1 0.1
- secured by mortgages on immovable property
non-SME 0.8 0.3 -
- qualifying revolving retail 0.7 0.7 0.4
- other SME 0.4 0.3 0.2
- other non-SME 0.4 0.4 0.2
-------- -------- -------
6 Total at 31 Dec 2018 7.5 6.0 1.4
-------- -------- -------
1 Total IRB approach
---------- ---------- ----------
2 Central governments and central banks 0.1 - -
3 Institutions - - -
4 Corporates 5.3 4.2 0.7
5 Retail 2.5 1.0 0.3
- secured by mortgages on immovable property
non-SME 0.8 0.3 -
- qualifying revolving retail 0.8 0.2 0.2
- other SME 0.5 0.3 -
- other non-SME 0.4 0.2 0.1
6 Total at 31 Dec 2017 7.9 5.2 1.0
1 Total IRB approach
---------- ---------- ----------
2 Central governments and central banks 0.1 - -
3 Institutions - - -
4 Corporates 5.7 4.3 1.1
5 Retail 3.6 1.2 0.5
- secured by mortgages on immovable property
non-SME 1.9 0.4 0.1
- qualifying revolving retail 0.6 0.2 0.2
- other SME 0.6 0.3 -
- other non-SME 0.5 0.3 0.2
6 Total at 31 Dec 2016 9.4 5.5 1.6
1 Total IRB approach
---------- ---------- ----------
2 Central governments and central banks 0.2 - -
3 Institutions 0.1 - -
4 Corporates 5.5 4.5 1.0
5 Retail 5.5 2.1 0.4
- secured by mortgages on immovable property
non-SME 3.5 1.2 -
- qualifying revolving retail 0.7 0.2 0.2
- other SME 0.7 0.3 -
- other non-SME 0.6 0.4 0.2
6 Total at 31 Dec 2015 11.3 6.6 1.4
1 Total IRB approach
2 Central governments and central banks 0.3 - -
3 Institutions 0.3 - -
4 Corporates 5.2 4.2 1.1
5 Retail 7.2 3.1 0.2
- secured by mortgages on immovable property
non-SME 5.1 1.9 (0.1)
- qualifying revolving retail 0.7 0.3 0.1
- other SME 0.7 0.4 -
- other non-SME 0.7 0.5 0.2
6 Total at 31 Dec 2014 13.0 7.3 1.3
Table 53: Credit risk RWAs - by geographical region
RWAs
North Latin
Europe Asia MENA America America Total
$bn $bn $bn $bn $bn $bn
IRB advanced approach 150.3 216.2 7.3 86.5 7.9 468.2
- central governments and central banks 4.2 15.1 5.0 5.4 7.2 36.9
- institutions 4.5 7.6 0.5 1.1 0.5 14.2
- corporates 113.2 162.0 1.8 67.9 0.2 345.1
- total retail 28.4 31.5 - 12.1 - 72.0
Secured by mortgages on immovable property
SME 1.7 0.1 - - - 1.8
Secured by mortgages on immovable property
non-SME 7.1 20.5 - 9.6 - 37.2
Qualifying revolving retail 7.2 8.6 - 1.5 - 17.3
Other SME 4.6 - - 0.2 - 4.8
Other non-SME 7.8 2.3 - 0.8 - 10.9
IRB securitisation positions 5.6 0.2 - 0.5 - 6.3
IRB non-credit obligation assets 3.5 4.7 0.6 1.3 0.7 10.8
IRB foundation approach 21.0 - 9.5 - - 30.5
- institutions - - 0.2 - - 0.2
- corporates 21.0 - 9.3 - - 30.3
Standardised approach 39.0 70.8 29.6 14.8 21.1 175.3
- central governments and central banks(1) 3.6 1.7 0.6 5.4 1.2 12.5
- institutions 0.2 0.2 0.8 - - 1.2
- corporates 18.4 20.3 20.4 5.9 14.2 79.2
- retail 0.9 6.3 3.7 0.9 3.0 14.8
- secured by mortgages on immovable property 2.4 6.3 1.2 0.5 0.9 11.3
- exposures in default 1.0 0.5 1.4 0.3 0.6 3.8
- regional governments or local authorities(1) - - 0.8 - 0.5 1.3
- public sector entities(1) - - - - - -
- equity 2.8 30.6 0.2 1.1 0.3 35.0
- items associated with particularly high
risk 6.3 - 0.1 0.4 0.1 6.9
- securitisation positions 0.6 1.4 - - 0.1 2.1
- claims in the form of CIU 0.6 - - - - 0.6
- other items 2.2 3.5 0.4 0.3 0.2 6.6
Total at 31 Dec 2018 219.4 291.9 47.0 103.1 29.7 691.1
IRB advanced approach 149.9 208.8 7.1 83.7 5.9 455.4
- central governments and central banks 3.4 14.8 5.1 5.3 5.3 33.9
- institutions 4.9 9.9 0.6 1.9 0.3 17.6
- corporates 114.2 157.3 1.4 65.0 0.3 338.2
- total retail 27.4 26.8 - 11.5 - 65.7
Secured by mortgages on immovable property
SME 0.4 - - 0.1 - 0.5
Secured by mortgages on immovable property
non-SME 7.1 16.8 - 9.3 - 33.2
Qualifying revolving retail 6.8 8.1 - 1.1 - 16.0
Other SME 5.8 - - 0.1 - 5.9
Other non-SME 7.3 1.9 - 0.9 - 10.1
IRB securitisation positions 13.0 0.2 - 0.5 - 13.7
IRB non-credit obligation assets 5.3 5.4 0.4 1.3 0.8 13.2
IRB foundation approach 18.8 - 9.6 - - 28.4
- institutions - - 0.1 - - 0.1
- corporates 18.8 - 9.5 - - 28.3
Standardised approach 38.9 69.8 30.6 15.7 19.5 174.5
- central governments and central banks(1) 3.2 1.5 0.7 5.9 1.4 12.7
- institutions 0.2 0.1 0.8 - 0.1 1.2
- corporates 20.0 19.3 21.0 5.8 12.2 78.3
- retail 1.0 6.5 4.3 1.3 3.4 16.5
- secured by mortgages on immovable property 2.6 5.5 1.2 0.4 0.7 10.4
- exposures in default 1.3 0.6 1.3 0.3 0.4 3.9
- regional governments or local authorities(1) - - 0.7 - 0.3 1.0
- public sector entities(1) - - - - 0.1 0.1
- equity 2.6 31.8 0.2 1.0 0.5 36.1
- items associated with particularly high
risk 5.1 - 0.1 0.4 0.1 5.7
- securitisation positions 0.3 1.1 - - 0.2 1.6
- claims in the form of CIU 0.6 - - - - 0.6
- other items 2.0 3.4 0.3 0.6 0.1 6.4
Total at 31 Dec 2017 225.9 284.2 47.7 101.2 26.2 685.2
1 Standardised exposures to EEA 'regional governments and local
authorities' and 'public sector entities' are reported separately
in 2018. In previous years, these exposures were grouped with
'central governments and central banks'. Prior reporting has not
been restated.
Table 54: IRB exposure - credit risk mitigation
At 31 Dec 2018 At 31 Dec 2017
Exposures Exposures
Exposures Exposures Exposures secured Exposures Exposures Exposures Exposures secured Exposures
unsecured: secured: secured by secured unsecured: secured: secured by secured
carrying carrying by financial by credit carrying carrying by financial by credit
amount amount collateral guarantees derivatives amount amount collateral guarantees derivatives
Footnote $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
Exposures
under the
advanced
approach 1
---------
Central
governments
and central
banks 303.4 28.3 26.8 1.5 - 289.2 18.9 18.1 0.8 -
Institutions 2 74.5 6.1 4.4 1.7 - 82.0 12.3 5.9 1.5 -
-----------
Corporates 2 560.9 388.0 272.4 104.7 10.9 539.5 378.7 273.5 97.2 12.9
Retail 192.0 291.3 267.9 23.4 - 188.3 279.3 256.6 22.7 -
-----------
Total 1,130.8 713.7 571.5 131.3 10.9 1,099.0 689.2 554.1 122.2 12.9
--------- ---------- ---------- ---------- -----------
Exposures
under the
foundation
approach 1
---------
Institutions 0.5 - - - - 0.2 - - - -
---------- ---------- -----------
Corporates 57.1 20.8 15.2 5.6 - 64.4 8.8 6.4 2.4 -
-----------
Total 57.6 20.8 15.2 5.6 - 64.6 8.8 6.4 2.4 -
---------- ---------- ---------- -----------
1 This table includes both on- and off-balance sheet exposures.
2 Previously $4.9bn of corporate exposure secured by credit
derivatives at 31 December 2017 was reported in the institutions
exposure class. This exposure is now reported in the corporates
exposure class.
Table 55: Standardised exposure - credit risk mitigation
At 31 Dec 2018 At 31 Dec 2017
Exposures Exposures
Exposures Exposures Exposures secured Exposures Exposures Exposures Exposures secured Exposures
unsecured: secured: secured by secured unsecured: secured: secured by secured
carrying carrying by financial by credit carrying carrying by financial by credit
amount amount collateral guarantees derivatives amount amount collateral guarantees derivatives
Footnotes $bn $bn $bn $bn $bn $bn $bn $bn $bn $bn
-----------
Exposure
classes 1
-----------
Central
governments
and central
banks 2,4 157.9 0.8 - 0.8 - 187.8 5.3 0.3 5.0 -
Institutions 2.3 1.1 - 1.1 - 2.4 1.1 - 1.1 -
-----------
Corporates 125.6 53.8 43.0 10.8 - 130.8 41.5 32.0 9.5 -
-----------
Retail 62.3 1.5 1.3 0.2 - 68.0 2.6 1.4 1.2 -
-----------
Secured by
mortgages
on immovable
property 9.8 22.2 22.1 0.1 - 9.4 19.6 19.6 - -
Exposures
in default 2.4 0.6 0.5 0.1 - 2.9 0.5 0.5 - -
-----------
Items
associated
with
particularly
high risk 3 1.7 0.1 - 0.1 - 1.3 0.1 - 0.1 -
----------
Regional
governments
or local
authorities 4 7.1 0.2 0.2 - - - - - - -
Public sector
entities 4 8.2 4.0 - 4.0 - - - - - -
---------- ---------- ---------- ---------- -----------
Total 377.3 84.3 67.1 17.2 - 402.6 70.7 53.8 16.9 -
---------- ---------- ---------- ---------- -----------
1 This table includes both on and off balance sheet exposures.
2 Deferred tax assets are excluded from the exposure.
3 Equities are excluded from the exposure.
4 Standardised exposures to EEA 'regional governments and local
authorities' and 'public sector entities' are reported separately
in 2018. In previous years, these exposures were grouped with
'central governments and central banks'.
Table 56: Standardised exposure - by credit quality step
At 31 Dec 2018 At 31 Dec 2017
Original Exposure Original Exposure
exposure(1) value RWAs^ exposure(1) value RWAs
$bn $bn $bn $bn $bn $bn
Central governments and central
banks(2)
Credit quality step 1 158.0 166.3 190.6 196.3
Credit quality step 2 0.3 0.2 0.8 1.2
Credit quality step 3 0.4 0.5 0.9 1.1
Credit quality step 4 - - 0.2 -
--------
Credit quality step 5 - - 0.4 0.4
--------
Credit quality step unrated 5.0 5.0 5.2 5.2
-------- ------------
163.7 172.0 12.5 198.1 204.2 12.7
-------- ----- ------------ ----
Institutions
Credit quality step 1 0.4 0.4 0.4 0.4
Credit quality step 2 2.5 1.5 2.8 1.8
Credit quality step 4 0.1 0.1 - -
--------
Credit quality step 5 - - - -
--------
Credit quality step unrated 0.2 0.2 0.3 0.3
-------- ------------
3.2 2.2 1.2 3.5 2.5 1.2
-------- ----- ------------ ----
Corporates
Credit quality step 1 1.9 3.6 3.4 3.7
Credit quality step 2 5.2 3.4 5.2 3.7
Credit quality step 3 5.4 3.6 1.9 1.9
Credit quality step 4 2.2 1.6 1.7 1.4
Credit quality step 5 1.2 0.7 0.3 0.2
Credit quality step 6 0.2 0.1 0.3 0.3
Credit quality step unrated 163.9 71.1 160.0 72.4
-------- ------------
180.0 84.1 79.2 172.8 83.6 78.3
-------- ----- ------------ ----
1 Figures presented on an 'obligor basis'.
2 Standardised exposures to EEA 'regional governments and local
authorities' and 'public sector entities' are reported separately
in 2018. In previous years, these exposures were grouped with
'central governments and central banks'.
Table 57: Changes in stock of general and specific credit risk adjustments
(CR2-A)
Twelve months to 31 Dec
2018 2017
Accumulated Accumulated Accumulated Accumulated
specific general specific general
credit credit credit credit
risk risk risk risk
adjustments adjustments adjustments adjustments
Footnotes $bn $bn $bn $bn
------------------ --------------
Opening balance at the beginning
of
1 the period 1 10.4 - 8.6 -
Increases due to amounts set
aside for
estimated loan losses during the
2 period 2 2.3 - 2.0 -
Decreases due to amounts taken
against
accumulated credit risk
4 adjustments (2.5) - (3.2) -
Recoveries on credit risk
adjustments
written off in previous years - - 0.6 -
------------- --- ------------ ---------- ------------
Impact of exchange rate
6 differences (0.4) - - -
8 Other adjustments - - 0.1 -
Closing balance at the end of
9 the period 9.8 - 8.1 -
Recoveries on credit risk
adjustments
recorded directly to the
statement of
10 profit or loss 0.4 - - -
------------- --- ------------ ---------- ------------
1 Includes a day one increase of $2.2bn arising from the
adoption of IFRS 9 'Financial Instruments'.
2 Following adoption of IFRS 9 'Financial instruments', the
movement due to amounts set aside for estimated loan losses during
the period has been reported net.
Table 58: Changes in stock of defaulted loans and debt securities (CR2-B)
Twelve months
to 31 Dec
2018 2017
Gross Gross
carrying carrying
value value
Footnote $bn $bn
Defaulted loans and debt securities at the beginning
1 of the period 15.1 17.9
2 Loans and debt securities that have defaulted since
the last reporting period 5.7 6.4
3 Returned to non-defaulted status (1.3) (2.0)
4 Amounts written off (2.5) (2.6)
5 Other changes 1 (0.8) (0.8)
7 Repayments (2.5) (3.8)
6 Defaulted loans and debt securities at the end of
the period 13.7 15.1
1 Other changes include foreign exchange movements and changes
in assets held for sale in default.
Table 59: IRB - Credit risk exposures by portfolio and PD range (CR6)
Original
on-balance Off-balance EAD Value
sheet sheet post-CRM Number adjustments
gross exposures Average and Average of Average Average RWA Expected and
exposure pre-CCF CCF post-CCF PD obligors LGD maturity RWAs density loss provisions(^)
PD scale $bn $bn % $bn % % years $bn % $bn $bn
-------- ---------------
AIRB -
Central
government
and
central banks
0.00 to <0.15 313.5 2.7 52.6 315.6 0.02 258 42.4 2.10 26.0 8 -
0.15 to <0.25 2.5 - 18.2 2.5 0.22 10 45.0 1.80 1.1 42 -
0.25 to <0.50 2.1 - 98.9 2.3 0.37 14 45.1 1.30 1.1 50 -
0.50 to <0.75 3.3 0.2 78.3 3.4 0.63 16 45.0 1.10 2.2 64 -
0.75 to <2.50 6.8 0.2 70.8 6.6 1.72 22 45.0 1.20 6.4 97 0.1
2.50 to
<10.00 0.4 0.1 41.0 - 7.49 9 45.1 4.60 0.1 210 -
10.00 to
<100.00 - - - - - - - - - - -
100.00
(Default) - - - - - - - - - - -
---------- -------- --------
Sub-total 328.6 3.2 55.0 330.4 0.06 329 42.5 2.10 36.9 11 0.1 0.1
-------- -------------
AIRB -
Institutions
0.00 to <0.15 60.7 9.7 39.3 65.0 0.05 2,574 39.5 1.40 9.3 14 -
----------
0.15 to <0.25 3.1 0.7 22.0 3.3 0.22 323 44.7 0.90 1.2 37 -
0.25 to <0.50 2.6 0.3 59.1 2.2 0.37 182 41.5 1.20 1.1 52 -
0.50 to <0.75 1.4 0.2 45.8 1.4 0.63 140 41.5 1.30 1.1 74 -
0.75 to <2.50 1.2 0.5 50.6 1.5 1.10 242 45.1 1.20 1.4 96 -
2.50 to
<10.00 0.1 - 24.7 - 6.19 22 46.4 0.80 - 169 -
10.00 to
<100.00 - 0.1 25.6 - 13.00 17 55.0 1.00 0.1 253 -
100.00
(Default) - - - - 100.00 1 64.8 1.00 - 807 -
---------- -------- --------
Sub-total 69.1 11.5 39.2 73.4 0.11 3,501 39.9 1.40 14.2 19 - -
-------- -------------
AIRB -
Corporate
- Specialised
Lending
(excluding
Slotting)(1)
0.00 to <0.15 1.8 1.3 38.0 2.1 0.10 409 30.4 3.40 0.6 27 -
0.15 to <0.25 1.9 0.4 33.4 2.0 0.22 418 28.6 3.40 0.7 37 -
0.25 to <0.50 0.6 0.3 35.8 0.7 0.37 188 28.9 4.40 0.4 55 -
0.50 to <0.75 1.3 0.2 34.4 1.0 0.63 261 24.5 3.50 0.5 51 -
0.75 to <2.50 1.2 0.5 49.7 1.5 1.38 397 32.1 3.80 1.3 91 -
2.50 to
<10.00 0.6 0.1 51.1 0.5 5.34 136 27.4 3.20 0.5 101 -
10.00 to
<100.00 0.3 0.1 48.1 0.3 24.05 73 23.2 3.40 0.4 130 -
100.00
(Default) 0.1 0.1 87.5 0.2 100.00 105 37.9 4.80 0.5 258 0.1
---------- -------- --------
Sub-total 7.8 3.0 41.3 8.3 3.68 1,987 29.1 3.60 4.9 59 0.1 0.1
-------- -------------
AIRB -
Corporate
- Other
0.00 to <0.15 109.3 160.4 38.0 212.4 0.08 10,036 41.1 2.20 48.2 23 0.1
0.15 to <0.25 49.8 62.5 37.6 81.1 0.22 10,191 39.1 2.00 31.2 38 0.1
0.25 to <0.50 51.1 54.7 33.9 73.3 0.37 10,304 37.3 2.10 35.4 48 0.1
0.50 to <0.75 56.9 42.1 33.8 69.9 0.63 10,348 34.3 1.90 39.5 57 0.2
0.75 to <2.50 146.2 102.1 32.2 137.6 1.37 42,602 37.6 2.00 111.3 81 0.7
2.50 to
<10.00 30.5 23.2 35.7 29.8 4.10 11,510 38.0 2.00 34.3 115 0.5
10.00 to
<100.00 5.1 3.3 43.0 4.5 19.20 1,967 38.6 2.00 8.3 185 0.3
100.00
(Default) 4.2 0.9 46.6 4.5 100.00 2,473 46.0 1.90 9.9 221 1.9
Sub-total 453.1 449.2 35.9 613.1 1.55 99,431 38.7 2.10 318.1 52 3.9 3.1
--------
Wholesale
AIRB
- Total at
31
Dec 2018(2) 915.5 466.9 36.1 1,082.1 0.98 105,248 39.9 2.00 384.9 37 4.1 3.3
Table 59: IRB - Credit risk exposures by portfolio and PD range (CR6)
(continued)
Original
on-balance Off-balance EAD Value
sheet sheet post-CRM Number adjustments
gross exposures Average and Average of Average Average RWA Expected and
exposure pre-CCF CCF post-CCF PD obligors LGD maturity RWAs density loss provisions^
PD scale $bn $bn % $bn % % years $bn % $bn $bn
---------- -------------
AIRB -
Secured
by
mortgages
on
immovable
property
SME
0.00 to
<0.15 0.3 - 31.4 0.3 0.08 1,321 16.2 - - 4 -
0.15 to
<0.25 0.2 - 39.8 0.2 0.21 2,557 29.5 - - 12 -
0.25 to
<0.50 0.4 0.1 35.2 0.4 0.36 6,478 28.8 - 0.1 16 -
0.50 to
<0.75 0.3 0.1 44.5 0.3 0.61 5,000 32.2 - 0.1 27 -
0.75 to
<2.50 0.9 0.2 33.8 1.0 1.47 13,728 35.2 - 0.5 51 -
2.50 to
<10.00 0.8 0.1 40.2 0.9 4.57 7,963 31.2 - 0.7 82 -
10.00 to
<100.00 0.1 - 39.8 0.1 17.19 1,312 31.6 - 0.1 138 -
100.00
(Default) 0.1 - 55.7 0.1 100.00 1,266 33.9 - 0.3 227 0.1
---------- ---------- --------
Sub-total 3.1 0.5 37.5 3.3 5.78 39,625 30.8 - 1.8 54 0.1 0.1
---------- -----------
AIRB -
Secured
by
mortgages
on
immovable
property
non-SME
0.00 to
<0.15 172.1 11.4 89.8 185.9 0.06 1,066,724 15.4 - 12.4 7 -
0.15 to
<0.25 27.7 1.3 81.6 28.9 0.20 122,304 15.7 - 3.6 13 -
0.25 to
<0.50 24.5 2.9 43.8 25.8 0.35 117,856 17.4 - 4.6 18 -
0.50 to
<0.75 10.5 0.3 92.3 10.9 0.58 51,235 11.2 - 1.8 16 -
0.75 to
<2.50 23.8 1.2 79.7 24.9 1.26 105,656 18.1 - 7.5 30 0.1
2.50 to
<10.00 5.8 0.2 96.7 6.0 4.51 27,556 11.7 - 2.3 39 -
10.00 to
<100.00 2.1 0.1 97.4 2.2 25.15 18,895 21.1 - 3.0 138 0.1
100.00
(Default) 2.3 - 76.1 2.3 100.00 18,777 24.6 - 2.0 89 0.6
---------- ---------- --------
Sub-total 268.8 17.4 81.0 286.9 1.31 1,529,003 15.7 - 37.2 13 0.8 0.3
---------- -----------
AIRB -
Qualifying
revolving
retail
exposures
0.00 to
<0.15 5.4 70.8 49.3 40.1 0.07 13,591,739 91.3 - 1.8 4 -
0.15 to
<0.25 1.4 12.5 47.9 7.3 0.21 2,415,087 93.5 - 0.8 11 -
0.25 to
<0.50 2.2 12.1 43.1 7.4 0.36 1,989,811 92.3 - 1.3 18 -
0.50 to
<0.75 2.2 5.0 48.8 4.6 0.61 987,590 92.1 - 1.2 26 -
0.75 to
<2.50 5.9 9.0 46.5 10.1 1.42 2,052,818 90.0 - 4.8 48 0.1
2.50 to
<10.00 3.2 1.8 62.0 4.3 4.74 890,646 89.0 - 4.8 112 0.2
10.00 to
<100.00 0.9 0.3 66.5 1.1 28.46 294,570 89.4 - 2.4 216 0.3
100.00
(Default) 0.1 - 22.8 0.1 100.00 72,485 79.6 - 0.2 160 0.1
---------- ---------- --------
Sub-total 21.3 111.5 48.5 75.0 1.17 22,294,746 91.3 - 17.3 23 0.7 0.7
---------- -----------
AIRB -
Other
SME
0.00 to
<0.15 0.1 0.3 35.0 0.2 0.09 98,383 75.0 - - 14 -
0.15 to
<0.25 - 0.2 38.3 0.1 0.22 72,510 80.8 - - 29 -
0.25 to
<0.50 0.1 0.4 48.7 0.3 0.38 124,508 74.4 - 0.1 39 -
0.50 to
<0.75 0.2 0.5 63.4 0.5 0.63 155,864 68.4 - 0.2 46 -
0.75 to
<2.50 1.1 1.2 58.7 1.8 1.60 358,362 66.9 - 1.3 67 -
2.50 to
<10.00 1.8 1.0 69.1 2.6 4.87 181,027 59.5 - 2.1 80 0.1
10.00 to
<100.00 0.4 0.2 48.6 0.5 19.39 79,791 73.9 - 0.6 133 0.1
100.00
(Default) 0.3 - 96.8 0.3 100.00 15,015 38.7 - 0.5 160 0.2
---------- ---------- --------
Sub-total 4.0 3.8 57.8 6.3 9.05 1,085,460 64.1 - 4.8 76 0.4 0.3
---------- -----------
AIRB -
Other
non-SME
0.00 to
<0.15 8.1 6.3 30.7 10.6 0.08 574,137 18.7 - 0.6 5 -
0.15 to
<0.25 6.5 3.5 36.4 8.1 0.21 491,674 27.8 - 1.1 13 -
0.25 to
<0.50 6.6 2.6 28.4 7.5 0.37 386,099 30.4 - 1.5 20 -
0.50 to
<0.75 4.9 1.4 24.9 5.3 0.60 196,811 28.2 - 1.2 24 -
0.75 to
<2.50 7.9 0.9 17.1 8.2 1.35 421,600 35.4 - 3.5 43 -
2.50 to
<10.00 3.8 1.1 23.0 4.1 4.39 246,174 32.8 - 2.1 51 0.1
10.00 to
<100.00 0.6 0.1 15.7 0.7 25.06 92,869 45.5 - 0.6 92 0.1
100.00
(Default) 0.3 0.1 7.7 0.3 100.00 40,274 43.9 - 0.3 103 0.2
Sub-total 38.7 16.0 29.6 44.8 1.91 2,449,638 28.3 - 10.9 24 0.4 0.4
---------- ---------- -------- -----------
Retail AIRB
-
Total at
31 Dec
2018 335.9 149.2 50.5 416.3 1.50 27,398,472 31.5 - 72.0 17 2.4 1.8
Table 59: IRB - Credit risk exposures by portfolio and PD range (CR6)
(continued)
Original
on-balance Off-balance EAD Value
sheet sheet post-CRM Number adjustments
gross exposures Average and Average of Average Average RWA Expected and
exposure pre-CCF CCF post-CCF PD obligors LGD maturity RWAs density loss provisions(^)
PD scale $bn $bn % $bn % % years $bn % $bn $bn
FIRB -
Central
government
and
central banks
0.00 to <0.15 - - - 0.1 0.03 1 45.0 4.60 - 25 -
0.15 to <0.25 - - - - - - - - - - -
0.25 to <0.50 - - - - - - - - - - -
0.50 to <0.75 - - - - - - - - - - -
0.75 to <2.50 - - - - - - - - - - -
2.50 to
<10.00 - - - - - - - - - - -
10.00 to
<100.00 - - - - - - - - - - -
--------
100.00
(Default) - - - - - - - - - - -
Sub-total - - - 0.1 0.03 1 45.0 4.60 - 25 - -
-------------
FIRB -
Institutions
0.00 to <0.15 0.5 - 23.5 0.6 0.10 2 45.0 2.70 0.2 33 -
0.15 to <0.25 - - 63.3 0.1 0.22 1 45.0 3.60 - 60 -
0.25 to <0.50 - - 1.1 - 0.37 1 45.0 0.10 - 36 -
0.50 to <0.75 - - - - - - - - - - -
0.75 to <2.50 - - - - - - - - - - -
2.50 to
<10.00 - - - - - - - - - - -
10.00 to
<100.00 - - - - - - - - - - -
100.00
(Default) - - - - - - - - - - -
--------
Sub-total 0.5 - 40.6 0.7 0.12 4 45.0 2.80 0.2 35 - -
-------------
FIRB -
Corporate
- Other
0.00 to <0.15 9.9 13.5 46.4 16.3 0.08 1,186 44.5 2.20 4.0 24 -
0.15 to <0.25 3.5 5.9 33.5 5.4 0.22 1,269 44.4 2.30 2.5 47 -
0.25 to <0.50 4.0 4.8 33.1 5.4 0.37 1,594 44.1 1.70 3.0 55 -
0.50 to <0.75 4.8 5.6 29.9 6.0 0.63 1,573 45.5 1.80 4.4 74 -
0.75 to <2.50 9.5 10.1 22.5 11.5 1.37 4,387 43.9 1.70 10.8 93 0.1
2.50 to
<10.00 3.0 2.1 22.8 3.2 4.59 1,050 43.4 1.80 4.4 140 0.1
10.00 to
<100.00 0.5 0.2 37.3 0.6 17.09 166 44.3 1.70 1.2 207 -
100.00
(Default) 0.8 0.2 23.3 0.9 100.00 348 44.4 1.90 - - 0.4
Sub-total 36.0 42.4 33.9 49.3 2.72 11,573 44.4 1.90 30.3 61 0.6 0.5
-------- -------------
FIRB - Total
at 31 Dec
2018 36.5 42.4 33.9 50.1 2.67 11,578 44.4 1.90 30.5 61 0.6 0.5
-------- -------------
1 Slotting exposures are disclosed in Table 60: Specialised
lending on slotting approach (CR10).
2 The Wholesale AIRB Total includes non-credit obligation assets
amounting to $56.9bn of original exposure and EAD, and $10.8bn of
RWAs.
Table 59: IRB - Credit risk exposures by portfolio and PD range (CR6)
(continued)
Original
on-balance Off-balance EAD Value
sheet sheet post-CRM Number adjustments
gross exposures Average and Average of Average Average RWA Expected and
exposure pre-CCF CCF post-CCF PD obligors LGD maturity RWAs density loss provisions
PD scale $bn $bn % $bn % % years $bn % $bn $bn
AIRB -
Central
government
and
central banks
0.00 to <0.15 292.5 2.1 39.8 294.3 0.02 255 42.5 2.07 24.8 8 -
0.15 to <0.25 2.2 - 43.0 2.3 0.22 8 42.8 1.71 0.9 39 -
0.25 to <0.50 2.2 - 74.3 2.3 0.37 11 45.0 1.15 1.1 48 -
0.50 to <0.75 2.5 - - 2.6 0.63 11 45.0 1.40 1.7 68 -
0.75 to <2.50 5.9 - 28.5 5.7 1.62 54 45.0 1.11 5.3 93 0.1
2.50 to
<10.00 0.5 0.2 1.5 - 4.35 12 45.1 4.70 0.1 180 -
10.00 to
<100.00 - - - - - - - - - - -
--------
100.00
(Default) - - - - - - - - - - -
Sub-total 305.8 2.3 38.1 307.2 0.06 351 42.6 2.04 33.9 11 0.1 -
-----------
AIRB -
Institutions
0.00 to <0.15 71.5 10.6 45.9 76.9 0.05 2,857 40.9 1.35 11.2 15 -
0.15 to <0.25 2.2 1.0 40.9 2.6 0.22 344 45.3 1.20 1.1 41 -
0.25 to <0.50 3.3 0.5 47.1 3.5 0.37 270 44.7 0.82 1.9 55 -
0.50 to <0.75 2.2 0.7 44.3 2.5 0.63 192 41.8 1.32 1.8 69 -
0.75 to <2.50 1.2 0.7 47.6 1.5 1.15 282 46.1 1.52 1.5 98 -
2.50 to
<10.00 0.4 - 19.2 - 4.35 54 45.8 0.55 - 145 -
--------
10.00 to
<100.00 - 0.1 23.2 - 12.61 32 50.0 1.29 0.1 239 -
100.00
(Default) - - - - 100.00 2 76.7 1.00 - 81 -
Sub-total 80.8 13.6 45.4 87.0 0.11 4,033 41.3 1.33 17.6 20 - -
-----------
AIRB -
Corporate
- Specialised
Lending
(excluding
Slotting)(1)
0.00 to <0.15 1.4 1.1 34.3 1.8 0.10 409 30.1 3.31 0.5 26 -
0.15 to <0.25 1.5 0.8 30.9 1.6 0.22 431 32.3 3.91 0.7 44 -
0.25 to <0.50 0.9 0.3 43.4 1.0 0.37 232 32.4 3.55 0.6 54 -
0.50 to <0.75 0.9 0.2 51.8 1.0 0.63 254 23.3 4.18 0.5 52 -
0.75 to <2.50 1.9 0.8 47.4 2.3 1.33 487 30.1 3.55 1.7 79 -
2.50 to
<10.00 0.4 0.1 36.2 0.5 4.85 232 23.8 3.24 0.4 87 -
10.00 to
<100.00 0.3 0.1 46.0 0.3 24.77 88 22.1 3.02 0.4 127 -
100.00
(Default) 0.1 0.2 70.7 0.3 100.00 133 30.6 4.49 0.3 127 0.1
--------
Sub-total 7.4 3.6 40.2 8.8 4.46 2,266 29.4 3.63 5.1 59 0.1 -
-----------
AIRB -
Corporate
- Other
0.00 to <0.15 105.1 155.2 38.2 202.5 0.08 9,655 40.3 2.20 45.6 23 0.1
0.15 to <0.25 50.9 63.9 36.3 82.0 0.22 9,463 36.5 1.92 29.6 36 0.1
0.25 to <0.50 47.0 51.2 36.3 72.7 0.37 10,194 38.0 2.07 35.5 49 0.1
0.50 to <0.75 45.4 41.6 32.4 57.0 0.63 9,375 37.4 1.97 34.7 61 0.1
0.75 to <2.50 140.5 97.9 31.9 133.5 1.37 44,281 37.7 2.05 109.3 82 0.7
2.50 to
<10.00 33.5 26.2 33.7 30.8 4.17 11,455 38.8 1.97 36.4 118 0.5
10.00 to
<100.00 5.0 3.6 39.8 4.8 21.79 2,202 37.8 1.90 8.6 179 0.4
100.00
(Default) 5.0 1.0 33.5 5.2 100.00 2,429 46.1 2.11 9.8 190 2.1
Sub-total 432.4 440.6 35.8 588.5 1.75 99,054 38.6 2.07 309.5 53 4.1 3.4
-------- -----------
Wholesale
AIRB
- Total at
31
Dec 2017(2) 882.5 460.1 36.1 1,047.6 1.11 105,704 40.0 2.01 379.3 37 4.3 3.4
Table 59: IRB - Credit risk exposures by portfolio and PD range (CR6)
(continued)
Original
on-balance Off-balance EAD Value
sheet sheet post-CRM Number adjustments
gross exposures Average and Average of Average Average RWA Expected and
exposure pre-CCF CCF post-CCF PD obligors LGD maturity RWAs density loss provisions
PD scale $bn $bn % $bn % % years $bn % $bn $bn
AIRB -
Secured
by
mortgages
on
immovable
property
SME
0.00 to
<0.15 0.4 - 100.0 0.4 0.06 1,291 10.6 - - 2 -
0.15 to
<0.25 - - 100.0 - 0.18 1,741 17.0 - - 7 -
0.25 to
<0.50 0.2 - 100.0 0.2 0.32 5,164 16.1 - - 7 -
0.50 to
<0.75 0.1 - 117.1 0.1 0.60 3,884 26.2 - - 19 -
0.75 to
<2.50 0.3 - 149.6 0.3 1.60 11,459 27.4 - 0.1 33 -
2.50 to
<10.00 0.4 - 102.0 0.4 5.06 5,183 24.3 - 0.2 60 -
10.00 to
<100.00 0.1 - 249.6 0.1 17.72 858 26.3 - 0.1 104 -
100.00
(Default) - - 78.2 - 100.00 1,215 24.2 - 0.1 216 -
Sub-total 1.5 - 122.5 1.5 4.26 30,795 20.8 - 0.5 35 - -
-----------
AIRB -
Secured
by
mortgages
on
immovable
property
non-SME
0.00 to
<0.15 161.7 12.9 91.2 177.0 0.06 1,007,985 14.6 - 9.9 6 -
0.15 to
<0.25 26.9 1.2 81.9 28.1 0.21 121,136 16.0 - 3.1 11 -
0.25 to
<0.50 24.6 2.9 43.9 25.9 0.37 110,580 17.4 - 4.3 17 -
0.50 to
<0.75 11.2 0.4 100.2 11.7 0.63 51,845 15.7 - 2.2 19 -
0.75 to
<2.50 21.8 1.0 72.4 22.6 1.31 98,817 17.0 - 6.5 29 -
2.50 to
<10.00 5.9 0.2 96.6 6.1 4.53 27,756 11.3 - 2.3 38 -
10.00 to
<100.00 2.1 0.1 98.8 2.3 26.58 21,434 18.5 - 2.8 120 0.1
100.00
(Default) 2.4 - 69.5 2.4 100.00 20,590 24.7 - 2.1 86 0.7
Sub-total 256.6 18.7 82.5 276.1 1.44 1,460,143 15.3 - 33.2 12 0.8 0.3
-----------
AIRB -
Qualifying
revolving
retail
exposures
0.00 to
<0.15 5.5 68.1 47.1 37.4 0.07 12,974,761 93.5 - 1.7 5 -
0.15 to
<0.25 1.4 13.2 44.0 7.2 0.21 2,294,812 94.9 - 0.8 11 -
0.25 to
<0.50 2.2 10.2 42.5 6.4 0.37 1,829,719 93.6 - 1.2 19 -
0.50 to
<0.75 2.1 4.3 49.8 4.2 0.60 1,104,290 93.4 - 1.1 27 -
0.75 to
<2.50 5.8 7.1 47.9 9.0 1.39 2,143,093 91.5 - 4.4 48 0.1
2.50 to
<10.00 3.0 1.5 59.4 3.9 4.79 773,854 89.9 - 4.4 114 0.3
10.00 to
<100.00 0.8 0.3 58.1 1.0 30.07 281,160 91.6 - 2.2 225 0.3
100.00
(Default) 0.1 - 12.2 0.1 100.00 33,075 83.7 - 0.2 161 0.1
Sub-total 20.9 104.7 46.6 69.2 1.15 21,434,764 93.1 - 16.0 23 0.8 0.2
-----------
AIRB -
Other
SME
0.00 to
<0.15 0.1 0.2 44.9 0.2 0.09 92,804 62.2 - - 12 -
0.15 to
<0.25 0.2 0.2 51.1 0.3 0.22 70,783 60.6 - 0.1 23 -
0.25 to
<0.50 0.4 0.4 51.4 0.6 0.38 130,411 62.9 - 0.2 33 -
0.50 to
<0.75 0.5 0.6 67.7 0.9 0.63 164,640 61.0 - 0.4 42 -
0.75 to
<2.50 2.2 1.4 59.1 3.0 1.55 384,599 59.0 - 1.7 57 -
2.50 to
<10.00 2.5 1.2 57.3 3.2 4.80 195,235 55.4 - 2.1 67 0.1
10.00 to
<100.00 0.5 0.2 53.6 0.6 18.36 80,752 69.8 - 0.7 112 0.1
100.00
(Default) 0.5 0.1 90.6 0.6 100.00 18,209 39.2 - 0.7 116 0.3
Sub-total 6.9 4.3 58.2 9.4 9.84 1,137,433 57.7 - 5.9 63 0.5 0.3
-----------
AIRB -
Other
non-SME
0.00 to
<0.15 9.2 6.5 32.2 11.9 0.08 453,740 21.9 - 0.7 6 -
0.15 to
<0.25 6.5 3.6 35.6 8.1 0.21 359,875 28.2 - 1.1 13 -
0.25 to
<0.50 6.3 2.7 29.4 7.3 0.37 318,434 30.5 - 1.5 21 -
0.50 to
<0.75 4.8 1.4 28.4 5.3 0.61 178,341 27.3 - 1.2 24 -
0.75 to
<2.50 8.5 0.7 27.9 8.9 1.34 332,213 26.5 - 3.0 33 -
2.50 to
<10.00 2.9 0.9 26.1 3.2 4.24 194,512 34.4 - 1.8 57 0.1
10.00 to
<100.00 0.6 - 21.2 0.6 24.44 84,817 49.3 - 0.6 107 0.1
100.00
(Default) 0.3 0.1 11.3 0.4 100.00 40,604 46.2 - 0.2 49 0.2
Sub-total 39.1 15.9 31.5 45.7 1.83 1,962,536 27.3 - 10.1 22 0.4 0.2
-----------
Retail AIRB
-
Total at
31 Dec
2017 325.0 143.6 50.0 401.9 1.64 26,025,671 31.1 - 65.7 16 2.5 1.0
Table 59: IRB - Credit risk exposures by portfolio and PD range (CR6)
(continued)
Original
on-balance Off-balance EAD Value
sheet sheet post-CRM Number adjustments
gross exposures Average and Average of Average Average RWA Expected and
exposure pre-CCF CCF post-CCF PD obligors LGD maturity RWAs density loss provisions
PD scale $bn $bn % $bn % % years $bn % $bn $bn
FIRB -
Central
government
and
central banks
0.00 to <0.15 - - - 0.1 0.05 1 45.0 4.48 - 31 -
0.15 to <0.25 - - - - - - - - - - -
0.25 to <0.50 - - - - - - - - - - -
0.50 to <0.75 - - - - - - - - - - -
0.75 to <2.50 - - - - - - - - - - -
2.50 to
<10.00 - - - - - - - - - - -
10.00 to
<100.00 - - - - - - - - - - -
100.00
(Default) - - - - - - - - - - -
Sub-total - - - 0.1 0.05 1 45.0 4.48 - 31 - -
-----------
FIRB -
Institutions
0.00 to <0.15 0.2 - 0.8 0.2 0.11 4 45.0 2.13 0.1 29 -
0.15 to <0.25 - - - - - - - - - - -
0.25 to <0.50 - - - - - - - - - - -
0.50 to <0.75 - - - - - - - - - - -
0.75 to <2.50 - - - - - - - - - - -
2.50 to
<10.00 - - - - - - - - - - -
10.00 to
<100.00 - - - - - - - - - - -
100.00
(Default) - - - - - - - - - - -
Sub-total 0.2 - 0.8 0.2 0.11 4 45.0 2.13 0.1 29 - -
-----------
FIRB -
Corporate
- Other
0.00 to <0.15 9.5 12.7 44.3 14.9 0.08 1,144 45.0 2.47 4.1 27 -
0.15 to <0.25 3.0 6.1 42.1 5.6 0.22 1,259 44.1 2.33 2.7 47 -
0.25 to <0.50 4.4 6.1 32.7 6.3 0.37 1,319 44.1 1.88 3.6 56 -
0.50 to <0.75 3.0 4.6 24.0 4.2 0.63 1,091 42.9 2.19 3.1 75 -
0.75 to <2.50 8.5 10.0 25.8 10.7 1.36 3,663 43.1 1.75 9.7 92 0.1
2.50 to
<10.00 2.5 2.0 30.9 3.0 4.67 1,059 43.7 2.03 4.4 144 0.1
10.00 to
<100.00 0.3 0.3 30.3 0.4 21.37 184 41.4 1.10 0.7 192 -
100.00
(Default) 0.6 0.2 38.6 0.7 100.00 279 43.8 1.68 - - 0.3
Sub-total 31.8 42.0 34.9 45.8 2.52 9,998 44.0 2.13 28.3 62 0.5 0.5
-----------
FIRB - Total
at 31 Dec
2017 32.0 42.0 34.9 46.1 2.51 10,003 44.0 2.13 28.4 62 0.5 0.5
-----------
1 Slotting exposures are disclosed in Table 60: Specialised
lending on slotting approach (CR10).
2 The Wholesale AIRB Total includes non-credit obligation assets
amounting to $51.9bn of original exposure and EAD, and $12.1bn of
RWAs.
Table 60: Specialised lending on slotting approach (CR10)
On-balance Off-balance
sheet sheet Exposure Expected
amount amount Risk weight amount RWAs loss
Regulatory
categories Remaining maturity $bn $bn % $bn $bn $bn
Category 1 Less than 2.5 years 14.8 2.7 50 15.9 8.0 -
Equal to or more
than 2.5 years 11.7 2.6 70 12.7 8.8 0.1
Category 2 Less than 2.5 years 2.7 0.4 70 2.9 2.0 -
Equal to or more
than 2.5 years 2.0 0.5 90 2.2 2.0 -
Category 3 Less than 2.5 years 0.4 - 115 0.4 0.5 -
Equal to or more
than 2.5 years 0.5 0.1 115 0.5 0.6 -
Category 4 Less than 2.5 years 0.1 - 250 0.1 0.1 -
Equal to or more
than 2.5 years - - 250 - 0.1 -
Category 5 Less than 2.5 years 0.3 - - 0.5 - 0.2
Equal to or more
than 2.5 years 0.1 - - 0.1 - 0.1
Total at 31
Dec 2018 Less than 2.5 years 18.3 3.1 19.8 10.6 0.2
Equal to or more
than 2.5 years 14.3 3.2 15.5 11.5 0.2
Table 60: Specialised lending on slotting approach (CR10) (continued)
On-balance Off-balance
sheet sheet Exposure Expected
amount amount Risk weight amount RWAs loss
Regulatory
categories Remaining maturity $bn $bn % $bn $bn $bn
Category 1 Less than 2.5 years 12.2 1.6 50 13.2 6.7 -
Equal to or more
than 2.5 years 12.9 2.0 70 14.3 10.0 0.1
Category 2 Less than 2.5 years 3.3 0.2 70 3.3 2.4 -
Equal to or more
than 2.5 years 2.8 0.4 90 3.0 2.7 -
Category 3 Less than 2.5 years 0.4 - 115 0.4 0.4 -
Equal to or more
than 2.5 years 0.9 0.1 115 0.8 0.9 -
Category 4 Less than 2.5 years 0.1 - 250 0.1 0.2 -
Equal to or more
than 2.5 years 0.1 - 250 0.1 0.3 -
Category 5 Less than 2.5 years 0.3 - - 0.6 - 0.3
Equal to or more
than 2.5 years 0.3 - - 0.3 - 0.2
Total at 31
Dec 2017 Less than 2.5 years 16.3 1.8 17.6 9.7 0.3
Equal to or more
than 2.5 years 17.0 2.5 18.5 13.9 0.3
Table 61: Analysis of counterparty credit risk exposure by approach
(excluding centrally cleared exposures)(1) (CCR1)
Effective
Potential expected
Replacement future positive EAD
cost exposure exposure Multiplier post-CRM RWAs
$bn $bn $bn $bn $bn $bn
----
1 Mark to market 12.6 21.5 - - 34.1 13.9
4 Internal Model Method - - 29.9 1.4 41.8 16.2
- of which: derivatives and
6 long settlement transactions(2) - - 29.9 1.4 41.8 16.2
----
Financial collateral comprehensive
9 method (for SFTs) - - - - 49.3 10.2
11 Total at 31 Dec 2018 12.6 21.5 29.9 1.4 125.2 40.3
----
1 Mark to market 17.2 44.5 - - 61.7 25.2
4 Internal Model Method - - 15.9 1.4 22.2 9.7
- of which:
- of which: derivatives and
6 long settlement transactions(2) - - 15.9 1.4 22.2 9.7
Financial collateral comprehensive
9 method (for SFTs) - - - - 47.6 8.7
----
11 Total at 31 Dec 2017 17.2 44.5 15.9 1.4 131.5 43.6
----
1 As the Group does not use the original exposure method, notional values are not reported.
2 Prior to the implementation of SA-CCR exposures reported here
will be those under the mark-to-market method.
The changes in exposures under the mark-to-market and IMM
approaches in table 61 and the movements between the standardised
and advanced CVA within table 62 principally reflect the
implementation of IMM in Asia and the US.
Table 62: Credit valuation adjustment (CVA) capital charge (CCR2)
At 31 Dec At 31 Dec
2018 2017
EAD EAD
post-CRM RWAs post-CRM RWAs
$bn $bn $bn $bn
Total portfolios subject to the Advanced CVA
1 capital charge 21.4 4.9 9.4 2.8
--------- ----
2 - VaR component (including the 3 × multiplier) 0.9 0.7
3 - stressed VaR component (including the 3
× multiplier) 4.0 2.1
4 All portfolios subject to the Standardised
CVA capital charge 13.6 1.0 36.6 6.7
--------- ----
5 Total subject to the CVA capital charge 35.0 5.9 46.0 9.5
Table 63: Standardised approach - CCR exposures by regulatory portfolio
and risk weights (CCR3)
Total
credit Of which
Risk weight 0% 10% 20% 50% 75% 100% 150% Others exposure unrated
Central governments
1 and central banks(1) 7.4 - 0.1 - - - - - 7.5 -
Regional government
or local
2 authorities(1) 1.0 - - - - - - - 1.0 0.1
Public sector
3 entities(1) - - - - - - - - - -
6 Institutions - - - - - 0.1 - - 0.1 -
7 Corporates - - - - - 1.9 - - 1.9 1.6
--- ---------
Total at 31 Dec 2018 8.4 - 0.1 - - 2.0 - - 10.5 1.7
--- --------
Central governments
1 and central banks(1) 7.5 - - - - - - - 7.5 6.3
Regional government
or local
2 authorities(1) - - - - - - - - - -
Public sector
3 entities(1) - - - - - - - - - -
6 Institutions - - - 0.1 - - - - 0.1 0.1
7 Corporates - - - - - 1.9 - - 1.9 1.7
---
Total at 31 Dec 2017 7.5 - - 0.1 - 1.9 - - 9.5 8.1
---
1 Standardised exposures to EEA 'regional governments and local
authorities' and 'public sector entities' are reported separately
in 2018. In previous years, these exposures were grouped with
'central governments and central banks'.
Table 64: IRB - CCR exposures by portfolio and PD scale (CCR4)
EAD Average Number Average Average RWA
post-CRM PD of obligors LGD maturity RWAs density
PD scale $bn % % years $bn %
AIRB - Central Government
and Central Banks
0.00 to <0.15 10.1 0.02 90 44.9 0.95 0.5 5
0.15 to <0.25 0.1 0.22 12 45.0 3.07 0.1 54
0.25 to <0.50 0.1 0.37 6 44.8 3.36 0.1 74
0.50 to <0.75 0.1 0.63 1 45.0 1.00 - 60
0.75 to <2.50 1.2 2.25 7 45.0 1.29 1.2 100
2.50 to <10.00 - 7.85 1 45.0 5.00 - 218
10.00 to <100.00 - - - - - - -
100.00 (Default) - - - - - - -
Sub-total 11.6 0.22 117 45.0 1.02 1.9 17
AIRB - Institutions
0.00 to <0.15 40.5 0.06 4,629 44.3 1.17 7.9 19
0.15 to <0.25 3.5 0.22 477 43.9 1.40 1.6 46
0.25 to <0.50 1.7 0.37 75 45.0 1.19 0.9 50
0.50 to <0.75 0.7 0.63 64 44.9 1.06 0.4 67
0.75 to <2.50 0.4 1.37 106 46.2 2.08 0.5 117
2.50 to <10.00 0.1 4.94 20 44.9 1.60 0.1 149
10.00 to <100.00 0.4 12.98 12 55.0 1.20 0.8 241
100.00 (Default) - 100.00 1 45.0 1.00 - -
Sub-total 47.3 0.21 5,384 44.7 1.18 12.2 26
AIRB - Corporates
0.00 to <0.15 30.2 0.07 4,934 43.5 1.71 6.4 21
0.15 to <0.25 6.7 0.22 1,796 46.9 1.75 3.2 48
0.25 to <0.50 3.8 0.37 1,029 44.6 1.69 2.1 56
0.50 to <0.75 3.8 0.63 1,018 43.8 1.23 2.8 73
0.75 to <2.50 6.3 1.34 7,375 46.1 1.38 6.6 104
2.50 to <10.00 0.7 3.92 569 46.9 1.62 1.1 150
10.00 to <100.00 0.1 21.77 61 43.6 1.34 0.1 237
100.00 (Default) - 100.00 17 41.1 2.60 - -
Sub-total 51.6 0.42 16,799 44.4 1.64 22.3 43
AIRB - Total at 31 Dec
2018 110.5 0.28 22,300 49.2 1.38 36.4 33
FIRB - Corporates
0.00 to <0.15 2.5 0.07 522 37.9 1.73 0.6 24
0.15 to <0.25 0.4 0.22 146 45.0 1.78 0.2 42
0.25 to <0.50 0.2 0.37 130 45.0 1.66 0.1 59
0.50 to <0.75 0.2 0.63 84 45.0 0.82 0.1 74
0.75 to <2.50 0.7 1.59 533 45.0 1.56 0.8 105
2.50 to <10.00 0.1 5.00 82 45.0 2.20 0.1 155
10.00 to <100.00 - 11.95 11 45.0 1.03 - 192
100.00 (Default) - 100.00 7 45.0 1.02 - -
FIRB - Total at 31 Dec
2018 4.1 0.54 1,515 45.0 1.82 1.9 45
Total (all portfolios)
at 31 Dec 2018 114.6 0.32 23,815 44.6 1.40 38.3 33
Table 64: IRB - CCR exposures by portfolio and PD scale (CCR4) (continued)
EAD Average Number Average Average RWA
post-CRM PD of obligors LGD maturity RWAs density
PD scale $bn % % years $bn %
AIRB - Central Government
and Central Banks
0.00 to <0.15 10.9 0.03 92 45.0 0.96 0.7 6
0.15 to <0.25 0.2 0.22 9 45.0 2.83 0.1 49
0.25 to <0.50 0.1 0.37 5 45.0 1.96 - 58
0.50 to <0.75 - 0.63 6 45.0 1.01 - 63
0.75 to <2.50 0.3 1.72 9 45.0 1.42 0.4 102
2.50 to <10.00 1.0 3.59 2 45.0 0.46 1.2 123
10.00 to <100.00 - - - - - - -
100.00 (Default) - - - - - - -
Sub-total 12.5 0.42 123 45.0 1.00 2.4 19
AIRB - Institutions
0.00 to <0.15 46.8 0.06 3,973 45.3 1.34 9.8 21
0.15 to <0.25 3.9 0.22 331 46.1 1.55 2.0 50
0.25 to <0.50 2.1 0.37 93 45.0 1.13 1.3 59
0.50 to <0.75 0.7 0.63 91 46.3 1.24 0.5 76
0.75 to <2.50 0.7 1.23 164 45.4 1.41 0.7 107
2.50 to <10.00 - 6.00 22 25.7 1.75 0.1 187
10.00 to <100.00 - 12.67 13 54.7 2.57 - 279
100.00 (Default) - 100.00 1 45.0 1.00 - -
Sub-total 54.2 0.12 4,688 45.4 1.34 14.4 27
AIRB - Corporates
0.00 to <0.15 31.4 0.07 5,025 44.2 1.84 7.2 23
0.15 to <0.25 5.8 0.22 1,726 47.9 1.40 2.7 46
0.25 to <0.50 3.8 0.37 1,053 45.3 2.09 2.4 62
0.50 to <0.75 2.9 0.63 936 46.0 1.38 2.1 76
0.75 to <2.50 6.8 1.36 3,065 45.8 1.48 6.9 102
2.50 to <10.00 0.6 4.53 566 46.3 1.99 1.0 152
10.00 to <100.00 0.1 20.58 86 47.3 1.20 0.2 263
100.00 (Default) 0.1 100.00 22 43.4 4.41 - -
Sub-total 51.5 0.65 12,479 45.0 1.74 22.5 44
AIRB - Total at 31 Dec
2017 118.2 0.45 17,290 53.4 1.30 39.3 33
FIRB - Corporates
0.00 to <0.15 2.3 0.07 520 40.3 1.98 0.6 25
0.15 to <0.25 0.3 0.22 159 45.0 1.78 0.1 44
0.25 to <0.50 0.2 0.37 151 45.0 1.75 0.1 59
0.50 to <0.75 0.1 0.63 97 45.0 1.93 0.1 75
0.75 to <2.50 0.7 1.55 516 45.0 1.61 0.8 114
2.50 to <10.00 0.1 4.38 82 45.0 1.64 0.1 142
10.00 to <100.00 - 10.22 9 45.0 1.00 - 187
100.00 (Default) - 100.00 5 45.0 1.10 - -
FIRB - Total at 31 Dec
2017 3.7 0.54 1,539 45.0 1.99 1.8 50
Total (all portfolios)
at 31 Dec 2017 121.9 0.38 18,829 45.0 1.50 41.1 34
Table 65: Impact of netting and collateral held on exposure values
(CCR5-A)
Gross positive
fair value Netted
or net current
carrying Netting credit Collateral Net credit
amount benefits exposure held exposure
$bn $bn $bn $bn $bn
1 Derivatives 579.7 431.8 147.9 42.4 105.5
2 SFTs 983.8 - 983.8 933.1 50.7
4 Total at 31 Dec 2018 1,563.5 431.8 1,131.7 975.5 156.2
--- ---------------------------- -------------- --------- --------- ---------- ----------
1 Derivatives 628.3 469.0 159.3 41.8 117.5
2 SFTs 679.3 - 679.3 633.2 46.1
4 Total at 31 Dec 2017 1,307.6 469.0 838.6 675.0 163.6
---
Table 66: Composition of collateral for CCR exposure (CCR5-B)
Collateral used in derivative Collateral used
transactions in SFTs
Fair value of Fair value of
collateral received posted collateral
Fair value Fair value
of collateral of posted
Segregated Unsegregated Segregated Unsegregated received collateral
$bn $bn $bn $bn $bn $bn
Cash -
domestic
1 currency - 5.6 1.6 4.9 75.9 118.9
Cash - other
2 currencies - 37.6 5.5 32.6 344.1 402.0
Domestic
sovereign
3 debt - 5.5 - 5.2 107.7 84.6
Other
sovereign
4 debt - 5.8 - 9.5 352.4 323.8
Government
5 agency debt - 0.1 - 0.2 13.4 4.4
Corporate
6 bonds - 0.7 - 0.3 36.4 16.5
Equity
7 securities - - - - 36.8 32.3
Other
8 collateral - 0.3 - 1.2 1.4 0.5
--- --------------
Total at 31
9 Dec 2018 - 55.6 7.1 53.9 968.1 983.0
--- --------------
Cash -
domestic
1 currency - 5.9 1.4 3.5 72.6 96.3
Cash - other
2 currencies - 34.7 4.9 28.7 186.1 269.6
Domestic
sovereign
3 debt - 5.4 - 5.3 83.3 77.1
Other
sovereign
4 debt - 7.6 - 11.2 219.9 166.6
Government
5 agency debt - 0.2 - 1.1 12.0 4.6
Corporate
6 bonds - 0.6 - 0.4 39.2 17.1
Equity
7 securities - 0.4 - - 46.3 45.0
Other
8 collateral - 0.2 - 0.3 1.6 1.2
--- --------------
Total at 31
9 Dec 2017 - 55.0 6.3 50.5 661.0 677.5
---
Table 67: Exposures to central counterparties (CCR8)
At 31 Dec 2018 At 31 Dec 2017
EAD post-
EAD post-CRM RWAs CRM RWAs
$bn $bn $bn $bn
1 Exposures to QCCPs (total) 42.3 1.1 42.3 1.4
Exposures for trades at QCCPs (excluding
2 initial margin and default fund contributions) 24.8 0.5 28.5 0.6
3 - OTC derivatives 9.8 0.2 18.0 0.4
4 - exchange-traded derivatives 9.2 0.2 8.1 0.2
5 - securities financing transactions 5.8 0.1 2.4 -
7 Segregated initial margin 7.1 - 6.3 -
8 Non-segregated initial margin 10.4 0.2 7.5 0.1
9 Pre-funded default fund contributions - 0.4 - 0.7
Table 68: Securitisation exposures in the non-trading book (SEC1)
Bank acts as originator Bank acts as sponsor Bank acts as investor
Traditional Synthetic Sub-total Traditional Synthetic Sub-total Traditional Synthetic Sub-total
$bn $bn $bn $bn $bn $bn $bn $bn $bn
1 Retail (total) 0.4 - 0.4 13.6 - 13.6 6.8 - 6.8
2 * residential mortgage - - - 4.3 - 4.3 3.8 - 3.8
3 * credit card - - - 0.7 - 0.7 0.5 - 0.5
4 * other retail exposures(1) 0.4 - 0.4 8.6 - 8.6 2.5 - 2.5
5 * re-securitisation - - - - - - - - -
6 Wholesale (total) - 3.2 3.2 6.3 - 6.3 2.1 - 2.1
7 * loans to corporates - 3.2 3.2 - - - 0.1 - 0.1
8 * commercial mortgage - - - 0.1 - 0.1 1.5 - 1.5
9 * lease and receivables - - - 5.6 - 5.6 0.4 - 0.4
10 * other wholesale - - - 0.2 - 0.2 0.1 - 0.1
11 * re-securitisation - - - 0.4 - 0.4 - - -
Total at 31 Dec 2018 0.4 3.2 3.6 19.9 - 19.9 8.9 - 8.9
1 Retail (total) 0.8 - 0.8 18.2 - 18.2 6.0 - 6.0
2 * residential mortgage - - - 0.3 - 0.3 2.6 - 2.6
3 * credit card - - - - - - 1.0 - 1.0
4 * other retail exposures - - - 17.9 - 17.9 2.4 - 2.4
5 * re-securitisation(1) 0.8 - 0.8 - - - - - -
6 Wholesale (total) - 4.7 4.7 2.7 - 2.7 2.8 - 2.8
7 * loans to corporates - 4.7 4.7 0.4 - 0.4 0.1 - 0.1
8 * commercial mortgage - - - 0.1 - 0.1 2.0 - 2.0
9 * lease and receivables - - - 0.8 - 0.8 0.4 - 0.4
10 * other wholesale - - - 0.4 - 0.4 0.3 - 0.3
11 * re-securitisation - - - 1.0 - 1.0 - - -
Total at 31 Dec 2017 0.8 4.7 5.5 20.9 - 20.9 8.8 - 8.8
1 Following internal review, exposures previously presented as
'other retail exposures' have been represented in 'credit card',
'residential mortgage' and 'other retail' exposures at 31 December
2018 to provide more relevant information on the composition of the
Group's securitisation exposures.
Table 69: Securitisation exposures in the trading book (SEC2)
At
31 Dec 2018 31 Dec 2017
Bank acts as investor(1) Bank acts as investor(1)
Traditional Synthetic Sub-total Traditional Synthetic Sub-total
$bn $bn $bn $bn $bn $bn
1 Retail (total) 2.0 - 2.0 1.6 - 1.6
-----
2 * residential mortgage 1.1 - 1.1 0.9 - 0.9
3 * credit card 0.2 - 0.2 0.2 - 0.2
4 * other retail exposures 0.7 - 0.7 0.5 - 0.5
6 Wholesale (total) 0.9 - 0.9 0.9 - 0.9
-----
7 * loans to corporates - - - - - -
8 * commercial mortgage 0.7 - 0.7 0.6 - 0.6
9 * lease and receivables - - - - - -
10 * other wholesale 0.2 - 0.2 0.3 - 0.3
Total (all portfolios) 2.9 - 2.9 2.5 - 2.5
-----
1 HSBC does not act as originator or sponsor for securitisation exposures in the trading book.
Table 70: Securitisation exposures in the non-trading book and associated
capital requirements - bank acting as originator or sponsor (SEC3)
Exposure values (by risk Exposure values (by
weight bands) regulatory approach)
IRB
>20% >50% >100% RBM
<=20% to 50% to 100% to 1,250% 1,250% (including IRB
RW RW RW RW RW IAA) SFA SA 1,250%
$bn $bn $bn $bn $bn $bn $bn $bn $bn
Traditional
2 securitisation 19.0 0.2 0.8 0.2 0.1 19.5 - 0.7 0.1
----
3 Securitisation 19.0 - 0.8 0.1 - 19.2 - 0.7 -
- retail
4 underlying 13.2 - 0.7 0.1 - 13.3 - 0.7 -
5 - wholesale 5.8 - 0.1 - - 5.9 - - -
6 Re-securitisation - 0.2 - 0.1 0.1 0.3 - - 0.1
----
7 - senior - - - - - - - - -
8 - non-senior - 0.2 - 0.1 0.1 0.3 - - 0.1
Synthetic
9 securitisation 2.9 - - 0.3 - 3.2 - - -
10 Securitisation 2.9 - - 0.3 - 3.2 - - -
- retail
11 underlying - - - - - - - - -
12 - wholesale 2.9 - - 0.3 - 3.2 - - -
Total at 31 Dec
1 2018 21.9 0.2 0.8 0.5 0.1 22.7 - 0.7 0.1
----
Traditional
2 securitisation 18.6 1.4 0.2 0.5 0.8 20.2 - 0.6 0.8
----
3 Securitisation 18.4 0.7 0.2 0.3 0.2 19.1 - 0.6 0.2
- retail
4 underlying 17.4 0.3 0.1 0.3 0.1 17.8 - 0.3 0.1
5 - wholesale 1.0 0.4 0.1 - 0.1 1.3 - 0.3 0.1
6 Re-securitisation 0.2 0.7 - 0.2 0.6 1.1 - - 0.6
----
7 - senior 0.2 - - - - 0.1 - - -
8 - non-senior - 0.7 - 0.2 0.6 1.0 - - 0.6
Synthetic
9 securitisation 4.3 - 0.4 - - 4.7 - - -
10 Securitisation 4.3 - 0.4 - - 4.7 - - -
- retail
11 underlying - - - - - - - - -
12 - wholesale 4.3 - 0.4 - - 4.7 - - -
Total at 31 Dec
1 2017 22.9 1.4 0.6 0.5 0.8 24.9 - 0.6 0.8
----
RWAs (by regulatory Capital charge after
approach) cap
IRB IRB
RBM RBM
(including IRB (including IRB
IAA) SFA SA 1,250% IAA) SFA SA 1,250%
$bn $bn $bn $bn $bn $bn $bn $bn
2 Traditional securitisation 2.5 - 0.7 1.4 0.2 - 0.1 0.1
---
3 Securitisation 2.0 - 0.7 0.6 0.2 - 0.1 -
4 - retail underlying 1.5 - 0.7 0.5 0.2 - 0.1 -
5 - wholesale 0.5 - - 0.1 - - - -
6 Re-securitisation 0.5 - - 0.8 - - - 0.1
---
7 - senior - - - - - - - -
8 - non-senior 0.5 - - 0.8 - - - 0.1
9 Synthetic securitisation 0.8 - - 0.2 0.1 - - -
10 Securitisation 0.8 - - 0.2 0.1 - - -
11 - retail underlying - - - - - - - -
12 - wholesale 0.8 - - 0.2 0.1 - - -
1 Total at 31 Dec 2018 3.3 - 0.7 1.6 0.3 - 0.1 0.1
---
2 Traditional securitisation 3.3 - 0.4 7.1 0.2 - - 0.6
---
3 Securitisation 2.3 - 0.4 1.4 0.1 - - 0.2
4 - retail underlying 2.1 - 0.3 0.7 0.1 - - 0.1
5 - wholesale 0.2 - 0.1 0.7 - - - 0.1
6 Re-securitisation 1.0 - - 5.7 0.1 - - 0.4
---
7 - senior - - - - - - - -
8 - non-senior 1.0 - - 5.7 0.1 - - 0.4
9 Synthetic securitisation 0.8 - - 0.3 0.1 - - -
10 Securitisation 0.8 - - 0.3 0.1 - - -
11 - retail underlying - - - - - - - -
12 - wholesale 0.8 - - 0.3 0.1 - - -
1 Total at 31 Dec 2017 4.1 - 0.4 7.4 0.3 - - 0.6
---
The reduction in RWA is principally driven by the disposal of
non-senior, resecuritisation exposure in the legacy book.
Table 71: Securitisation exposures in the non-trading book and associated
capital requirements - bank acting as investor (SEC4)
Exposure values (by risk Exposure values (by
weight bands) regulatory approach)
IRB
>20% >50% >100% RBM
<=20% to 50% to 100% to 1,250% 1,250% (including IRB
RW RW RW RW RW IAA) SFA SA 1,250%
$bn $bn $bn $bn $bn $bn $bn $bn $bn
------------ ------
Traditional
2 securitisation 7.0 0.6 1.3 - - 6.9 - 2.0 -
3 Securitisation 7.0 0.6 1.3 - - 6.9 - 2.0 -
- retail
4 underlying 5.0 0.6 1.2 - - 4.8 - 2.0 -
5 - wholesale 2.0 - 0.1 - - 2.1 - - -
Total at 31
1 Dec 2018 7.0 0.6 1.3 - - 6.9 - 2.0 -
Traditional
2 securitisation 6.7 0.5 1.6 - 0.1 7.2 - 1.4 0.1
3 Securitisation 6.7 0.5 1.6 - 0.1 7.2 - 1.4 0.1
- retail
4 underlying 4.5 0.4 1.1 - 0.1 4.5 - 1.4 0.1
5 - wholesale 2.2 0.1 0.5 - - 2.7 - - -
Total at 31
1 Dec 2017 6.7 0.5 1.6 - 0.1 7.2 - 1.4 0.1
RWAs (by regulatory Capital charge after
approach) cap
IRB IRB
RBM RBM
(including IRB (including IRB
IAA) SFA SA 1,250% IAA) SFA SA 1,250%
$bn $bn $bn $bn $bn $bn $bn $bn
2 Traditional securitisation 0.9 - 1.5 0.4 0.1 - 0.1 -
3 Securitisation 0.9 - 1.5 0.4 0.1 - 0.1 -
4 - retail underlying 0.5 - 1.5 0.3 - - 0.1 -
5 - wholesale 0.4 - - 0.1 0.1 - - -
1 Total at 31 Dec 2018 0.9 - 1.5 0.4 0.1 - 0.1 -
2 Traditional securitisation 1.9 - 1.2 0.9 0.1 - 0.1 0.1
3 Securitisation 1.9 - 1.2 0.9 0.1 - 0.1 0.1
4 - retail underlying 1.0 - 1.2 0.7 - - 0.1 0.1
5 - wholesale 0.9 - - 0.2 0.1 - - -
1 Total at 31 Dec 2017 1.9 - 1.2 0.9 0.1 - 0.1 0.1
Appendix II
Asset encumbrance
The following tables disclose on-balance sheet encumbered and
unencumbered assets and off-balance sheet collateral (represented
by median values of monthly data points in
2018
), as required by Part Eight of CRD IV.
Table 72: A - Assets
Carrying Carrying
amount Fair value amount Fair value
of encumbered of encumbered of unencumbered of unencumbered
assets assets assets assets
$m $m $m $m
010 Assets of the reporting institution 166,440 2,348,406
030 Equity instruments 24,875 25,050 53,562 52,855
040 Debt securities 82,785 82,733 399,875 391,140
----
120 Other assets 33,687 364,907
----
Table 72: B - Collateral received
Fair value of collateral
Fair value of encumbered received or own
collateral received debt securities
or own debt securities issued available
issued for encumbrance
$m $m
130 Assets of the reporting institution 241,588 208,467
150 Equity instruments 26,698 20,300
160 Debt securities 213,693 169,526
230 Other collateral received 330 4,783
----
Table 72: C - Encumbered assets/collateral received and associated
liabilities
Assets, collateral
received and own
debt securities
Matching liabilities, issued other than
contingent liabilities covered bonds and
or securities lent ABSs encumbered
$m $m
Carrying amount of selected financial
010 liabilities 251,279 341,717
----
Importance of encumbrance
We are a deposit-led bank and hence the majority of our funding
is from customer current accounts and customer savings deposits
payable on demand or at short notice. Given this structural
unsecured funding position, we have little requirement to fund
ourselves in secured markets, and therefore our overall low level
of encumbrance reflects this position. However, we do provide
collateralised financing services to clients as part of our
GB&M business model, providing cash financing or specific
securities, and these result in off-balance sheet encumbrance. The
other sources that contribute to encumbrance are securities pledged
in derivative transactions, mostly for hedging purposes, issuance
of asset-backed securities, and covered bond programmes in France
and Australia. HSBC Holdings ALCO reviews the asset encumbrance of
the institution as a whole quarterly and any events changing the
asset encumbrance level are examined.
For details on balance sheet encumbered and unencumbered assets,
please refer to table 48.
Appendix III
Summary of disclosures withheld
448(a) Key assumptions (including Assumptions regarding fixed
assumptions regarding loan term loan repayments and term
prepayments and behaviour behaviouralisation of non-maturity
of non-maturity deposits) deposits and capital drive
on their exposure to interest HSBC's structural interest
rate risk on positions not rates positioning and market
included in the trading book. hedging requirements.
These assumptions are proprietary
and their disclosure could
give key business strategy
information to our competitors.
Other Information
Abbreviations
The following abbreviated terms are used throughout this
document.
Currencies
$ United States dollar
A
ABCP Asset-backed commercial
paper
ABS(1) Asset-backed security
AIRB(1) Advanced internal ratings
based approach
ALCM Asset, Liability and Capital
Management
ALCO Asset and Liability Management
Committee
AT1 capital Additional tier 1 capital
AVA Additional value adjustment
B
BCBS Basel Committee on Banking
Supervision
BoE Bank of England
BSM Balance Sheet Management
C
CCB(1) Capital conservation buffer
CCF Credit conversion factor
CCP Central counterparty
CCR(1) Counterparty credit risk
CCyB(1) Countercyclical capital
buffer
CDS(1) Credit default swap
CET1(1) Common equity tier 1
CIU Collective investment undertakings
CML(1) Consumer and Mortgage Lending
(US)
CRA Credit risk adjustment
CRD IV(1) Capital Requirements Regulation
and Directive
------------
CRE(1) Commercial real estate
CRM Credit risk mitigation/mitigant
------------
CRR(1) Customer risk rating
CRR2 Revisions to the Capital
Requirements Regulation
and Directive
CSA(1) Credit Support Annex
CVA Credit valuation adjustment
CVC Conduct and Values Committee
D
D-SIB Domestic systemically important
bank
DPA Deferred prosecution agreement
E
EAD(1) Exposure at default
EBA European Banking Authority
EC European Commission
------------
ECA Export Credit Agency
------------
ECAI External Credit Assessment
Institution
------------
ECL Expected credit losses
------------
EEA European Economic Area
EL(1) Expected loss
EU European Union
EVE Economic value of equity
F
FFVA Funding Fair Value Adjustment
------------
FIRB(1) Foundation internal ratings
based approach
------------
Fitch Fitch Ratings
FPC(1) Financial Policy Committee
(UK)
FRTB Fundamental Review of the
Trading book
------------
FSB Financial Stability Board
FSVC Financial System Vulnerabilities
Committee
------------
FVOCI Fair value through other
comprehensive income
------------
G
GAC Group Audit Committee
GB&M Global Banking and Markets,
a global business
GMB Group Management Board
GPB Global Private Banking,
a global business
GRC Group Risk Committee
Group HSBC Holdings together with
its subsidiary undertakings
G-SIB(1) Global systemically important
bank
G-SII Global systemically important
institution
------------
H
HKMA Hong Kong Monetary Authority
Hong Kong The Hong Kong Special Administrative
Region of the People's Republic
of China
HQLA High-quality liquid assets
HSBC HSBC Holdings together with
its subsidiary undertakings
HVCRE High volatility commercial
real estate
I
IAA Internal Assessment Approach
ICAAP(1) Internal Capital Adequacy
Assessment Process
ICG Individual capital guidance
ICR Individual capital requirement
IFRSs International Financial
Reporting Standards
ILAA Individual Liquidity Adequacy
Assessment
ILR Inherent Liquidity Risk
IMA(1) Internal Models Approach
IMM(1) Internal Model Method
IMR Independent Model Review
IRB(1) Internal ratings based approach
IRC Incremental risk charge
IRRBB Interest rate risk in the
banking book
L
LCR Liquidity Coverage Ratio
LFRF Liquidity and Funding Risk
Framework
LGD(1) Loss given default
Libor London interbank offered
rate
M
MDB Multilateral Development
Bank
MENA Middle East and North Africa
MOC Model Oversight Committee
Moody's Moody's Investor Service
MPE Multiple point of entry
MREL Minimum requirements for
own funds and eligible liabilities
N
NCOA Non-credit obligation asset
NSFR Net Stable Funding Ratio
O
ORMF Operational risk management
framework
------------
OTC(1) Over-the-counter
P
PD(1) Probability of default
PFE Potential future exposure
PIT Point-in-time
PRA(1) Prudential Regulation Authority
(UK)
PVA Prudent valuation adjustment
Q
QCCP Qualifying Central Counterparty
R
RAS Risk appetite statement
RBM(1) Ratings Based Method
RBWM Retail Bank and Wealth Management,
a global business
Retail Retail internal ratings
IRB(1) based approach
RMM Risk Management Meeting
of the GMB
RNIV Risks not in VaR
ROU Right of use
RWA(1) Risk-weighted asset
S
SA/STD(1) Standardised approach
SA-CCR Standardised approach for
counterparty credit risk
S&P Standard and Poor's rating
agency
SFM Supervisory Formula Method
SFT Securities Financing Transactions
SIC Securities Investment Conduit
SME Small- and medium-sized
enterprise
SPE(1) Special Purpose Entity
SRB(1) Systemic Risk Buffer
SREP Supervisory Review and Evaluation
Process
SSFA/SFA Simplified supervisory formula
approach
SVaR Stressed Value at risk
T
TLAC(1) Total Loss Absorbing Capacity
TTC Through-the-cycle
T1 capital Tier 1 capital
T2 capital Tier 2 capital
U
UK United Kingdom
US United States
V
VaR(1) Value at risk
1 Full definition included in the Glossary published on HSBC website www.hsbc.com
Cautionary statement regarding forward-
looking statements
The
Pillar 3 Disclosures at 31 December
2018
contain certain forward-looking statements with respect to
HSBC's financial
condition, results of operations, capital position and
business.
Statements that are not historical facts, including statements
about HSBC's beliefs and expectations, are forward-looking
statements. Words such as 'expects', 'targets', 'anticipates',
'intends', 'plans', 'believes', 'seeks', 'estimates', 'potential'
and 'reasonably possible', variations of these words and similar
expressions are intended to identify forward-looking statements.
These statements are based on current plans, 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. HSBC 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, summary financial statements to shareholders, proxy
statements, offering circulars and prospectuses, press releases and
other written materials, and in oral statements made by HSBC'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 we operate, such as continuing or deepening recessions and
fluctuations in employment beyond those factored into consensus
forecasts; changes in foreign exchange rates and interest rates,
including the accounting impact resulting from financial reporting
in respect of hyperinflationary economies; volatility in equity
markets; lack of liquidity in wholesale funding markets;
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; and consumer perception as to the
continuing availability of credit and price competition in the
market segments we serve; and deviations from the market and
economic assumptions that form the basis for our ECL
measurements;
-- Changes in government policy and regulation, including the
monetary, interest rate and other policies of central banks and
other regulatory authorities; 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; 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;
changes in bankruptcy legislation in the principal markets in which
we operate and the consequences thereof; general changes in
government policy that may significantly influence investor
decisions; extraordinary government actions as a result of current
market turmoil; other unfavourable political or diplomatic
developments producing social instability or legal uncertainty
which in turn may affect demand for our products and services; the
costs, effects and outcomes of product 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, including securities firms; and
-- Factors specific to HSBC, including our success in adequately
identifying the risks we face, such as the incidence of loan losses
or delinquency, and managing those risks (through account
management, hedging and other techniques). Effective risk
management depends on, among other things, our ability through
stress testing and other techniques to prepare for events that
cannot be captured by the statistical models it uses; and our
success in addressing operational, legal and regulatory, and
litigation challenges; and other risks and uncertainties we
identify in 'top and emerging risks' on pages 69 to 73 of the
Annual Report and Accounts 2018.
Contacts
Enquiries relating to HSBC's strategy or operations may be
directed to:
Richard O'Connor Hugh Pye
Global Head of Investor Relations Head of Asia Pacific Investor Relations
HSBC Holdings plc The Hongkong and Shanghai Banking
8 Canada Square Corporation Limited
London E14 5HQ 1 Queen's Road Central
United Kingdom Hong Kong
Telephone: +44 (0) 20 7991 6590 Telephone: +852 2822 4908
Email: investorrelations@hsbc.com Email: investorrelations@hsbc.com.hk
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GMGMZNLGGLZG
(END) Dow Jones Newswires
February 19, 2019 02:41 ET (07:41 GMT)
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