TIDMHSBA
RNS Number : 0806S
HSBC Holdings PLC
06 March 2019
Capital
Page
Capital overview 148
Capital management 148
Capital 149
----------------------
Risk-weighted assets 150
Leverage ratio 151
---------------------- ----
Capital overview
Capital ratios
At
31 Dec 1 Jan 31 Dec(1)
2018 2018 2017
% % %
CRD IV transitional
Common equity tier
1 ratio 14.0 14.6 14.5
Tier 1 ratio 17.0 17.4 17.3
--------------------- ------ ----- ---------
Total capital ratio 20.0 21.0 20.9
--------------------- ------ ----- ---------
CRD IV end point
Common equity tier
1 ratio 14.0 14.6 14.5
Tier 1 ratio 16.6 16.5 16.4
--------------------- ------ ----- ---------
Total capital ratio 19.4 18.3 18.3
--------------------- ------ ----- ---------
Total regulatory capital and risk-weighted
assets
At
31 Dec 1 Jan 31 Dec(1)
2018 2018 2017
$m $m $m
CRD IV transitional
Common equity tier
1 capital 121,022 127,310 126,144
Additional tier 1
capital 26,120 24,810 24,810
Tier 2 capital 26,096 31,014 31,429
----------------------- ------- ------- ---------
Total regulatory
capital 173,238 183,134 182,383
----------------------- ------- ------- ---------
Risk-weighted assets 865,318 872,089 871,337
----------------------- ------- ------- ---------
CRD IV end point
------- ------- -----------
Common equity tier
1 capital 121,022 127,310 126,144
------- ------- ---------
Additional tier 1
capital 22,525 16,531 16,531
------- ------- ---------
Tier 2 capital 24,511 15,997 16,413
----------------------- ------- ------- ---------
Total regulatory
capital 168,058 159,838 159,088
----------------------- ------- ------- ---------
Risk-weighted assets 865,318 872,089 871,337
----------------------- ------- ------- ---------
RWAs by risk types
Capital
RWAs required(2)
$bn $bn
-----
Credit risk 691.1 55.3
Counterparty credit
risk 47.3 3.8
-----
Market risk 35.8 2.8
Operational risk 91.1 7.3
--------------------- ----- ------------
At 31 Dec 2018 865.3 69.2
--------------------- ----- ------------
For footnotes, see page 151.
Capital management
(Audited)
Our objective in the management of Group capital is to maintain
appropriate levels to support our business strategy, and meet our
regulatory and stress testing related requirements.
Approach and policy
Our approach to capital management is driven by our strategic
and organisational requirements, taking into account the
regulatory, economic and commercial environment. We aim to maintain
a strong capital base to support the risks inherent in our business
and invest in accordance with our strategy, meeting both
consolidated and local regulatory capital requirements at all
times. Our policy on capital management is underpinned by a capital
management framework and our internal capital adequacy assessment
process ('ICAAP'), which helps enable us to manage our capital in a
consistent manner. The framework incorporates a number of different
capital measures calculated on an economic capital and regulatory
capital basis. The ICAAP is an assessment of the Group's capital
position, outlining both regulatory and internal capital resources
and requirements with HSBC's business model, strategy, performance
and planning, risks to capital, and the implications of stress
testing to capital.
Our assessment of capital adequacy is aligned to our assessment
of risks. These risks include credit, market, operational,
pensions, insurance, structural foreign exchange, residual risk and
interest rate risk in the banking book.
Planning and performance
Capital and risk-weighted asset ('RWA') plans form part of the
annual operating plan that is approved by the Board. Revised RWA
forecasts are submitted to the GMB on a monthly basis, and reported
RWAs are monitored against the plan.
The responsibility for global capital allocation principles
rests with the Group Chief Financial Officer. Through our internal
governance processes, we seek to maintain discipline over our
investment and capital allocation decisions, and seek to ensure
that returns on investment meet the Group's management objectives.
Our strategy is to allocate capital to businesses and entities to
support growth objectives where returns above internal hurdle
levels have been identified and in order to meet their regulatory
and economic capital needs.
We manage business returns by using a return on tangible equity
('RoTE') measure and a return on average risk-weighted assets
('RoRWA') measure.
Risks to capital
Outside the stress testing framework, other risks may be
identified that have the potential to affect our RWAs and/or
capital position. The Downside or Upside scenarios are assessed
against our capital management objectives and mitigating actions
are assigned as necessary.
HSBC closely monitors and considers future regulatory
change.
In December 2017, the Basel Committee on Banking Supervision
('Basel') published revisions to the Basel III framework, which
introduces considerable change across the regulatory framework.
Following a recalibration, Basel also published the final changes
to the market risk RWA regime, the Fundamental Review of the
Trading Book ('FRTB'), in January 2019.
Basel has announced that the package will be implemented on
1 January 2022, with a five-year transitional provision for the
output floor, commencing at a rate of 50%. The final standards will
need to be transposed into the relevant local law before coming
into effect.
HSBC continues to evaluate the final package. Given that the
package contains a significant number of national discretions, the
possible impact is uncertain.
Stress testing
In addition to annual internal stress tests, the Group is
subject to supervisory stress testing in many jurisdictions.
Supervisory stress testing requirements are increasing in frequency
and in the granularity with which the results are required. These
exercises include the programmes of the Prudential Regulation
Authority ('PRA'), the Federal Reserve Board, the European Banking
Authority, the European Central Bank and the Hong Kong Monetary
Authority, as well as stress tests undertaken in other
jurisdictions. We take into account the results of regulatory
stress testing and our internal stress tests when assessing our
internal capital requirements. The outcome of stress testing
exercises carried out by the PRA also feeds into a PRA buffer under
Pillar 2 requirements, where required.
Capital generation
HSBC Holdings is the provider of equity capital to its
subsidiaries and also provides them with non-equity capital where
necessary. These investments are substantially funded by HSBC
Holdings' own capital issuance and profit retention. As part of its
capital management process, HSBC Holdings seeks to maintain a
prudent balance between the composition of its capital and its
investment in subsidiaries.
Capital
Own funds disclosure
(Audited)
---------- -----------
At
31 Dec 31 Dec(1)
2018 2017
Ref(*) $m $m
Common equity tier 1 ('CET1') capital: instruments
and reserves
------- -------------------------------------------------------------- ---------- -----------
1 Capital instruments and the related share premium accounts 22,384 18,932
- ordinary shares 22,384 18,932
2 Retained earnings 121,180 124,679
3 Accumulated other comprehensive income (and other reserves) 3,368 9,433
5 Minority interests (amount allowed in consolidated
CET1) 4,854 4,905
5a Independently reviewed interim net profits net of any
foreseeable charge or dividend 3,697 608
-------
6 Common equity tier 1 capital before regulatory adjustments 155,483 158,557
------- -------------------------------------------------------------- ------- --------
Common equity tier 1 capital: regulatory adjustments
------- -------------------------------------------------------------- ---------- -----------
7 Additional value adjustments (1,180) (1,146)
8 Intangible assets (net of related deferred tax liability) (17,323) (16,872)
10 Deferred tax assets that rely on future profitability
excluding those arising from temporary differences
(net of related tax liability) (1,042) (1,181)
11 Fair value reserves related to gains or losses on cash
flow hedges 135 208
12 Negative amounts resulting from the calculation of
expected loss amounts (1,750) (2,820)
14 Gains or losses on liabilities at fair value resulting
from changes in own credit standing 298 3,731
15 Defined-benefit pension fund assets (6,070) (6,740)
16 Direct and indirect holdings of own CET1 instruments (40) (40)
19 Direct, indirect and synthetic holdings by the institution
of the CET1 instruments of financial sector entities
where the institution has a significant investment
in those entities (amount above 10% threshold and net
of eligible short positions) (7,489) (7,553)
28 Total regulatory adjustments to common equity tier
1 (34,461) (32,413)
------- -------------------------------------------------------------- ------- --------
29 Common equity tier 1 capital 121,022 126,144
------- -------------------------------------------------------------- ------- --------
Additional tier 1 ('AT1') capital: instruments
------- -------------------------------------------------------------- ---------- -----------
30 Capital instruments and the related share premium accounts 22,367 16,399
-------
31 - classified as equity under IFRSs 22,367 16,399
------- --------
33 Amount of qualifying items and the related share premium
accounts subject to phase out from AT1 2,297 6,622
-------
34 Qualifying tier 1 capital included in consolidated
AT1 capital (including minority interests not included
in CET1) issued by subsidiaries and held by third parties 1,516 1,901
-------
35 - of which: instruments issued by subsidiaries subject
to phase out 1,298 1,374
-------
36 Additional tier 1 capital before regulatory adjustments 26,180 24,922
------- -------------------------------------------------------------- ------- --------
Additional tier 1 capital: regulatory adjustments
------- -------------------------------------------------------------- ---------- -----------
37 Direct and indirect holdings of own AT1 instruments (60) (60)
-------
41b Residual amounts deducted from AT1 capital with regard
to deduction from tier 2 ('T2') capital during the
transitional period N/A (52)
-------
* Direct and indirect holdings by the institution of
the T2 instruments and subordinated loans of
financial sector entities where the institution has a
significant investment in those entities N/A (52)
-------
43 Total regulatory adjustments to additional tier 1 capital (60) (112)
------- -------------------------------------------------------------- ------- --------
44 Additional tier 1 capital 26,120 24,810
45 Tier 1 capital 147,142 150,954
------- -------------------------------------------------------------- ------- --------
Tier 2 capital: instruments and provisions
------- -------------------------------------------------------------- ---------- -----------
46 Capital instruments and the related share premium accounts 25,056 16,880
47 Amount of qualifying items and the related share premium
accounts subject to phase out from T2 N/A 4,746
48 Qualifying own funds instruments included in consolidated
T2 capital (including minority interests and AT1 instruments
not included in CET1 or AT1) issued by subsidiaries
and held by third parties 1,673 10,306
49 - of which: instruments issued by subsidiaries subject
to phase out 1,585 10,236
------- --------------------------------------------------------------
51 Tier 2 capital before regulatory adjustments 26,729 31,932
------- -------------------------------------------------------------- ------- --------
Tier 2 capital: regulatory adjustments
------- -------------------------------------------------------------- ---------- -----------
52 Direct and indirect holdings of own T2 instruments (40) (40)
55 Direct and indirect holdings by the institution of
the T2 instruments and subordinated loans of financial
sector entities where the institution has a significant
investment in those entities (net of eligible short
positions) (593) (463)
-------------------------------------------------------------- ------- --------
57 Total regulatory adjustments to tier 2 capital (633) (503)
58 Tier 2 capital 26,096 31,429
------- -------------------------------------------------------------- ------- --------
59 Total capital 173,238 182,383
------- -------------------------------------------------------------- ------- --------
* The references identify the lines prescribed in the European
Banking Authority ('EBA') template, which are applicable and where
there is a value.
For footnotes, see page 151.
Throughout 2018, we complied with the PRA's regulatory capital
adequacy requirements, including those relating to stress
testing.
At 31 December 2018, our Common equity tier 1 ('CET1') ratio
decreased to 14.0% from 14.5% at 31 December 2017.
CET1 capital decreased during the year by $5.1bn, mainly as a
result of:
-- unfavourable foreign currency translation differences of $5.5bn;
-- the $2.0bn share buy-back;
-- a $1.2bn increase in threshold deductions as a result of an
increase in the value of our material holdings; and
-- an increase in the deduction for intangible assets of $1.1bn.
These decreases were partly offset by:
-- capital generation through profits, net of dividends and scrip of $3.1bn; and
-- a $1.2bn day one impact from transition to IFRS 9, mainly due
to classification and measurement changes.
Our Pillar 2A requirement at 31 December 2018, as per the PRA's
Individual Capital Guidance based on a point-in-time assessment,
was 2.9% of RWAs, of which 1.6% was met by CET1. On 1 January 2019,
our Pillar 2A requirement increased to 3.0% of RWAs, of which 1.7%
must be met by CET1.
On 4 May 2018, HSBC changed the way in which some of its capital
securities are recognised in regulatory capital. The securities
were previously recognised as grandfathered tier 2 capital and are
now treated as fully eligible tier 2 instruments.
Risk-weighted assets
RWAs
RWAs fell by $6.0bn in the year, which included a drop of
$23.4bn due to foreign currency translation differences. Excluding
foreign currency translation differences, the $17.4bn increase
comprised growth of $27.6bn from asset size and of $2.9bn from
changes in asset quality, less a $9.2bn fall due to changes in
methodology and policy and a $3.9bn decrease due to model
updates.
The following comments describe RWA movements in 2018, excluding
foreign currency translation differences.
Asset size
Asset size movements of $41.5bn were principally driven by
lending growth in CMB, RBWM and GB&M. In CMB and GB&M,
corporate lending made the largest contribution, primarily in Hong
Kong, reflecting our strategic focus on loan business in the region
and customer demand. RBWM's $6.5bn increase in book size mainly
stemmed from mortgage business in Asia and Europe, which was
boosted by expanding broker relationships in the UK.
In Corporate Centre, there was a fall of $11.3bn. This included
reductions in legacy portfolios of $9.1bn and a decline in money
market placements and balances with correspondent banks, which was
primarily in Hong Kong. Market risk exposures reduced by $2.8bn,
mostly due to lower exposures and rate volatility in France.
Asset quality
Mainly as a result of changes in portfolio mix, RWAs increased
by $4.0bn across CMB, GB&M, GPB and RBWM, significantly in
Europe and North America. These rises were mitigated by the impact
of improved risk parameters in Corporate Centre, predominantly in
Asia.
Model updates
Extending our counterparty credit risk exposure models to
exposures in Asia and North America reduced RWAs by $4.3bn and
$2.4bn respectively.
This was partly offset by increases of $1.6bn, due to updates to
UK retail and corporate models, $1.1bn due to a new receivables
finance model in Germany, and $0.4bn due to a redeveloped
residential mortgage model in Hong Kong.
Methodology and policy
The $10.0bn decrease reported in internal updates derived from
management initiatives, including refinements to risk parameters
and improved collateral recognition. This was partly offset by a
$0.8bn increase in external updates from IFRS 9 implementation
effects on credit risk and deferred tax in Corporate Centre.
RWAs by global business
Corporate
RBWM CMB GB&M GPB Centre Total
$bn $bn $bn $bn $bn $bn
Credit risk 99.6 296.9 172.0 13.8 108.8 691.1
----- ----- ----- ---- --------- -----
Counterparty credit risk - - 45.1 0.2 2.0 47.3
----- ----- ----- ---- --------- -----
Market risk - - 32.4 - 3.4 35.8
-------------------------- ----- ----- ----- ---- --------- -----
Operational risk 27.3 24.3 31.5 2.8 5.2 91.1
-------------------------- ----- ----- ----- ---- --------- -----
At 31 Dec 2018 126.9 321.2 281.0 16.8 119.4 865.3
-------------------------- ----- ----- ----- ---- --------- -----
Credit risk 94.2 277.3 180.2 13.0 120.5 685.2
----- ----- ----- ---- --------- -----
Counterparty credit risk - - 52.4 0.2 1.9 54.5
----- ----- ----- ---- --------- -----
Market risk - - 35.9 - 3.0 38.9
----- ----- ----- ---- --------- -----
Operational risk 27.3 23.7 30.8 2.8 8.1 92.7
-------------------------- ----- ----- ----- ---- --------- -----
At 31 Dec 2017 121.5 301.0 299.3 16.0 133.5 871.3
-------------------------- ----- ----- ----- ---- --------- -----
RWAs by geographical region
North Latin
Europe Asia MENA America America Total
Footnotes $bn $bn $bn $bn $bn $bn
Credit risk 219.5 291.9 47.0 103.1 29.6 691.1
Counterparty credit risk 27.3 9.2 1.0 8.3 1.5 47.3
Market risk 3 24.0 23.3 1.9 8.5 1.4 35.8
-------------------------- ----------
Operational risk 27.3 39.5 6.8 11.7 5.8 91.1
-------------------------- ----------
At 31 Dec 2018 298.1 363.9 56.7 131.6 38.3 865.3
-------------------------- ---------- ------ ----- ---- -------- -------- -----
Credit risk 225.9 284.2 47.7 101.2 26.2 685.2
Counterparty credit risk 27.8 13.0 1.1 10.9 1.7 54.5
Market risk 3 29.0 23.5 3.3 7.1 1.0 38.9
-------------------------- ----------
Operational risk 28.9 37.1 7.1 12.1 7.5 92.7
-------------------------- ----------
At 31 Dec 2017 311.6 357.8 59.2 131.3 36.4 871.3
-------------------------- ---------- ------ ----- ---- -------- -------- -----
For footnotes, see page 151.
RWA movement by global business by key driver
Credit risk, counterparty credit
risk and operational risk
Corporate Market Total
RBWM CMB GB&M GPB Centre risk RWAs
$bn $bn $bn $bn $bn $bn $bn
RWAs at 31 Dec 2017 121.5 301.0 263.4 16.0 130.5 38.9 871.3
----- ----- ----- ---- ------ --- ----- -----
Asset size 6.5 30.8 4.2 0.2 (11.3) (2.8) 27.6
Asset quality 0.4 2.0 0.9 0.7 (1.1) - 2.9
Model updates 1.3 1.7 (6.9) - - - (3.9)
* portfolios moving onto internal ratings based ('IRB')
approach 0.6 0.8 (0.3) - - - 1.1
- new/updated models 0.7 0.9 (6.6) - - - (5.0)
----- ----- ----- ---- ------ --- ----- -----
Methodology and policy 0.7 (2.4) (7.3) 0.1 - (0.3) (9.2)
- internal updates 0.9 (2.6) (7.3) 0.1 (0.8) (0.3) (10.0)
- external updates - regulatory (0.2) 0.2 - - 0.8 - 0.8
----- ----- ----- ---- ------ --- ----- -----
Foreign exchange movements (3.5) (11.9) (5.7) (0.2) (2.1) - (23.4)
Total RWA movement 5.4 20.2 (14.8) 0.8 (14.5) (3.1) (6.0)
------------------------------------------------------------- ----- ----- ----- ---- ------ ----- -----
RWAs at 31 Dec 2018 126.9 321.2 248.6 16.8 116.0 35.8 865.3
------------------------------------------------------------- ----- ----- ----- ---- ------ --- ----- -----
RWA movement by geographical region by key driver
Credit risk, counterparty credit
risk and operational risk
North Latin Market Total
Europe Asia MENA America America risk RWAs
$bn $bn $bn $bn $bn $bn $bn
RWAs at 31 Dec 2017 282.6 334.3 55.9 124.2 35.4 38.9 871.3
Asset size (0.4) 23.2 0.4 2.6 4.6 (2.8) 27.6
Asset quality 2.3 (0.9) 0.1 1.3 0.1 - 2.9
Model updates 2.9 (4.5) - (2.3) - - (3.9)
- portfolios moving onto IRB
approach 1.4 (0.2) - (0.1) - - 1.1
- new/updated models 1.5 (4.3) - (2.2) - - (5.0)
------ ------ ----- ------- ------- ----- -----
Methodology and policy (2.4) (5.4) (0.2) (0.7) (0.2) (0.3) (9.2)
- internal updates (2.4) (5.8) (0.6) (0.9) - (0.3) (10.0)
- external updates - regulatory - 0.4 0.4 0.2 (0.2) - 0.8
------ ------ ----- ------- ------- ----- -----
Foreign exchange movements (10.9) (6.1) (1.4) (2.0) (3.0) - (23.4)
Total RWA movement (8.5) 6.3 (1.1) (1.1) 1.5 (3.1) (6.0)
--------------------------------- ------ ------ ----- ------- ------- ----- -----
RWAs at 31 Dec 2018 274.1 340.6 54.8 123.1 36.9 35.8 865.3
--------------------------------- ------ ------ ----- ------- ------- ----- -----
Leverage ratio
At
31 Dec 1 Jan 31 Dec(1)
2018 2018 2017
Ref(*) $bn $bn $bn
-----------------------------------------------
20 Tier 1 capital 143.5 143.8 142.7
------- ----------------------------------------------- --------------- --------------- ---------------
21 Total leverage ratio exposure 2,614.9 2,556.4 2,557.1
------- ----------------------------------------------- --------------- --------------- ---------------
% % %
------- ----------------------------------------------- ----------------- ----------------- -----------------
22 Leverage ratio 5.5 5.6 5.6
------- ----------------------------------------------- --------------- --------------- ---------------
EU-23 Choice of transitional arrangements for
the definition of the capital measure Fully phased-in Fully phased-in Fully phased-in
-----------------
UK leverage ratio exposure - quarterly average 2,464.4 2,351.2 2,351.4
------- ----------------------------------------------- --------------- --------------- ---------------
% % %
------- ----------------------------------------------- ----------------- ----------------- -----------------
UK leverage ratio - quarterly average 5.8 6.2 6.1
------- ----------------------------------------------- --------------- --------------- ---------------
UK leverage ratio - quarter end 6.0 6.1 6.1
------- ----------------------------------------------- --------------- --------------- ---------------
* The references identify the lines prescribed in the EBA template.
Our leverage ratio calculated in accordance with the Capital
Requirements Directive IV ('CRD IV') was 5.5% at 31 December 2018,
down from 5.6% at 31 December 2017. The increase in exposure was
primarily due to growth in customer lending and financial
investments.
The Group's UK leverage ratio at 31 December 2018 was 6.0%. This
measure excludes qualifying central bank balances from the
calculation of exposure.
At 31 December 2018, our UK minimum leverage ratio requirement
of 3.25% was supplemented by an additional leverage ratio buffer of
0.5% and a countercyclical leverage ratio buffer of 0.2%. These
additional buffers translated into capital values of $12.7bn and
$4.7bn respectively. We exceeded these leverage requirements.
Pillar 3 disclosure requirements
Pillar 3 of the Basel regulatory framework is related to market
discipline and aims to make financial services firms more
transparent by requiring publication, at least annually, of
wide-ranging information on their risks, capital and management.
Our Pillar 3 Disclosures at 31 December 2018 is published on our
website, www.hsbc.com, under 'Investor Relations'.
Footnotes to capital, leverage and
risk-
weighted assets
1 All figures presented as reported
under IAS 39 at 31 December 2017.
2 'Capital requirement' represents
the minimum total capital charge
set at 8% of RWAs by article 92
of the Capital Requirements Regulation.
3 RWAs are non-additive across geographical
regions due to market risk diversification
effects within the Group.
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