TIDMHSBA
RNS Number : 0880S
HSBC Holdings PLC
06 March 2019
Wholesale lending - commercial real estate loans and advances
including loan commitments by level of collateral for key
countries/territories
(Audited)
Gross Gross Gross Gross
carrying/nomin carrying/nomin carrying/nomin carrying/nomin
al amount ECL coverage al amount ECL coverage
al amount ECL coverage al amount ECL coverage
$m % $m % $m % $m %
---------------------------------------------------------------------
Fully collateralised 477 1.5 435 1.1 3 33.3 19 -
--------------------------------------------------------------------------------
LTV ratio:
------------------------- ----------------- ---- ---- ---- ---------------- ---- ----------------
- less than 50% 1.7 1.3 33.3 -
------------------------- ---- ---- ----
- 51% to 75% 0.4 0.4 - -
------------------------- ---- ---- ----
- 76% to 90% 7.7 14.3 - -
------------------------- ---- ---- ----
- 91% to 100% 11.8 149 14.3 - -
265
7
178 269 3 - - 19 -
13 17 14 - - -
------------------------- ----------------- ---- ---- ---- ---------------- ---- ----------------
Partially collateralised 13 7.7 8 12.5 - - - -
(B):
------------------------- --------------------------------------------------------------------------------
Fully collateralised 621 13.5 433 9.2 12 - - -
------------------------- --------------------------------------------------------------------------------
LTV ratio:
------------------------- ----------------- ---- ---- ---- ---------------- ---- ----------------
- less than 50% 11.5 9.2 - -
------------------------- ---- ---- ----
- 51% to 75% 26.7 6.9 - -
------------------------- ---- ---- ----
- 76% to 90% 2.6 5.7 - -
------------------------- ---- ---- ----
- 91% to 100% 16.2 304 16.7 - -
58
35
425 90 2 10 - - -
38 68 36 - - -
------------------------- ----------------- ---- ---- ---- ---------------- ---- ----------------
Partially collateralised 474 56.5 261 42.9 - - - -
(C):
------------------------- --------------------------------------------------------------------------------
- collateral value on 321 137 - -
C
-------------------------
Total 1,433 38.0 755 27.0 12 - - -
-------------------------
At 31 Dec 2018 164,464 0.5 30,845 0.9 75,271 - 5,301 0.1
-------------------------
Other corporate, commercial and financial (non-bank) loans and
advances
Other corporate, commercial and financial (non-bank) loans are
analysed separately in the following table, which focuses on the
countries/territories containing the majority of our loans and
advances balances. For financing activities in other corporate and
commercial lending, collateral value is not strongly correlated to
principal repayment performance.
Collateral values are generally refreshed when an obligor's
general credit performance deteriorates and we have to assess the
likely performance of secondary sources of repayment should it
prove necessary to rely on them.
Accordingly, the following table reports values only for
customers with CRR 8-10, recognising that these loans and advances
generally have valuations that are comparatively recent.
HSBC Holdings plc Annual Report and Accounts 2018 113
Report of the Directors | Risk
Wholesale lending - other corporate, commercial and financial
(non-bank) loans and advances including loan commitments by level
of collateral for key countries/territories (by stage)
(Audited)
Gross Gross Gross Gross
carrying/nomina carrying/nomina carrying/nomina
carrying/nomina
l amount ECL coverage l amount ECL coverage l amount
ECL coverage l amount ECL coverage
$m % $m % $m % $m %
-----------------------------------------------------------------
549,536 0.1 154,059 0.2 122,259 - 30,395 -
Fully collateralised 234,081 0.1 24,387 0.2 36,730 0.1 93,804 -
----------------------- ------------------------------------------------------------------------------------------------------------
LTV ratio:
----------------------- --------------- ------ ----------------- ------ ----------------- ------ ----------------- ----------
- less than 50% 0.2 0.4 0.1 -
----------------------- ------ ------ ------ ----------
- 51% to 75% - 0.2 0.1 -
----------------------- ------ ------ ------ ----------
- 76% to 90% 0.1 0.2 0.1 -
----------------------- ------ ------ ------ ----------
60,405 4,461 12,032 24,922
82,590 9,510 14,264 7,267
15,853 2,175 4,567 4,723
- 91% to 100% 75,233 - 8,241 - 5,867 0.1 56,892 -
----------------------- --------------- ------ ----------------- ------ ----------------- ------ ----------------- ----------
Partially 48,877 0.1 5,551 0.1 21,942 - 747 -
collateralised
(A):
----------------------- ------------------------------------------------------------------------------------------------------------
- collateral value on
A 21,097 2,388 10,263 696
Total 832,494 0.1 183,997 0.2 180,931 - 124,946 -
----------------------- ------------------------------------------------------------------------------------------------------------
Stage 2
Not collateralised 42,053 1.4 12,364 3.1 6,212 0.4 1,578 1.3
Fully collateralised 24,977 1.0 7,378 1.0 3,378 0.5 9,713 1.1
----------------------- ------------------------------------------------------------------------------------------------------------
LTV ratio:
----------------------- --------------- ------ ----------------- ------ ----------------- ------ ----------------- ----------
- less than 50% 0.9 0.6 0.4 1.4
----------------------- ------ ------ ------ ----------
- 51% to 75% 1.3 3.5 0.6 1.4
----------------------- ------ ------ ------ ----------
- 76% to 90% 1.5 2.9 0.5 0.3
----------------------- ------ ------ ------ ----------
11,915
5,344 5,410 1,421 3,711
1,642 1,042 1,290 810 691
- 91% to 100% 6,076 0.8 140 786 0.1 391 276 0.4 4,501 0.9
----------------------- --------------- ------ ----------------- ------ ----------------- ------ ----------------- ----------
Partially 4,993 0.7 381 3.1 2,287 0.3 - -
collateralised
(B):
----------------------- ------------------------------------------------------------------------------------------------------------
2,074 207 971 -
72,023 1.2 20,123 2.3 11,877 0.4 11,291 1.1
4,990 52.5 1,775 42.1 478 81.2 6 16.7
Fully 1,660 25.2 513 6.2 146 - 188 9.6
collateralised
------------------- -------------------------------------------------------------------------------------------------
LTV ratio:
------------------- ------------------ ---- ------------------ ---- ------------------ ---------------- ----
- less than 50% 34.9 7.7 - 22.1
------------------- ---- ---- ----
- 51% to 75% 10.5 1.7 - 1.0
------------------- ---- ---- ----
- 76% to 90% 25.4 10.5 - -
------------------- ---- ---- ----
596 487 181 172 11 62 77 103
- 91% to 100% 382 195 31.8 86 74 8.1 32 41 - - 8 -
------------------- ------------------ ---- ------------------ ---- ------------------ ---------------- ----
Partially 931 44.9 179 22.3 158 15.2 5 60.0
collateralised
(C):
------------------- -------------------------------------------------------------------------------------------------
Fully collateralised 59 13.6 - - 9 - - -
------------------------- -----------------------------------------------------------------------------------------
LTV ratio:
------------------------- ----------------- ---- ----------------- ----------------- -----------------
- less than 50% 33.3 - - -
------------------------- ----
- 51% to 75% 25.0 - - -
------------------------- ----
- 76% to 90% - - - -
------------------------- ----
12 16 - - - - - - - - -
- 91% to 100% 22 9 - - - 9 - - -
------------------------- ----------------- ---- ----------------- ----------------- -----------------
Partially collateralised 43 72.1 8 - 35 85.7 - -
(C):
------------------------- -----------------------------------------------------------------------------------------
- collateral value on
C 38 3 34 -
-------------------------
Total 316 59.2 8 - 69 50.7 - -
-------------------------
At 31 Dec 2018 912,414 0.6 206,595 0.8 193,659 0.3 136,436 0.1
-------------------------
114 HSBC Holdings plc Annual Report and Accounts 2018
Wholesale lending - other corporate, commercial and financial
(non-bank) loans and advances including loan commitments by level
of collateral for key countries/territories
(Audited)
Rated CRR/ PD8
Fully 1,895 3.6 74 4.1 11 9.1 1,621 3.1
collateralised
-------------------- ------------------------------------------------------------------------------------------------
LTV ratio:
-------------------- ----------------- ---- ----------------- --- ------------------ --- ----------------- ---
- less than 50% 4.2 4.8 - 4.2
-------------------- ---- --- --- ---
- 51% to 75% 2.7 2.0 9.1 2.4
-------------------- ---- --- --- ---
- 76% to 90% 15.6 - - -
-------------------- ---- --- --- ---
693 292 21 49 - 11 - 594 169
- 91% to 100% 45 865 2.8 2 2 - - - 20 838 -
-------------------- ----------------- ---- ----------------- --- ------------------ --- ----------------- ---
Partially 212 2.8 23 4.3 153 1.3 - -
collateralised
(A):
-------------------- ------------------------------------------------------------------------------------------------
Fully collateralised 1,719 24.8 513 6.2 155 - 188 9.6
---------------------- ----------------------------------------------------------------------------------------------------------------------
LTV ratio:
---------------------- ------------------ ------- ---- ------- ---- ------- ---- -------
- less than 50% 36.0 7.7 - 22.1
---------------------- ------- ------- ------- -------
- 51% to 75% 8.7 1.7 - 1.0
---------------------- ------- ------- ------- -------
- 76% to 90% 24.2 10.5 - -
---------------------- ------- ------- ------- -------
608 503 181 172 11 62 77 103
- 91% to 100% 405 203 31.5 86 74 8.1 32 50 - - 8 -
---------------------- ------------------ ------- -------------------- ------- -------------------- ------- ------------------ -------
Partially 974 46.1 187 21.9 193 28.0 5 60.0
collateralised
(B):
---------------------- ----------------------------------------------------------------------------------------------------------------------
- collateral
value
on B 466 116 73 2
---------------- --------------------------- ---------- ----------------- ---------- ----------------- ---------- --------------- ----
Total 7,892 46.1 2,475 33.2 851 52.6 199 11.1
---------------- --------------------------- ---------- ----------------- ---------- ----------------- ---------- --------------- ----
At 31 Dec 2018 11,242 33.7 3,137 27.4 1,109 41.3 2,011 4.2
---------------- --------------------------- ---------- ----------------- ---------- ----------------- ---------- --------------- ----
Other credit risk exposures
In addition to collateralised lending, other credit enhancements
are employed and methods used to mitigate credit risk arising from
financial assets. These are summarised below:
-- Some securities issued by governments, banks and other
financial institutions benefit from additional credit enhancements
provided by government guarantees that cover the assets.
-- Debt securities issued by banks and financial institutions
include asset-backed securities ('ABSs') and similar instruments,
which are supported by underlying pools of financial assets. Credit
risk associated with ABSs is reduced through the purchase of credit
default swap ('CDS') protection.
Disclosure of the Group's holdings of ABSs and associated CDS
protection is provided on page 122.
-- Trading loans and advances mainly pledged against cash
collateral are posted to satisfy margin requirements. There is
limited credit risk on cash collateral posted since in the event of
default of the counterparty these would be set off against the
related liability. Reverse repos and stock borrowing are by their
nature collateralised.
Collateral accepted as security that the Group is permitted to
sell or repledge under these arrangements is described on page 264
of the Financial Statements.
Derivatives
HSBC participates in transactions exposing us to counterparty
credit risk. Counterparty credit risk is the risk of financial loss
if the counterparty to a transaction defaults before satisfactorily
settling it. It arises principally from over-the-counter ('OTC')
derivatives and securities financing transactions and is calculated
in both the trading and non-trading books. Transactions vary in
value by reference to a market factor such as an interest rate,
exchange rate or asset price.
--
The Group's maximum exposure to credit risk includes financial
guarantees and similar contracts granted, as well as loan and other
credit-related commitments. Depending on the terms of the
arrangement, we may use additional credit mitigation if a guarantee
is called upon or a loan commitment is drawn and subsequently
defaults.
For further information on these arrangements, see Note 33 on
the Financial Statements.
The counterparty risk from derivative transactions is taken into
account when reporting the fair value of derivative positions. The
adjustment to the fair value is known as the credit value
adjustment ('CVA').
For an analysis of CVAs, see Note 12 on the Financial
Statements.
The following table reflects by risk type the fair values and
gross notional contract amounts of derivatives cleared through an
exchange, central counterparty and non-central counterparty.
HSBC Holdings plc Annual Report and Accounts 2018 115
Report of the Directors | Risk
Notional contract amounts and fair values of derivatives by
product type
31,982,343 255,190 25,346,612 328,806
Total OTC derivatives 251,001 324,442
---------------------------- ----------------------------
- total OTC derivatives cleared
by central counterparties 17,939,035 52,424 52,845 11,908,326 118,030 119,394
-------------------------------------
- total OTC derivatives not cleared
by central counterparties 14,043,308 202,766 198,156 13,438,286 210,776 205,048
------------------------------------- ---------- ------- ------- ---------- ------- -------
Total exchange traded derivatives 2,030,580 2,346 4,545 1,869,210 1,437 2,804
------------------------------------- ---------------------------- ----------------------------
116 HSBC Holdings plc Annual Report and Accounts 2018
Report of the Directors | Risk
Personal lending - reconciliation of changes in gross
carrying/nominal amount and allowances for loans and advances to
customers including loan commitments and financial
guarantees(8)
(Audited)
Non-credit impaired Credit impaired
Stage 1 Stage 2 Stage 3 Total
Gross carrying/
Gross carrying/
Gross carrying/
Gross carrying/
nominal
Allowance for
nominal
Allowance for
nominal
Allowance for
nominal
Allowance for
amount
ECL
amount
ECL
amount
ECL
amount
ECL
$m $m $m $m $m $m $m $m
For footnotes, see page 147.
As shown in the above table, the allowance for ECL for loans and
advances to customers and banks and relevant loan commitments and
financial guarantees decreased $104m during the period from $3,065m
at 1 January 2018 to $2,961m at 31 December 2018.
This overall decrease was primarily driven by:
-- $1,380m of assets written off;
-- $308m relating to underlying net book volume movements, which
included the ECL allowance associated with new originations, assets
derecognised and net further lending; and
--
foreign exchange and other movements of $160m.
These decreases were partially offset by increases of:
-- $1,717m relating to underlying credit quality changes,
including the credit quality of financial instruments transferring
between stages; and
-- $27m relating to the net new measurement impact of stage transfers.
Personal lending - credit risk profile by internal PD band for
loans and advances to customers at amortised cost (continued)
Gross carrying amount Allowance for ECL
PD range(20) Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage
3 Total ECL coverage
% $m $m $m $m $m $m $m $m %
First lien residential
mortgages 266,879 8,299 2,921 278,099 (60) (67) (533) (660)
235,249 339
17,350 535
9,316 3,975
3,524 1,236 - - - -
1,414 1,177 - - - -
- Band 1 0.000 to 0.250 26 1,037 - - 235,588 (43) (1) - - (44)
(2)
(6)
(3) (7) (8)
(6) (1) (21)
- - 2,921 17,885 - (29) (533) (5)
13,291 - - (13)
4,760 (14)
2,591 (22)
1,063 (29)
2,921 (533)
--------- -------------- --------- ---------- ------------ ---------- ------------------ ----------
- Band 2 0.251 to 0.500
--------- -------------- --------- ---------- ------------ ---------- ------------------ ----------
- Band 3 0.501 to 1.500
--------- --------------
- Band 4 1.501 to 5.000
--------- --------------
- Band 5 5.001 to
20.000
--------- --------------
- Band 6 20.001 to
99.999
--------- --------------
- Band 7 100.000
--------- -------------- --------- ---------- ------------ ---------- ------------------ ----------
For footnotes, see page 147.
Collateral on loans and advances sale in an established market. The
(Audited) collateral valuation excludes any
The following table provides a quantification adjustments for obtaining and selling
of the value of fixed charges we hold the collateral and, in particular,
over specific assets where we have loans shown as not collateralised
a history of enforcing, and are able or partially collateralised may also
to enforce, collateral in satisfying benefit from other forms of credit
a debt in the event of the borrower mitigants.
failing to meet its contractual obligations,
and where the collateral is cash or
can be realised by
HSBC Holdings plc Annual Report and Accounts 2018 119
Report of the Directors | Risk
Personal lending - residential mortgage loans including loan
commitments by level of collateral for key countries/territories by
stage
(Audited)
Fully collateralised 299,072 - 130,646 - 79,180 - 15,321 -
------------------------- --------------------------------------------------------------------------
LTV ratio:
------------------------- ------------- --- ------------- -------------- --------------
- less than 50% - - - -
------------------------- ---
- 51% to 60% - - - -
------------------------- ---
- 61% to 70% - - - -
------------------------- ---
- 71% to 80% - - - -
------------------------- ---
- 81% to 90% - - - -
------------------------- ---
8,060
3,382
2,473
- 91% to 100% 0.1 - - 1,113 -
158
160,563 66,834 54,262
51,415 20,937 11,591
40,273 17,480 5,979
28,383 15,086 2,986
14,191 8,824 2,637
4,247 1,485 1,725 135
------------------------- ------------- --- ------------- -------------- --------------
Partially collateralised
(A): 1,420 0.1 581 - 300 - 10 -
------------------------- --------------------------------------------------------------------------
LTV ratio:
------------------------- ------------- --- ------------- -------------- --------------
- 101% to 110% 0.1 - - -
------------------------- ---
- 111% to 120% 0.2 - - -
------------------------- ---
- greater than 120% 808 0.2 334 - 256 - 5 -
184 46 41 2
428 201 3 3
------------------------- ------------- --- ------------- -------------- --------------
Collateral value on A 1,266 493 284 8
------------------------- --------------------------------------------------------------------------
Total 300,492 - 131,227 - 79,480 - 15,331 -
Stage 2
------------------------- ------------------------------------------------------------------------------------------
Fully collateralised 6,170 1.0 1,234 1.3 867 - 1,435 0.3
------------------------- ---------------- --- -------------------------------------------------------------------
LTV ratio:
------------------------- ---------------- --- ----------------- --- ---------------- ----------------- ---
- less than 50% 0.7 0.9 - 0.1
------------------------- --- --- ---
- 51% to 60% 1.1 3.0 - 0.4
------------------------- --- --- ---
- 61% to 70% 1.0 2.2 - 0.3
------------------------- --- --- ---
- 71% to 80% 1.3 3.4 - 0.9
------------------------- --- --- ---
- 81% to 90% 1.7 3.1 - 1.6
------------------------- --- --- ---
699 74
43 28
- 91% to 100% 2.4 1.5 20 - 0.8
3,334
932 853 917 113 814 268
586 331 105 39 231 79
134 27 33 3 32 11
------------------------- ---------------- --- ----------------- --- ---------------- ----------------- ---
Partially collateralised 123 2.9 46 0.2 1 - 5 0.3
(B):
------------------------- ------------------------------------------------------------------------------------------
LTV ratio:
------------------------- ---------------- --- ----------------- --- ---------------- ----------------- ---
- 101% to 110% 1.5 0.1 - 0.5
------------------------- --- --- ---
- 111% to 120% 4.5 4.3 - -
------------------------- --- --- ---
- greater than 120% 76 5.3 44 0.6 1 - 3 -
17 1 - 1
30 1 - 1
------------------------- ---------------- --- ----------------- --- ---------------- ----------------- ---
Collateral value on B 118 44 1 4
------------------------- ------------------------------------------------------------------------------------------
6,293 1.0 1,280 1.3 868 - 1,440 0.3
Fully collateralised 2,557 12.3 1,023 10.9 25 0.9 671 1.0
--------------------- -----------------------------------------------------------------------------------------------
LTV ratio:
--------------------- ---------------- ---- ----------------- ---- ---------------- --- ------------------ ---
- less than 50% 13.6 7.8 0.9 0.9
--------------------- ---- ---- --- ---
- 51% to 60% 8.3 11.3 - 0.9
--------------------- ---- ---- --- ---
- 61% to 70% 12.0 18.4 - 1.0
--------------------- ---- ---- --- ---
- 71% to 80% 9.9 14.8 - 0.9
--------------------- ---- ---- --- ---
- 81% to 90% 9.4 19.4 - 1.2
--------------------- ---- ---- --- ---
1,255
359 336 638 151 24 1 219 107
280 190 119 70 - - - 105 114
- 91% to 100% 137 19.8 33 12 45.9 - - 81 45 2.2
--------------------- ---------------- ---- ----------------- ---- ---------------- --- ------------------ ---
Partially 391 33.6 23 15.8 - - 24 0.4
collateralised
(C):
--------------------- -----------------------------------------------------------------------------------------------
LTV ratio:
--------------------- ---------------- ---- ----------------- ---- ---------------- --- ------------------ ---
- 101% to 110% 17.4 14.3 - 0.6
--------------------- ---- ---- --- ---
- 111% to 120% 24.2 26.4 - 0.3
--------------------- ---- ---- --- ---
- greater than 120% 73 40.8 10 11.1 - - 14 0.2
68 5 - 6
250 8 - 4
--------------------- ---------------- ---- ----------------- ---- ---------------- --- ------------------ ---
Collateral value on 372 20 - 22
C
--------------------- -----------------------------------------------------------------------------------------------
120 HSBC Holdings plc Annual Report and Accounts 2018
Supplementary information
Wholesale lending - loans and advances to customers at amortised
cost by country/territory
Gross carrying amount Allowance for ECL
Non-bank Corporate Non-bank
Corporate and Of which: and commercial Of which: real
real financial $m financial
commercial estate(21) estate(21) institutions
institutions Total $m $m Total
$m $m $m $m $m
Europe 176,577 25,715 22,529 199,106 (2,507) (481) (82) (2,589)
- UK 127,093 18,384 17,703 144,796 (1,701) (410) (78) (1,779)
-------------------
- France 28,204 5,890 2,488 30,692 (405) (36) (1) (406)
-------------------
- Germany 10,454 246 1,371 11,825 (35) - - (35)
-------------------
- Switzerland 1,674 509 348 2,022 (1) - - (1)
-------------------
- other 9,152 686 619 9,771 (365) (35) (3) (368)
------------------- -------- ------- ------- -------- -------- ------ ---- -------
Asia 263,608 79,941 27,284 290,892 (1,343) (67) (31) (1,374)
------------------------------------------------------------------------------------------
- Hong Kong 168,621 63,287 15,062 183,683 (579) (40) (20) (599)
-------------------
- Australia 11,335 2,323 2,115 13,450 (68) (3) - (68)
-------------------
- India 6,396 1,408 2,846 9,242 (77) (4) (1) (78)
-------------------
- Indonesia 4,286 35 354 4,640 (269) - (2) (271)
-------------------
- mainland China 24,225 4,423 5,146 29,371 (172) (15) (6) (178)
-------------------
- Malaysia 7,924 1,649 274 8,198 (77) (2) - (77)
-------------------
- Singapore 17,564 4,463 431 17,995 (31) (2) - (31)
-------------------
- Taiwan 6,008 23 156 6,164 (2) - - (2)
-------------------
- other 17,249 2,330 900 18,149 (68) (1) (2) (70)
------------------- -------- ------- ------- -------- -------- ------ ---- -------
Middle East and North Africa (excluding
Saudi Arabia) 23,738 2,025 322 24,060 (1,167) (178) (1) (1,168)
------------------------------------------------------------------------------------------
- Egypt 1,746 41 - 1,746 (125) - - (125)
-------------------
- UAE 14,445 1,849 206 14,651 (721) (176) (1) (722)
-------------------
- other 7,547 135 116 7,663 (321) (2) - (321)
------------------- -------- ------- ------- -------- -------- ------ ---- -------
North America 56,983 14,169 9,647 66,630 (236) (37) (8) (244)
------------------------------------------------------------------------------------------
- US 35,714 8,422 8,777 44,491 (103) (8) (2) (105)
-------------------
- Canada 20,493 5,354 770 21,263 (105) (5) (2) (107)
-------------------
- other 776 393 100 876 (28) (24) (4) (32)
------------------- -------- ------- ------- -------- -------- ------ ---- -------
Latin America 13,671 1,383 1,625 15,296 (299) (8) (4) (303)
------------------------------------------------------------------------------------------
- Mexico 11,302 1,354 1,567 12,869 (225) (8) (4) (229)
-------------------
- other 2,369 29 58 2,427 (74) - - (74)
------------------- ------------------------------------ -------- ------------ -------
At 31 Dec 2018 534,577 123,233 61,407 595,984 (5,552) (771) (126) (5,678)
------------------------------------------------------------------------------------------
For footnotes, see page 147.
HSBC Holdings plc Annual Report and Accounts 2018 121
Report of the Directors | Risk
Personal lending - loans and advances to customers at amortised
costs by country/territory
131,557 46,007 9,790 177,564 (258) (750) (313)
Europe (1,008)
------------------
124,357 20,503 144,860 (733)
3,454 19,616 9,356 23,070 (157)
- 1,120 288 5,213 376 - 288 6,333 - (21)
- UK 2,626 387 - 58 3,013 (141) (592) (309) (97)
(43)
- (2) (4) -
(72) (114) - -
-
(19)
(25)
------------------ ---------------- -------------------- ---------------- ---------------- -------------------- ---------------- ------------------- ----------------
- France
------------------ ---------------- -------------------- ---------------- ---------------- -------------------- ---------------- ------------------- ----------------
- Germany
------------------
- Switzerland
------------------
- other
------------------ ---------------- -------------------- ---------------- ---------------- -------------------- ---------------- ------------------- ----------------
Asia 119,718 42,049 11,900 161,767 (44) (696) (465) (740)
---------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------
(330)
79,059 107,793 (60)
13,858 14,622 (25)
1,030 1,638 (228) (34)
59 8,706 8,124 338 9,845 (54) (59)
2,890 626 228 6,099 (14) (95)
5,991 206 502 11,344 (27) (70)
5,123 888 434 5,983 (50) (21)
- Hong Kong 3,002 28,734 289 603 4,105 (1) (329) (33) (46)
764 (5) (55) (21)
(20)
(34)
(57)
(71)
(70)
(20)
608 (5) (40) (5) (33)
279 1,139
3,209
5,353 -
(2) (24)
860 - (1)
1,103 (6)
------------------ ---------------- -------------------- ---------------- ---------------- -------------------- ---------------- ------------------- ----------------
- Australia
------------------ ---------------- -------------------- ---------------- ---------------- -------------------- ---------------- ------------------- ----------------
- India
------------------
- Indonesia
------------------
- mainland China
------------------
- Malaysia
------------------
- Singapore
------------------
- Taiwan
------------------
- other
------------------ ---------------- -------------------- ---------------- ---------------- -------------------- ---------------- ------------------- ----------------
Middle East and
North
Africa
(excluding Saudi
Arabia) 2,393 3,933 1,181 6,326 (88) (306) (148) (394)
------------------ ---------------------------------------------------------------------------------------------------------------------------------------------------------
- Egypt - 309 71 309 - (5) (1) (5)
1,974 1,477 538 3,451 (82) (126) (54) (208)
419 2,147 572 2,566 (0) (175) (93) (181)
------------------ ---------------- -------------------- ---------------- ---------------- -------------------- ---------------- ------------------- ----------------
- UAE
------------------ ---------------- -------------------- ---------------- ---------------- -------------------- ---------------- ------------------- ----------------
- other
------------------ ---------------- -------------------- ---------------- ---------------- -------------------- ---------------- ------------------- ----------------
North America 36,964 5,057 1,341 42,021 (122) (139) (81) (261)
------------------ ---------------------------------------------------------------------------------------------------------------------------------------------------------
- US 17,464 2,280 1,028 19,744 (13) (106) (75) (119)
18,267 2,562 265 20,829 (16) (23) (5) (39)
1,233 215 48 1,448 (93) (10) (1) (103)
------------------ ---------------- -------------------- ---------------- ---------------- -------------------- ---------------- ------------------- ----------------
- Canada
------------------ ---------------- -------------------- ---------------- ---------------- -------------------- ---------------- ------------------- ----------------
- other
------------------ ---------------- -------------------- ---------------- ---------------- -------------------- ---------------- ------------------- ----------------
Latin America 2,701 3,958 1,432 6,659 (23) (521) (254) (544)
------------------ ---------------------------------------------------------------------------------------------------------------------------------------------------------
- Mexico 2,550 3,192 1,121 5,742 (22) (465) (227) (487)
151 766 311 917 (1) (56) (27) (57)
------------------ -------------------------------------- ---------------- ---------------- -------------------------------------- ------------------- ----------------
- other
------------------ ---------------- -------------------- ---------------- ---------------- -------------------- ---------------- ------------------- ----------------
At 31 Dec 2018 293,333 101,004 25,644 394,337 (535) (2,412)
(1,261) (2,947)
------------------ ---------------------------------------------------------------------------------------------------------------------------------------------------------
122 HSBC Holdings plc Annual Report and Accounts 2018
Summary of financial instruments to which the impairment
requirements in IFRS 9 are applied - by global business
Gross carrying/nominal amount Allowance for ECL
-----------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Total Stage 1
Stage 2 Stage 3 POCI
$m $m $m $m $m $m $m $m $m
-----------
Loans and
advances
to
customers
at
amortised
cost 915,188 61,786 13,023 324 990,321 (1,276) (2,108) (5,047) (194) (8,625)
----------- ------------------ ---------- ---------- -------- ---------------- ---------- ----------- ----------- -----------------
340,606 19,228 4,960 364,794 (544) (1,129)
304,103 27,529 5,732 - 298 337,662 (538) (3,110)
230,250 14,112 1,683 25 246,070 (188) (718) - (194)
- RBWM 37,970 724 618 1 39,313 (5) (1,250) (89) - -
2,259 193 30 - 2,482 (1) (659) (1) -
(182)
(3)
(14)
----------- ------------------ ---------- ---------- -------- ---------------- ---------- ----------- ----------- ---------- -----
- CMB
----------- ------------------ ---------- ---------- -------- ---------------- ---------- ----------- ----------- ----------
- GB&M
-----------
- GPB
-----------
-
Corporate
Centre
----------- ------------------ ---------- ---------- -------- ---------------- ---------- ----------- ----------- ----------
Loans and
advances
to
banks at
amortised
cost 71,873 307 - - 72,180 (11) (2) - - (13)
----------- ------------------ ---------- ---------- -------- ---------------- ---------- ----------- ----------- -----------------
5,806
5 15 1,927 - -
212 - - - - 25,621 (2) - - - -
- RBWM 5,801 - - - - - 46 38,780 (1) - - - - -
1,912 75 - - (1) - - -
25,409 (7)
46 -
38,705 (2)
----------- ------------------ ---------- ---------- -------- ---------------- ---------- ----------- ----------- ---------- -----
- CMB
----------- ------------------ ---------- ---------- -------- ---------------- ---------- ----------- ----------- ----------
- GB&M
-----------
- GPB
-----------
-
Corporate
Centre
----------- ------------------ ---------- ---------- -------- ---------------- ---------- ----------- ----------- ----------
Other
financial
assets
measured
at
amortised
cost 581,118 1,673 126 - 582,917 (27) (6) (22) - (55)
----------- ------------------ ---------- ---------- -------- ---------------- ---------- ----------- ----------- -----------------
49,142 184 49,358 (14)
15,082 774 15,916 (7) (1)
272,028 703 - - 272,751 (1) (21) - -
- RBWM 924 243,942 1 32 - - 927 243,965 - (2) - - - -
(3)
(1)
11 60 - (5) - - -
20 -
2
12
----------- ------------------ ---------- ---------- -------- ---------------- ---------- ----------- ----------- ---------- -----
- CMB
----------- ------------------ ---------- ---------- -------- ---------------- ---------- ----------- ----------- ----------
- GB&M
-----------
- GPB
-----------
-
Corporate
Centre
----------- ------------------ ---------- ---------- -------- ---------------- ---------- ----------- ----------- ----------
Total
gross
carrying
amount
on
balance
sheet at
31
Dec 2018 1,568,179 63,766 13,149 324 1,645,418 (1,314) (2,116) (5,069) (194) (8,693)
----------- ------------------ ---------- ---------- -------- ---------------- ---------- ----------- ----------- -----------------
592,008 (143) (139) (43) -
166,780 (6) (1) (1) -
123,411 (72) (52) (40) -
262,764 (58) (86) (2) -
34,940 - - - -
4,113 (7) - - -
23,518 (19) (29) (45) -
60 - - - -
9,065 (10) (11) (39) -
13,271 (8) (18) (5) -
1,066 (1) - - -
56 - - (1) -
Total nominal amount off balance sheet at 31 Dec 2018
Debt instruments measured at FVOCI at
31 Dec 2018 342,175 923
For footnotes, see page 147.
HSBC Holdings
(Audited)
Risk in HSBC Holdings is overseen by the HSBC Holdings Asset and
Liability Management Committee ('Holdings ALCO'). The major risks
faced by HSBC Holdings are credit risk, liquidity risk and market
risk (in the form of interest rate risk and foreign exchange
risk).
Credit risk in HSBC Holdings primarily arises from transactions
with Group subsidiaries and from guarantees issued in support of
obligations assumed by certain Group operations in the normal
conduct of their business. It principally represents claims on
Group subsidiaries in Europe and North America.
In HSBC Holdings, the maximum exposure to credit risk arises
from two components:
-- financial instruments on the balance sheet (see page 221); and
-- financial guarantees and similar contracts, where the maximum
exposure is the maximum that we would have to pay if the guarantees
were called upon (see Note 33).
In the case of our derivative balances, we have amounts with a
legally enforceable right of offset in the case of counterparty
Securitisation exposures and other structured products
default that are not included in the carrying value. These
offsets also include collateral received in cash and other
financial assets. The total offset relating to our derivative
balances is $1.5bn at 31 December 2018 (2017: $2.1bn).
The credit quality of loans and advances and financial
investments, both of which consist of intra-Group lending, is
assessed as 'strong' or 'good', with 100% of the exposure being
neither past due nor impaired (2017: 100%). For further details of
credit quality classification, see page 79.
HSBC Holdings plc Annual Report and Accounts 2018 123
Report of the Directors | Risk
The following table summarises the carrying amount of our ABS
exposure by categories of collateral. It includes assets held in
the legacy credit portfolio held within Corporate Centre with a
carrying value of $5.9bn (2017: $9bn).
At 31 December 2018, the FVOCI reserve in respect of ABSs was a
deficit of $179m (2017: deficit of $466m). For 2018, the impairment
write-back in respect of ABSs was $106m (2017: write-back of
$240m).
Carrying amount of HSBC's consolidated holdings of ABSs
Financial assets designated Of which
Financial and otherwise mandatorily held
through
investments at Held at measured at fair
value consolidated
Trading FVOCI amortised cost through profit
and loss Total SEs
$m $m $m $m $m $m
------------------
Mortgage-related
assets 1,680 15,422 15,498 127 32,727 208
------------------ ----------------------------------------------------------------------------------------------------------------------------------
604 183
17 - 587 87 - 2 14,657 29,437
- sub-prime 153 - 14,627 - 780 - 94 - - - 1,719 50 42 -
residential 924 586 - 15 106 59 - 33 784 - 10 106
------------------ ------------------- ----------------- ---------------- ----------------------------- --------------- ------------------------
- US Alt-A
residential
------------------ ------------------- ----------------- ---------------- ----------------------------- --------------- ------------------------
- US Government
agency and
sponsored
enterprises:
MBSs(22)
------------------
- UK buy-to-let
residential
------------------
- other
residential
------------------
- commercial
property
------------------ ------------------- ----------------- ---------------- ----------------------------- --------------- ------------------------
Leveraged
finance-related
assets 306 40 - 21 367 200
------------------ ----------------------------------------------------------------------------------------------------------------------------------
For footnotes, see page 147. these 2017 disclosures have been shown
Selected 2017 credit risk disclosures below and not adjacent to 2018 tables.
The below disclosures were included
in our 2017 external reports and do
not reflect the adoption of IFRS 9.
As these tables are not directly comparable
to the current 2018 credit risk tables,
which are disclosed on an IFRS 9 basis,
Summary of credit risk
At 31 Dec 2017
$bn
------------------------------------------------------------ --------------
Maximum exposure to credit risk 3,078
----------------------------------------------------------------------------
- total assets subject to credit risk 2,306
772
------------------------------------------------------------ --------------
- off-balance sheet commitments subject to credit risk7,23
------------------------------------------------------------ --------------
Gross loans and advances 1,060
----------------------------------------------------------------------------
- personal lending 376
684
------------------------------------------------------------ --------------
- wholesale lending
------------------------------------------------------------ --------------
Impaired loans 15
----------------------------------------------------------------------------
- personal lending 5
10
------------------------------------------------------------ --------------
- wholesale lending
------------------------------------------------------------ --------------
Impaired loans as a % of gross loans and advances %
----------------------------------------------------------------------------
Personal lending 1.3
----------------------------------------------------------------------------
Wholesale lending 1.5
----------------------------------------------------------------------------
Total 1.5
----------------------------------------------------------------------------
$bn
----------------------------------------------------------------------------
Impairment allowances 7.5
----------------------------------------------------------------------------
- personal lending 1.7
5.8
------------------------------------------------------------ --------------
- wholesale lending
------------------------------------------------------------ --------------
Loans and advances net of impairment allowances 1,053
----------------------------------------------------------------------------
For year ended
31 Dec 2017
$bn
------------------------------------------------------------ --------------
Loan impairment charge 2.0
- personal lending 1.0
1.0
-------------------
- wholesale lending
Other credit risk provisions (0.2)
1.8
For footnotes, see page 147.
124 HSBC Holdings plc Annual Report and Accounts 2018
Credit exposure (2017)
Maximum exposure to credit risk (Audited)
Maximum Offset Net
exposure $m $m
$m
-------------------------------------------------- ---------------- -------------------------------
Derivatives 219,818 (204,829) 14,989
-------------------------------------------------------------------- -------------------------------
Loans and advances to customers held at amortised cost 962,964 (35,414) 927,550
-------------------------------------------------------------------- -------------------------------
- personal 374,762 (2,946) 371,816
516,754 (29,459) 487,295
71,448 (3,009) 68,439
-------------------------------------------------- ---------------- ---------------- -------------
- corporate and commercial
-------------------------------------------------- ---------------- ---------------- -------------
- non-bank financial institutions
-------------------------------------------------- ---------------- ---------------- -------------
Loans and advances to banks at amortised cost 90,393 (273) 90,120
-------------------------------------------------------------------- -------------------------------
Reverse repurchase agreements - non-trading 201,553 (3,724) 197,829
-------------------------------------------------------------------- -------------------------------
Total on-balance sheet exposure to credit risk 2,305,592 (244,240) 2,061,352
-------------------------------------------------------------------- -------------------------------
Total off-balance sheet 771,908 - 771,908
-------------------------------------------------------------------- -------------------------------
- financial guarantees and similar contracts(23) 41,422 - 41,422
730,486 - 730,486
-------------------------------------------------- ---------------- ---------------- -------------
- loan and other credit-related commitments(7)
-------------------------------------------------- ---------------- ---------------- -------------
At 31 Dec 2017 3,077,500 (244,240) 2,833,260
-------------------------------------------------------------------- -------------------------------
For footnotes, see page 147.
Distribution of financial instruments
by credit quality
(Audited) Neither past due nor impaired
----- ------------------
Sub-standard Past due Total Total
$m but not gross $m
impaired Impairment
Strong Good $m amount
Satisfactory Impaired allowances
$m $m $m $m $m $m
Cash and balances
at central banks 179,155 1,043 407 19 180,624 180,624
---------------------- ------- ------ ------- ------------ ---------------- ----------
Items in the course
of collection from
other banks 6,322 29 273 4 6,628 6,628
---------------------- ------- ------ ------- ------------ ---------------- ----------
Hong Kong Government
certificates of
indebtedness 34,186 - - - 34,186 34,186
---------------------- ------- ------ ------- ------------ ---------------- ----------
Trading assets 137,983 22,365 26,438 1,949 188,735 188,735
- treasury and
other eligible
bills 15,412 531 491 1,098 17,532 17,532
----------------------
- debt securities 84,493 9,517 12,978 498 107,486 107,486
----------------------
- loans and advances
to banks 15,496 5,778 4,757 26 26,057 26,057
----------------------
- loans and advances
to customers 22,582 6,539 8,212 327 37,660 37,660
---------------------- ------- ------ ------ ----- ----- ----- ----------- -------
HSBC Holdings plc Annual Report and Accounts 2018 125
Report of the Directors | Risk
Ageing analysis of days for past due but not impaired gross
financial instruments
(Audited) Up to 29 days
Loans and advances to customers
and banks held at amortised cost
- personal
---------------------------------
- corporate and commercial
---------------------------------
- financial
---------------------------------
Other financial instruments
---------------------------------
At 31 Dec 2017
Impaired loans (2017)
Movement in impaired loans by industry sector
(Audited)
Corporate
and
Personal commercial Financial Total
$m $m $m $m
---------------------------------------- ------ ----- -------- ------------ --------- -------
At 1 Jan 2017 6,490 11,362 376 18,228
---------------------------------------- ------ ----- -------- ----------------------- -------
Classified as impaired during the
year 2,671 3,691 17 6,379
---------------------------------------- ------ ----- -------- ----------------------- -------
Transferred from impaired to unimpaired
during the year (677) (1,324) (8) (2,009)
---------------------------------------- ------ ----- -------- ----------------------- -------
Amounts written off (1,330) (1,257) (53) (2,640)
---------------------------------------- ------ ----- -------- ----------------------- -------
Net repayments and other (2,232) (2,218) (38) (4,488)
---------------------------------------- ------ ----- -------- ----------------------- -------
At 31 Dec 2017 4,922 10,254 294 15,470
---------------------------------------- ------ ----- -------- ----------------------- -------
Impaired loans by industry sector
and geographical region
------ ----- -------- ------------ --------- -------
North Latin
Europe Asia MENA America America Total
$m $m $m $m $m $m
---------------------------------------- ------ ----- -------- ------------ --------- -------
Non-renegotiated impaired loans 4,551 1,645 870 1,180 452 8,698
---------------------------------------- ------ ----- -------- ------------ --------- -------
- personal 1,648 475 227 665 280 3,295
----------------------------------------
- corporate and commercial 2,895 1,146 639 508 172 5,360
----------------------------------------
- financial 8 24 4 7 - 43
---------------------------------------- ------ ----- -------- ------------ --------- -------
Renegotiated impaired loans 3,491 604 1,079 1,426 172 6,772
---------------------------------------- ------ ----- -------- ------------ --------- -------
- personal 381 125 120 958 43 1,627
----------------------------------------
- corporate and commercial 2,926 478 895 466 129 4,894
----------------------------------------
- financial 184 1 64 2 - 251
---------------------------------------- ------ ----- -------- ------------ --------- -------
At 31 Dec 2017 8,042 2,249 1,949 2,606 624 15,470
---------------------------------------- ------ ----- -------- ------------ --------- -------
Impaired loans % of total gross
loans and advances 2.0% 0.5% 5.4% 2.2% 2.6% 1.5%
---------------------------------------- ------ ----- -------- ------------ --------- -------
Renegotiated loans and forbearance At 31 Dec 2017
(2017)
--------------------------------------------
Impairment allowances on renegotiated loans
Renegotiated loans and advances to customers by industry sector
Renegotiated loans and advances to customers by geographical region
----------------------------------------------------------------------------------------------------------------
First lien
--------------------------------
residential Other Corporate Non-bank
personal and financial
mortgages lending commercial institutions Europe
Total
$m $m $m $m $m $m
--------------------------------------------------- ----------- ------------ -------------- ----------------
Neither past due nor impaired At 31 Dec 201 268 2,082 257 3,0835,667
476
------------------------------- ---------------------- ----------- ------------- --------- ----------------
Past due but not impaired 58 49 120 - 227
------------------------------- ---------------------- ----------- ------------- --------- ----------------
Impaired 1,329 298 4,894 251 6,772
126 HSBC Holdings plc Annual Report and Accounts 2018
Impairment of loans and advances (2017)
Loan impairment charge to the North Latin
income Europe Asia MENA America
statement by industry sector America Total
(Audited) $m $m $m $m $m $m
-------------------------------------------------------------------------------------------------------------------------------------
Personal 140 243 92 32 452 959
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
- first lien residential mortgages 6 (1) 5 - (27) (17)
134 244 87 32 479 976
----------------------------------- -------------- ------------- ------------- ------------- ------------- ---------------------------------------------------------
- other personal
----------------------------------- -------------- ------------- ------------- ------------- ------------- ---------------------------------------------------------
Corporate and commercial 619 298 83 (163) 90 927
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
- manufacturing and international
trade and services 314 236 95 18 59 722
200 21 (4) 9 - 226
105 41 (8) (190) 31 (21)
----------------------------------- -------------- ------------- ------------- ------------- ------------- ---------------------------------------------------------
- commercial real estate and other
property-related
----------------------------------- -------------- ------------- ------------- ------------- ------------- ---------------------------------------------------------
- other commercial
----------------------------------- -------------- ------------- ------------- ------------- ------------- ---------------------------------------------------------
Financial 66 17 22 1 - 106
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
At 31 Dec 2017 825 558 197 (130) 542 1,992
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Charge for impairment losses as to customers by geographical region
a percentage of average gross loans
and advances
----------------------------------- -------------------------------------------------------------------------------------------------------------------------------------
North Latin
Europe Asia MENA America
America Total
% % % % % %
----------------------------------- -------------------------------------------------------------------------------------------------------------------------------------
New allowances net of allowance releases 0.33 0.17 0.79 (0.05) 3.20
0.29
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Recoveries (0.09) (0.03) (0.14) (0.07) (0.41) (0.07)
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
At 31 Dec 2017 0.24 0.14 0.65 (0.12) 2.79 0.22
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Amount written off net of recoveries 0.23 0.13 1.35 0.28 2.42 0.28
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Movement in impairment allowances region
by industry sector and by
geographical
----------------------------------- -------------------------------------------------------------------------------------------------------------------------------------
North Latin
Europe Asia MENA America
America Total
$m $m $m $m $m $m
----------------------------------- -------------------------------------------------------------------------------------------------------------------------------------
At 1 Jan 2017 2,789 1,635 1,681 1,272 473 7,850
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Amounts written off
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Personal (438) (366) (329) (100) (487) (1,720)
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
- first lien residential mortgages (8) (6) (42) (26) (9) (91)
(430) (360) (287) (74) (478) (1,629)
----------------------------------- -------------- ------------- ------------- ------------- ------------- ---------------------------------------------------------
- other personal
----------------------------------- -------------- ------------- ------------- ------------- ------------- ---------------------------------------------------------
Corporate and commercial (648) (273) (119) (273) (63) (1,376)
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
- manufacturing and international
trade and services (318) (250) (74) (44) (18) (704)
(121) (10) (37) (20) (4) (192)
(209) (13) (8) (209) (41) (480)
----------------------------------- -------------- ------------- ------------- ------------- ------------- ---------------------------------------------------------
- commercial real estate and other
property-related
----------------------------------- -------------- ------------- ------------- ------------- ------------- ---------------------------------------------------------
- other commercial
----------------------------------- -------------- ------------- ------------- ------------- ------------- ---------------------------------------------------------
Financial (74) (1) - (2) - (77)
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total amounts written off (1,160) (640) (448) (375) (550) (3,173)
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Recoveries of amounts written off in previous years
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Personal 296 104 39 38 68 545
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
- first lien residential mortgages 9 4 - 17 25 55
287 100 39 21 43 490
----------------------------------- -------------- ------------- ------------- ------------- ------------- ---------------------------------------------------------
- other personal
----------------------------------- -------------- ------------- ------------- ------------- ------------- ---------------------------------------------------------
Corporate and commercial 35 10 2 37 13 97
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
- manufacturing and international
trade and services 10 9 1 11 3 34
8 - 1 1 - 10
17 1 - 25 10 53
----------------------------------- -------------- ------------- ------------- ------------- ------------- ---------------------------------------------------------
- commercial real estate and other
property-related
----------------------------------- -------------- ------------- ------------- ------------- ------------- ---------------------------------------------------------
- other commercial
----------------------------------- -------------- ------------- ------------- ------------- ------------- ---------------------------------------------------------
Financial 2 - - - - 2
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total recoveries of amounts written off in previous years 333 114 41
75 81 644
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Charge to income statement 825 558 197 (130) 542 1,992
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Exchange and other movements 274 5 (10) (51) (47) 171
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
At 31 Dec 2017 3,061 1,672 1,461 791 499 7,484
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Impairment allowances against banks:
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
- individually assessed - - - - - -
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Impairment allowances against customers:
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
- individually assessed 2,296 1,056 1,104 383 121 4,960
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
- collectively assessed 765 616 357 408 378 2,524
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Impairment allowances at 31 Dec 2017 3,061 1,672 1,461 791 499 7,484
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
HSBC Holdings plc Annual Report and Accounts 2018 127
Report of the Directors | Risk
Movement in impairment allowances on loans and advances to
customers and banks
(Audited)
Banks Customers
--------------------------------------------------------------------------------------------------------------- ------------ ------------ -------------
individually Individually Collectively
assessed assessed assessed Total
$m $m $m $m
--------------------------------------------------------------------------------------------------------------- ------------ ------------ -------------
At 1 Jan 2017 - 4,932 2,918 7,850
--------------------------------------------------------------------------------------------------------------- ------------ ------------ -------------
Amounts written off - (1,468) (1,705) (3,173)
--------------------------------------------------------------------------------------------------------------- ------------ ------------ -------------
Recoveries of loans and advances previously written
off - 119 525 644
--------------------------------------------------------------------------------------------------------------- ------------ ------------ -------------
Charge to income statement - 1,114 878 1,992
--------------------------------------------------------------------------------------------------------------- ------------ ------------ -------------
Exchange and other movements - 263 (92) 171
--------------------------------------------------------------------------------------------------------------- ------------ ------------ -------------
At 31 Dec 2017 - 4,960 2,524 7,484
--------------------------------------------------------------------------------------------------------------- ------------ ------------ -------------
Impairment allowances % of loans and advances
- 0.5% 0.3% 0.8%
--------------------------------------------------------------------------------------------------------------- ------------ ------------ -------------
Wholesale lending (2017)
--------------------------------------------------------------------------------------------------------------- ------------ ------------ -------------
Total wholesale lending for loans and advances Impairment
to banks and customers(24) Gross loans allowance
$m $m
--------------------------------------------------------------------------------------------------------------- ------------ ------------ -------------
Corporate and commercial 522,248 (5,494)
6,302
10,911
115,531
17,397
2,806 (122)
15,443 (450)
98,079 (1,390)
24,258 (88) (3)
16,971 (540)
18,405 (1,361)
114,349 (131)
18,094 (138)
19,960 (83)
221 1,490 (638)
5,688 (95)
3,003 (138)
20,354 -
- (7) (34)
- (14) (235)
11,728 - -
- agriculture, forestry and fishing 1,258 (8) (19)
- mining and quarrying
------------------------------------------------------------------
- manufacturing
------------------------------------------------------------------
- electricity, gas, steam and air-conditioning supply
------------------------------------------------------------------
- water supply, sewerage, waste management and remediation
------------------------------------------------------------------
- construction
------------------------------------------------------------------
- wholesale and retail trade, repair of motor vehicles and
motorcycles
------------------------------------------------------------------
- transportation and storage
------------------------------------------------------------------
- accommodation and food
------------------------------------------------------------------
- publishing, audiovisual and broadcasting
------------------------------------------------------------------
- real estate
------------------------------------------------------------------
- professional, scientific and technical activities
------------------------------------------------------------------
- administrative and support services
------------------------------------------------------------------
- public administration and defence, compulsory social security
------------------------------------------------------------------
- education
------------------------------------------------------------------
- health and care
------------------------------------------------------------------
- arts, entertainment and recreation
------------------------------------------------------------------
- other services
------------------------------------------------------------------
- activities of households
------------------------------------------------------------------
- extra-territorial organisations and bodies activities
------------------------------------------------------------------
- government
------------------------------------------------------------------
- asset-backed securities
------------------------------------------------------------------
Non-bank financial institutions 71,719 (271)
---------------------------------------- ------------------------------------------------------ --------------------
Loans and advances to banks 90,393 -
---------------------------------------- ------------------------------------------------------ --------------------
At 31 Dec 2017 684,360 (5,765)
---------------------------------------- ------------------------------------------------------ --------------------
By geography
---------------------------------------- ------------------------------------------------------ --------------------
Europe 228,775 (2,469)
---------------------------------------- ------------------------------------------------------ --------------------
- of which: UK 163,393 (1,589)
---------------------------------------- ------------------------------------------------------ --------------------
Asia 332,680 (1,402)
---------------------------------------- ------------------------------------------------------ --------------------
- of which: Hong Kong 197,232 (639)
---------------------------------------- ------------------------------------------------------ --------------------
MENA 29,142 (1,131)
---------------------------------------- ------------------------------------------------------ --------------------
North America 76,661 (579)
---------------------------------------- ------------------------------------------------------ --------------------
Latin America 17,102 (184)
---------------------------------------- ------------------------------------------------------ --------------------
At 31 Dec 2017 684,360 (5,765)
---------------------------------------- ------------------------------------------------------ --------------------
For footnotes, see page 147.
Wholesale lending: loan and other credit-related
commitments(7)
North Latin
Europe Asia MENA America America Total UK Hong Kong
$m $m $m $m $m $m $m $m
For footnotes, see page 147.
128 HSBC Holdings plc Annual Report and Accounts 2018
Commercial real estate (2017) Commercial real estate lending
North
Europe Asia MENA America Latin America Total UK Hong Kong
$m $m $m $m $m $m $m $m
Gross loans and advances
On demand, overdrafts or revolving
< 1 year 5,734 18,038 268
1-2 years 4,780 11,549 119
2-5 years 14,770 25,395 117
> 5 years 2,309 5,986 183
At 31 Dec 2017 27,593 60,968 687
4,678 260
1,178 58
2,199 734
862 454
8,917 1,506
Commercial real estate loans and advances Of which:
including loan commitments by level of collateral
(Audited)
---------
Report of the Directors | Risk
Other corporate, commercial and non-bank financial institutions
loans and advances including loan commitments by level of
collateral rated CRR/EL 8 to 10 only
(Audited) Of which:
Total UK Hong Kong US
$m $m $m $m
Rated CRR/ EL8
---------------------------- --------------------------------- ---------- -------- --------
Not collateralised 3,722 319 15 1,708
---------------------------- --------------------------------- ---------- -------- --------
Fully collateralised 554 104 5 48
188 157 25 66 3 2 -
- LTV ratio: less than 50% 39 170 11 2 - 7
34
2
5
---------------------------------------------- -------- ----------- ---------- --------
- 51% to 75%
---------------------------------------------- -------- --- ---- ---- ----
- 76% to 90%
----------------------------------------------
- 91% to 100%
---------------------------------------------- -------- --- ---- ---- ----
Partially collateralised (A): 493 92 135 42
------------------------------- ---------------------------- ---------- ---------- --------
- Collateral value on A 206 59 10 21
------------------------------- ---------------------------- ---------- ---------- --------
Total 4,769 515 155 1,798
------------------------------- ---------------------------- ---------- ---------- --------
Rated CRR/ EL9 to 10
------------------------------- ---------------------------- ---------- ---------- --------
Not collateralised 3,734 1,508 511 3
------------------------------- ---------------------------- ---------- ---------- --------
Fully collateralised 2,572 1,223 98 317
-
6
804 606 516 403 60 10 -
- less than 50% 398 764 235 69 21 7 311
---------------------------------------------- -------- ----------- ---------- --------
- 51% to 75%
---------------------------------------------- -------- --- ---- ---- ----
- 76% to 90%
----------------------------------------------
- 91% to 100%
---------------------------------------------- -------- --- ---- ---- ----
1,750
877
8,056
Partially collateralised (B): 12,825 398 167 425
209 300
3,129 745
3,644 2,543
------------------------------ ---
- Collateral value on B 123
------------------------------ ---
Total 776
------------------------------ ---
At 31 Dec 2017 931
Personal lending (2017)
Total personal lending gross loans
Total as a % of
MENA North America total gross
Europe Asia Latin America Total UK Hong Kong loans
$m $m $m $m $m $m $m $m
First lien
residential
mortgages 126,685 109,502 2,375 37,330 2,281 278,173 119,770 70,279 26.2
-------------------- ------------- ------------ ----- ------ ------ ------------ ------- ------ ------
- of which:
interest only
(including
offset) 35,242 873 65 92 - 36,272 33,468 - 3.4
-------------------- ------------- ------------ ----- ------ ------ ------------ ------- ------ ------
affordability
(including
US adjustable rate
mortgages) 409 3,111 - 13,742 - 17,262 - 3 1.6
-------------------- ------------- ------------ ----- ------ ------ ------------ ------- ------ ------
Other personal
lending 43,329 40,880 4,496 5,227 4,376 98,308 19,790 27,868 9.3
- other 32,995 29,400 2,663 2,919 2,205 70,182 10,039 19,977 6.7
---------------------
- credit cards 10,235 11,435 1,531 1,037 1,642 25,880 9,751 7,891 2.4
---------------------
- second lien
residential
mortgages 99 21 2 1,233 - 1,355 - - 0.1
---------------------
- motor vehicle
finance - 24 300 38 529 891 - - 0.1
--------------------- ----------- --------- --------- ------ ----- --------- ----------- ------ ----
At 31 Dec 2017 170,014 150,382 6,871 42,557 6,657 376,481 139,560 98,147 35.5
50,384 120,312 194,310
------------------------- ------------------------- ---------------------------
Loan and other
credit-related
commitments 3,975 14,443 5,196 48,413 89,994
Total personal lending impairment allowances
First lien residential mortgages
Other personal lending
- other 230 109 132 17 151 639 147 36
- credit cards 111 128 122 30 140 531 110 50
--------------------------
- second lien residential
mortgages - - - 13 - 13 - -
--------------------------
- motor vehicle finance - - 5 - 7 12 - -
-------------------------- --- --- --- --- ----------
At 31 Dec 2017 603 267 327 208 314 1,719 402 86
---------------------- ----- ----- ----- ----- ----- ----- ----- -----
Impairment allowances
% of impaired loans 29.7% 44.5% 94.2% 12.8% 97.2% 34.9% 28.3% 62.3%
---------------------- ----- ----- ----- ----- ----- ----- ----- -----
130 HSBC Holdings plc Annual Report and Accounts 2018
Residential mortgage loans including loan commitments by level
of collateral (Audited)
Total UK Hong Kong US
$m $m $m $m
Non-impaired loans and advances
Fully collateralised 287,088 124,736 72,073 16,240
164,110 69,679 55,237
48,287 20,706 8,340
37,054 15,422 3,282 7,868
25,893 11,992 3,402 4,180
9,445 5,824 1,376 2,832
- LTV ratio: less than 50% 2,299 1,113 436 1,312
42
6
- 51% to 60%
-------------------------------
- 61% to 70%
-------------------------------
- 71% to 80%
-------------------------------
- 81% to 90%
-------------------------------
- 91% to 100%
-------------------------------
Partially collateralised:
------------------------------- -------- ------------------------------
Greater than 100% (A) 660 174 - -
------------------------------- -------- ------------------------------
- 101% to 110% 270 89 - -
-------------------------------
- 111% to 120% 121 16 - -
-------------------------------
- greater than 120% 269 69 - -
------------------------------- -------- -------- ------ ------------
Collateral on A 550 125 - -
------------------------------- -------- ------------------------------
Non-impaired loans and advances 287,748 124,910 72,073 16,240
------------------------------- -------- ------------------------------
Impaired loans and advances
------------------------------- -------- ------------------------------
Fully collateralised 3,004 1,00846 1,138
1,238
518 416 538 196 414 207
354 323 130 85 42 3 - 178 160
- LTV ratio: less than 50% 155 40 19 1 - - 115 64
-------------------------------
- 51% to 60%
-------------------------------
- 61% to 70%
-------------------------------
- 71% to 80%
-------------------------------
- 81% to 90%
-------------------------------
- 91% to 100%
-------------------------------
Partially collateralised:
------------------------------- --------
Greater than 100% (B) 342 38 - 36
------------------------------- -------- ------------
- 101% to 110% 101 15 - 19
-------------------------------
- 111% to 120% 61 5 - 11
-------------------------------
- greater than 120% 180 18 - 6
------------------------------- -------- -------- ------ ------------
Collateral on B 269 31 - 33
------------------------------- --------
Impaired loans and advances 3,346 1,046 46 1,174
------------------------------- --------
At 31 Dec 2017 291,094 125,956 72,119 17,414
HSBC Holdings plc Annual Report and Accounts 2018 131
Report of the Directors | Risk
Supplementary information (2017)
Wholesale gross loans and advances to customers by
country/territory
Gross loans Impairment allowances
Non-bank
Corporate and
commercial Of which: real financial
estate(21) institutions
$m $m
$m
(2,286) (371) (183)
- UK 130,121 14,609 27,829 (1,390) (299) (180)
- France 32,647 5,597 2,048 (542) (34) -
- Germany 9,690 250 1,156 (51) - (2)
- Switzerland 1,244 1 531 - - -
- other 8,799 3,787 529 (303) (38) (1)
(1,375) (43) (27)
- Hong Kong 156,198 51,787 15,346 171,544 (613) (30) (26) (639)
- Australia 11,311 1,987 2,355 13,666 (75) (4) - (75)
- India 5,382 1,030 2,165 7,547 (95) (3) (1) (96)
- Indonesia 4,157 18 114 4,271 (254) - - (254)
- mainland China 26,052 8,953 4,824 30,876 (224) (2) - (224)
- Malaysia 7,489 1,555 331 7,820 (34) - - (34)
- Singapore 17,541 2,890 259 17,800 (41) (2) - (41)
- Taiwan 5,176 11 185 5,361 (4) - - (4)
- other 17,644 2,323 732 18,376 (35) (2) - (35)
For footnotes, see page 147.
132 HSBC Holdings plc Annual Report and Accounts 2018
Personal gross loans and advances to customers by
country/territory
Gross loans Impairment allowances
First lien
residential Of which:
mortgages Other personal credit cards
$m $m $m
Europe 126,685 43,329 10,235
- UK 119,770 19,790 9,751 (145) (110)
- France 2,910 16,650 420 (33) -
- Germany 1 234 - - -
- Switzerland 839 5,776 - - -
- other 3,165 879 64 (84) (1)
------- ------
(30)
70,279
12,444
1,185 27,868
64 8,877 838 441 7,891
3,003 322 1,170 749 193 - (2)
5,760 3,385 225 289 (4) -
4,877 4,952 837 419 (2) (14)
- Hong Kong 3,013 822 1,082 283 549 - (1) (50)
(7) (18)
(4)
(11)
(5)
(20)
(6)
(2)
(12)
- Australia
- India
- Indonesia
- mainland China
- Malaysia
- Singapore
- Taiwan
- other
Middle East and North Africa (excluding Saudi Arabia)
- Egypt
- UAE
- other
North America
- US
- Canada
- other
Latin America
- Mexico
- other
At 31 Dec 2017
Carrying amount of HSBC's consolidated holdings of ABSs
Designated at fair value
through profit or Loans and
Trading Available for sale Held to maturity loss receivables
$m $m $m $m $m
Mortgage-related assets 1,767 14,221 13,965 - 1,762
918 1,102
22 - 331 11,750 - 3 13,962 - - - 484 1,041
- sub-prime residential 814 600 181 270 - - - - 32 - 75 226
-
-
1,595
135
- US Alt-A residential
- US Government agency and
sponsored enterprises: MBSs
- other residential
- commercial property
Leveraged finance-related
assets 128 373 -
Student loan-related
assets 155 2,198 -
Other assets 1,266 731 -
At 31 Dec 2017 3,316 17,523 13,965
HSBC Holdings plc Annual Report and Accounts 2018 133
Liquid assets of HSBC's principal entities
For footnotes, see page 147.
Sources of funding
(Audited)
Our primary sources of funding are customer current accounts and
customer savings deposits payable on demand or at short notice. We
issue wholesale securities (secured and unsecured) to supplement
our customer deposits and change the currency mix, maturity profile
or location of our liabilities and to meet the Group's minimum
requirement for own funds and eligible liabilities.
The following 'Funding sources and uses' table provides a
consolidated view of how our balance sheet is funded, and should be
read in light of the LFRF, which requires operating entities to
manage liquidity and funding risk on a stand-alone basis.
The table analyses our consolidated balance sheet according to
the assets that primarily arise from operating activities and the
sources of funding primarily supporting these activities. Assets
and liabilities that do not arise from operating activities are
presented as a net balancing source or deployment of funds.
In 2018, the level of customer accounts continued to exceed the
level of loans and advances to customers. The positive funding gap
was predominantly deployed in liquid assets (cash and balances with
central banks and financial investments) as required by the
LFRF.
Loans and advances to banks continued to exceed deposits by
banks, meaning the Group remained a net unsecured lender to the
banking sector.
HSBC Holdings plc Annual Report and Accounts 2018 135
Report of the Directors | Risk
Funding sources
For footnotes, see page 147.
Wholesale term debt maturity profile
The maturity profile of our wholesale term debt obligations is
set out in the following table.
The balances in the table are not directly comparable with those
in the consolidated balance sheet because the table presents gross
cash flows relating to principal payments and not the balance sheet
carrying value, which include debt securities and subordinated
liabilities measured at fair value.
Wholesale funding cash flows payable by HSBC under financial
liabilities by remaining contractual maturities
Debt securities 8,091 13,362 15,808 10,241 5,447 21,811 70,462 63,914
issued 209,136
- unsecured CDs
and CP 4,378 7,640 10,696 6,546 818 529 764 1,031 32,402
- unsecured senior
MTNs 467 1,233 3,107 2,263 2,172 11,252 55,307 54,256 130,057
- unsecured senior
structured notes 817 821 1,452 1,029 2,394 3,005 7,021 4,473 21,012
- secured covered
bonds - - 205 - - 1,190 3,469 1,137 6,001
- secured asset-backed
commercial paper 2,094 - - - - - - - 2,094
- secured ABS - - - - - - - 327 327
- others 335 3,668 348 403 63 5,835 3,901 2,690 17,243
------ ------ ----- ------ ------
Subordinated liabilities - 95 2,007 - - 2,021 1,383 31,131 36,637
- subordinated debt
securities - 95 2,007 - - 2,021 1,383 28,934 34,440
- preferred securities - - - - - - - 2,197 2,197
At 31 Dec 2018 8,091 13,457 17,815 10,241 5,447 23,832 71,845 95,045
245,773
Debt securities issued 7,502 8,409 9,435 8,132 15,111 13,000
55,347 48,234 165,170
- unsecured CDs
and CP 1,085 3,636 4,334 3,064 6,132 137 386 277 19,051
- unsecured senior
MTNs 1,614 2,973 3,047 2,924 5,109 6,564 41,090 39,544 102,865
- unsecured senior
structured notes 1,298 1,796 2,054 1,935 2,870 4,586 10,156 5,328 30,023
- secured covered
bonds - - - 209 - 212 2,494 1,655 4,570
- secured asset-backed
commercial paper 3,479 - - - - - - - 3,479
- secured ABS - - - - - - 914 436 1,350
- others 26 4 - - 1,000 1,501 307 994 3,832
-------
Subordinated liabilities 3 1,918 74 - 170 2,371 4,077
- subordinated debt securities 3 1,918 74 - 170 2,371 3,618
- preferred securities - - - - - - 459
At 31 Dec 2017 7,505 10,327 9,509 8,132 15,281 15,371 59,424
136 HSBC Holdings plc Annual Report and Accounts 2018
Contractual maturity of financial liabilities
The following table shows, on an undiscounted basis, all cash
flows relating to principal and future coupon payments (except for
trading liabilities and derivatives not treated as hedging
derivatives). For this reason, balances in the following table do
not agree directly with those in our consolidated balance sheet.
Undiscounted cash flows payable in relation to hedging derivative
liabilities are classified according to their contractual
maturities. Trading liabilities and derivatives not treated as
hedging derivatives are included in the 'On demand' time bucket and
not by contractual maturity.
A maturity analysis of repos and debt securities in issue
included in trading liabilities is presented in Note 29 on the
Financial Statements.
In addition, loans and other credit-related commitments and
financial guarantees are generally not recognised on our balance
sheet. The undiscounted cash flows potentially payable under loan
and other credit-related commitments and financial guarantees are
classified on the basis of the earliest date they can be
called.
Cash flows payable by HSBC under financial liabilities by
remaining contractual maturities
(Audited)
HSBC Holdings plc Annual Report and Accounts 2018 137
Report of the Directors | Risk
Cash flows payable by HSBC Holdings under financial liabilities
by remaining contractual maturities
(Audited)
Footnotes
Amounts owed to HSBC undertakings
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Subordinated liabilities
Other financial liabilities
Loan commitments
Financial guarantees 8
At 31 Dec 2018
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 is separated into two
portfolios:
-- trading portfolios; and
-- non-trading portfolios.
Market risk exposures arising from our insurance manufacturing
operations are discussed on page 86.
A summary of our current policies and practices regarding the
management of market risk is set out on page 81.
Global markets were characterised by robust economic sentiment
at the start of the year. As the year progressed, economic activity
diverged across the global economy against a backdrop of continuing
trade and geopolitical tensions; concerns around slowing growth in
China; and the continuing uncertainty around the shape of the UK's
withdrawal from the EU.
Trading portfolios
Value at risk of the trading portfolios
Trading VaR predominantly resides within Global Markets where
trading VaR was lower at 31 December 2018 compared with 31 December
2017. The contributions of each asset class were largely range
bound during the year.
Monetary tightening started across the developed world. The US
Federal Reserve raised official interest rates multiple times
during the year and signalled it will raise rates more slowly in
2019. Bond yields started to increase but remained low by
historical standards. In the eurozone, the European Central Bank
ended its bond-buying programme, although softening growth and
inflation prospects add to the uncertainty of the timing of the
next interest rate hike.
Trading value at risk ('VaR') ended the year lower when compared
with the previous year. The trading VaR composition remained
largely the same, with interest rate trading VaR being the largest
individual contributor to overall trading VaR.
Non-trading interest rate VaR ended the year lower when compared
with the previous year as exposures were managed down.
The decrease in trading VaR from the equity and credit spread
trading VaR components was partially offset by an increase in the
interest rate and foreign exchange trading VaR components.
The effects of portfolio diversification reduced the overall
trading VaR.
138 HSBC Holdings plc Annual Report and Accounts 2018
The daily levels of total trading VaR over the last year are set
out in the graph below.
Daily VaR (trading portfolios), 99% 1 day ($m)
The Group trading VaR for the year is shown in the table
below.
Trading VaR, 99% 1 day(35)
(Audited)
Back-testing
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 were not in scope of the market risk
model.
Non-trading portfolios
Value at risk of the non-trading portfolios
Non-trading VaR of the Group includes contributions from all
global businesses. There was no commodity risk in the non-trading
portfolios. The non-trading VaR ended the year lower compared with
the previous year, due to a reduction in the non-trading interest
rate VaR component. This was caused by the reduction of the risk in
our investment portfolio, specifically from reduced interest rate
risk on US Treasuries and agency mortgage-backed securities.
The Group also experienced one back-testing profit exception
against hypothetical profit and loss in August based on the same
driver described above.
There was no evidence of model errors or control failures.
The back-testing result excludes exceptions due to changes in
fair value adjustments.
Non-trading VaR includes the interest rate risk in the banking
book transferred to and managed by Balance Sheet Management ('BSM')
and the non-trading financial instruments held by BSM. The
management of interest rate risk in the banking book and the role
of BSM are described further in the following 'Net interest income
sensitivity' section.
Non-trading VaR excludes the insurance operations, which are
discussed further on page 143, and the interest rate risk in the
banking book arising from HSBC Holdings.
The daily levels of total non-trading VaR over the last year are
set out in the graph below.
HSBC Holdings plc Annual Report and Accounts 2018 139
Report of the Directors | Risk
Daily VaR (non-trading portfolios), 99% 1 day ($m)
The Group non-trading VaR for the year is shown in the table
below.
Non-trading VaR, 99% 1 day
(Audited)
Balance at 31 Dec 2018 Average
Maximum
Minimum
140 HSBC Holdings plc Annual Report and Accounts 2018
Net structural foreign exchange exposures
Net interest income sensitivity
The following tables set out the assessed impact to a
hypothetical base case projection of our net interest income
('NII') (excluding insurance) under the following scenarios:
-- an immediate shock of 25 basis points ('bps') to the current
market-implied path of interest rates across all currencies on 1
January 2019 (effects over one year and five years); and
-- an immediate shock of 100bps to the current market-implied
path of interest rates across all currencies on 1 January 2019
(effects over one year and five years).
The sensitivities shown represent our assessment of the change
to a hypothetical base case NII, assuming a static balance sheet
and no management actions from BSM. They incorporate the effect of
interest rate behaviouralisation, managed rate product pricing
assumptions and customer behaviour, for example, prepayment of
mortgages or customer migration from non-interest-bearing to
interest-bearing deposit accounts under the specific interest rate
scenarios. The scenarios represent interest rate shocks to the
current market implied path of rates.
The NII sensitivities shown are indicative and based on
simplified scenarios. Immediate interest rate rises of 25bps and
100bps would increase projected net interest income for the 12
months to 31 December 2019 by $828m and
For footnotes, see page 147.
Shareholders' equity would decrease by $2,743m (2017: $2,659m)
if euro and sterling foreign currency exchange rates weakened by 5%
relative to the US dollar.
$2,778m, respectively. Conversely, falls of 25bps and 100bps
would decrease projected net interest income for the 12 months to
31 December 2019 by $884m and $3,454m, respectively.
The sensitivity of NII for 12 months decreased by $521m and
$747m comparing December 2018 with December 2017 in the plus and
minus 100bps parallel shocks, respectively. These decreases were
driven by movements in the US dollar amounts primarily due to
changes in balance sheet composition and the migration of
non-interest-bearing liabilities to interest-bearing liabilities as
interest rates increased. By contrast, sterling NII sensitivity
increased because of higher liquidity linked to UK structural
reform and preparations surrounding the UK's exit from the European
Union.
The change in NII sensitivity for five years is also driven by
the factors above.
The structural sensitivity arising from the four global
businesses, excluding Global Markets, is positive in a rising rate
environment and negative in a falling rate environment. Both BSM
and Global Markets have NII sensitivity profiles that offset this
to some degree. The tables do not include BSM management actions or
changes in Global Markets' net trading income that may further
limit the offset.
The limitations of this analysis are discussed within the 'Risk
management' section on page 73.
NII sensitivity to an instantaneous change in yield curves (12
months)
227 179 147 50 203 806
(287) (305) (181) 8 (160) (925)
845 711 600 412 731 3,299
(1,444) (1,425) (631) 31 (732) (4,201)
The net interest income sensitivities arising from the scenarios
presented in the tables above are not directly comparable. This is
due to timing differences relating to interest rate changes and the
repricing of assets and liabilities.
HSBC Holdings plc Annual Report and Accounts 2018 141
Report of the Directors | Risk
NII sensitivity to an instantaneous change in yield curves (5
years)
Year 1 Year 2 Year 3 Year 4 Year 5 Total
$m $m $m $m $m $m
Sensitivity of capital and reserves
Financial assets at fair value through other comprehensive
income reserves are included as part of CET1 capital. We measure
the potential downside risk to the CET1 ratio due to interest rate
and credit spread risk in this portfolio using the portfolio's
stressed VaR, with a 99% confidence level and an assumed holding
period of one quarter. At December 2018, the stressed VaR of the
portfolio was $2.9bn (2017: $2.6bn).
We monitor the sensitivity of reported cash flow hedging
reserves to interest rate movements on a six-monthly basis by
assessing the expected reduction in valuation of cash flow hedges
due to parallel movements of plus or minus 100bps in all yield
curves. These particular exposures form only a part of our overall
interest rate exposure.
The following table describes the maximum and minimum
sensitivity of our cash flow hedge reported reserves to the
stipulated movements in yield curves during the year. The
sensitivities are indicative and based on simplified scenarios.
Sensitivity of cash flow hedging reported reserves to interest
rate movements
Maximum
Minimum
impact
impact
$m $m
Defined benefit pension schemes
Market risk arises within our defined benefit pension schemes to
the extent that the obligations of the schemes are not fully
matched by assets with determinable cash flows.
Additional market risk measures applicable only to the parent
company
For details of our defined benefit schemes, including asset
allocation, see Note 6 on the Financial Statements, and for pension
risk management see page 87.
HSBC Holdings uses VaR to monitor and manage foreign exchange
risk. In order to manage interest rate risk, HSBC Holdings uses the
projected
142 HSBC Holdings plc Annual Report and Accounts 2018
sensitivity of its net interest income to future changes in
yield curves and the interest rate gap repricing tables.
Foreign exchange risk
Total foreign exchange VaR arising within HSBC Holdings in 2018
was as follows.
HSBC Holdings - foreign exchange VaR
The foreign exchange risk arises from loans to subsidiaries of a
capital nature that are not denominated in the functional currency
of either the provider or the recipient and that are accounted for
as financial assets, and from structural foreign exchange hedges.
Changes in the carrying amount of these
loans due to foreign exchange rate differences, and changes in
the fair value of foreign exchange hedges are taken directly to
HSBC Holdings' income statement.
Sensitivity of net interest income
HSBC Holdings monitors NII sensitivity over a five-year time
horizon, reflecting the longer-term perspective on interest rate
risk management appropriate to a financial services holding
company. These sensitivities assume that any issuance where HSBC
Holdings has an option to reimburse at a future call date is called
at this date. The table below sets out the effect on HSBC Holdings'
future NII over a five-year time horizon of incremental 25bps
parallel falls or rises in all yield curves at the beginning of
each quarter during the 12 months from 1 January 2018.
The NII sensitivities shown are indicative and based on
simplified scenarios. Immediate interest rate rises of 25bps and
100bps would decrease projected net interest income for the 12
months to 31 December 2019 by $7m and $29m, respectively.
Conversely, falls of 25bps and 100bps would increase projected net
interest income for the 12 months to 31 December 2019 by $10m and
$43m, respectively.
NII sensitivity to an instantaneous change in yield curves (12
months)
US dollar HK dollar Sterling Euro Other Total
$m $m $m $m $m $m
NII sensitivity to an instantaneous change in yield curves (5
years)
Year 1 Year 2 Year 3 Year 4 Year 5 Total
$m $m $m $m $m $m
The interest rate sensitivities in the preceding table are
indicative and based on simplified scenarios. The figures represent
hypothetical movements in NII based on our projected yield curve
scenarios, HSBC Holdings' current interest rate risk profile and
assumed changes to that profile during the next five years.
The sensitivities represent our assessment of the change to a
hypothetical base case based on a static balance sheet assumption,
and do not take into account the effect of actions that could be
taken to mitigate this interest rate risk.
Interest rate repricing gap table
The interest rate risk on the fixed-rate securities issued by
HSBC Holdings is not included within the Group VaR, but is managed
on a repricing gap basis. The following interest rate repricing gap
table analyses the full-term structure of interest rate mismatches
within HSBC Holdings' balance sheet where debt issuances are
reflected based on either the next reprice date if floating rate or
the maturity/call date (whichever is first) if fixed rate.
Repricing gap analysis of HSBC Holdings
Footnotes
Cash at bank and in hand:
- balances with HSBC undertakings 3,509 3,509 - - - -
Derivatives 707 - - - - 707
HSBC Holdings plc Annual Report and Accounts 2018 143
Report of the Directors | Risk
Loans and advances to HSBC undertakings
Financial investments in HSBC undertakings
Investments in subsidiaries
Other assets
Total assets
Amounts owed to HSBC undertakings
Financial liabilities designated at fair values
Derivatives
Debt securities in issue
Other liabilities
Subordinated liabilities
Total equity
Total liabilities and equity
Off-balance sheet items attracting interest rate sensitivity
Net interest rate risk gap at 31 Dec 2018
Cumulative interest rate gap
Cash at bank and in hand:
Operational risk profile
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.
Responsibility for minimising operational risk lies with HSBC's
employees. They are required to manage the operational risks of the
business and operational activities for which they are
responsible.
A summary of our current policies and practices regarding the
management of operational risk is set out on page 84.
Operational risk exposures in 2018
In 2018, we continued our ongoing work to strengthen those
controls that manage our most material risks. Among other measures,
we:
-- further enhanced our 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;
-- implemented a number of initiatives to raise our standards in
relation to the conduct of our business as described on page 84 of
the 'Regulatory compliance risk management' section;
-- increased monitoring and enhanced detective controls to
manage fraud risks, which arise from new technologies and new ways
of banking;
-- strengthened internal security controls to help prevent
cyber-attacks;
-- improved controls and security to protect customers when
using digital channels; and
-- enhanced our third-party risk management capability to help
enable the consistent risk assessment of any third-party
service.
Further information on the nature of these risks is provided in
'Top and emerging risks' on page 69 and in 'Risk management' from
pages 73 to 88.
Operational risk losses in 2018
Operational risk losses in 2018 were higher than in 2017,
reflecting an increase in losses incurred relating to large legacy
conduct-related events. For further details see Note 35 on the
Financial Statements and on conduct-related costs included in
significant items on page 66.
144 HSBC Holdings plc Annual Report and Accounts 2018
Insurance manufacturing operations
risk profile
Insurance manufacturing operations
risk in 2018 Key risk types 148
- Market risk 148
- Credit risk 149
Page
145 - Liquidity risk 149
HSBC's bancassurance model 145 - Insurance risk 149
Measurement 145
Insurance manufacturing operations risk in 2018
The majority of the risk in our insurance business derives from
manufacturing activities and can be categorised as financial risk
or insurance risk. Financial risks include market risk, credit risk
and liquidity risk.
HSBC's bancassurance model
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. For the products we
manufacture, the majority of sales are of savings, universal life
and credit and term life contracts.
By focusing largely on personal and small and medium enterprises
('SME') 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.
Measurement
(Audited)
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. The economic capital coverage
Insurance risk is the risk, other than financial risk, of loss
transferred from the holder of the insurance contract to the issuer
(HSBC).
A summary of our current policies and practices regarding the
management of insurance risk is set out on page 86.
We have life insurance manufacturing subsidiaries in nine
countries and territories (Hong Kong, France, Singapore, UK,
mainland China, Malta, Mexico, Argentina and Malaysia). 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 small
number 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 worldwide, predominantly by RBWM,
CMB and GPB through our branches and direct channels.
ratio (economic net asset value divided by the economic capital
requirement) is a key risk appetite measure.
The business has a current appetite to remain above 140% with a
tolerance of 110%. In addition to economic capital, the regulatory
solvency ratio is also a metric used to manage risk appetite on an
entity basis.
The following tables show the composition of assets and
liabilities by contract type and by geographical region.
HSBC Holdings plc Annual Report and Accounts 2018 145
Report of the Directors | Risk
Balance sheet of insurance manufacturing subsidiaries by type of
contract (continued)
(Audited)
- 15,533 - 28,557
286 29,302 340 39,029
15,280 21,993
- trading assets 4,711 - - - 5,785
8,814
- - -
267 2,951 1,259
13 6,396 41 3,331
4,836 1,877
653 154
- financial assets designated at fair
value
- derivatives
- financial investments - HTM 44
- financial investments - AFS 44
- other financial assets 41
Reinsurance assets 1,108 274 1,154 - 2,536
PVIF 42 - - - 6,610 6,610
------
Other assets and investment
properties 1,975 2 164 1,126 3,267
------
Total assets 68,195 9,357 16,167 14,398 108,117
------
Liabilities under investment
contracts designated at fair
value - 1,750 3,885 - 5,635
------
Liabilities under insurance
contracts 67,137 7,548 10,982 - 85,667
------
Deferred tax 43 14 6 9 1,230 1,259
------
Other liabilities - - - 3,325 3,325
------
Total liabilities 67,151 9,304 14,876 4,555 95,886
------
Total equity - - - 12,231 12,231
------
Total liabilities and equity
at 31 Dec 2017 67,151 9,304 14,876 16,786 108,117
For footnotes, see page 147.
Balance sheet of insurance manufacturing subsidiaries by
geographical region(45) (Audited)
Footnotes
Financial assets 28,631 66,793 1,320 96,744
- trading assets - - - -
13,142 15,774 326 29,242
121 296 237 49,413
12,453 116 48,595 13,334
2,619 440 1,868 - 4,518
522
441
31
- financial assets designated and otherwise
mandatorily measured at fair value through
profit or loss
- derivatives
- financial investments - at amortised
cost
- financial investments - at fair value
through other comprehensive income
- other financial assets 41
Reinsurance assets 249 2,438 5 2,692
PVIF 42
Other assets and investment properties
Total assets
Liabilities under investment contracts designated at fair
value
Liabilities under insurance contracts
Deferred tax 43
Other liabilities
Total liabilities
Total equity
Total liabilities and equity at 31 Dec 2018
Financial assets 30,231 63,973 1,500 95,704
- 28,557
- 12,430 - 15,633 340 39,029
169 - 15,144 171 38,506 21,993
- trading assets 2,488 6,393 3,270 - 5,785
494
-
523
456
27
- financial assets designated at fair value
- derivatives
- financial investments - HTM 44
- financial investments - AFS 44
- other financial assets 41
Reinsurance assets 469 2,063 4 2,536
PVIF 42 773 5,709 128 6,610
Other assets and investment properties 1,666 1,577 24 3,267
Total assets 33,139 73,322 1,656 108,117
Liabilities under investment
contracts designated at fair
value 739 4,896 - 5,635
Liabilities under insurance contracts 28,416 56,047 1,204 85,667
Deferred tax 43 217 1,033 9 1,259
Other liabilities 2,043 1,209 73 3,325
Total liabilities 31,415 63,185 1,286 95,886
Total equity 1,724 10,137 370 12,231
Total liabilities and equity
at 31 Dec 2017 33,139 73,322 1,656 108,117
146 HSBC Holdings plc Annual Report and Accounts 2018
For footnotes, see page 147.
HSBC Holdings plc Annual Report and Accounts 2018 147
Report of the Directors | Risk
Key risk types
The key risks for the insurance operations are market risks (in
particular interest rate and equity) and credit risks, followed by
insurance underwriting
Market risk
(Audited)
Description and exposure
Market risk is the risk of changes in market factors affecting
HSBC's capital or profit. Market factors include interest rates,
equity and growth assets and foreign exchange rates.
Our exposure varies depending on the type of contract issued.
Our most significant life insurance products are contracts with
discretionary participating features ('DPF') issued in France and
Hong Kong. These products typically include some form of capital
guarantee or guaranteed return on the sums invested by the
policyholders, to which discretionary bonuses are added if allowed
by the overall performance of the funds. These funds are primarily
invested in bonds, with a proportion allocated to other asset
classes to provide customers with the potential for enhanced
returns.
DPF products expose HSBC to the risk of variation in asset
returns, which will impact our participation in the investment
performance.
risk and operational risks. Liquidity risk, while significant
for the bank, is minor for our insurance operations.
In addition, in some scenarios the asset returns can become
insufficient to cover the policyholders' financial guarantees, in
which case the shortfall has to be met by HSBC. Reserves are held
against the cost of such guarantees, calculated by stochastic
modelling.
Where local rules require, these reserves are held as part of
liabilities under insurance contracts. Any remainder is accounted
for as a deduction from the present value of in-force ('PVIF')
long-term insurance business on the relevant product. The following
table shows the total reserve held for the cost of guarantees, the
range of investment returns on assets supporting these products and
the implied investment return that would enable the business to
meet the guarantees.
The cost of guarantees decreased to $669m (2017: $696m)
primarily due to sales of new products with lower guarantees in
Hong Kong and updates to modelling assumptions.
For unit-linked contracts, market risk is substantially borne by
the policyholder, but some market risk exposure typically remains,
as fees earned are related to the market value of the linked
assets.
148 HSBC Holdings plc Annual Report and Accounts 2018
Credit risk
(Audited)
Description and exposure
Credit risk is the risk of financial loss if a customer or
counterparty fails to meet their obligation under a contract. It
arises in two main areas for our insurance manufacturers:
-- risk associated with credit spread volatility and default by
debt security counterparties after investing premiums to generate a
return for policyholders and shareholders; and
-- risk of default by reinsurance counterparties and
non-reimbursement for claims made after ceding insurance risk.
Liquidity risk
(Audited)
Description and exposure
Liquidity risk is the risk that an insurance operation, though
solvent, either does not have sufficient financial resources
available to meet its obligations when they fall due, or can secure
them only at excessive cost.
The following table shows the expected undiscounted cash flows
for insurance liabilities at 31 December 2018. The liquidity risk
exposure is
The amounts outstanding at the balance sheet date in respect of
these items are shown in the table on page 143.
The credit quality of the reinsurers' share of liabilities under
insurance contracts is assessed as 'satisfactory' or higher (as
defined on page 79), with 100% of the exposure being neither past
due nor impaired (2017: 100%).
Credit risk on assets supporting unit-linked liabilities is
predominantly borne by the policyholder. Therefore, our exposure is
primarily related to liabilities under non-linked insurance and
investment contracts and shareholders' funds. The credit quality of
insurance financial assets is included in the table on page 100.
The risk associated with credit spread volatility is to a large
extent mitigated by holding debt securities to maturity, and
sharing a degree of credit spread experience with
policyholders.
wholly borne by the policyholder in the case of unit-linked
business and is shared with the policyholder for non-linked
insurance.
The profile of the expected maturity of insurance contracts at
31 December 2018 remained comparable with 2017.
The remaining contractual maturity of investment contract
liabilities is included in Note 29 on page 280.
Expected maturity of insurance contract liabilities
(Audited)
Expected cash flows (undiscounted)
Within 1 year 1-5 years 5-15 years Over
15 years Total
$m $m $m $m $m
1,119 2,932 2,684 1,962 8,697
7,459 27,497 46,217 55,989 137,162
969 3,041 4,695 6,814 15,519
6,916 26,453 43,784 45,334 122,487
7,885 29,494 48,479 52,148 138,006
Insurance risk
Description and exposure
Insurance risk is the risk of loss through adverse experience,
in either timing or amount, of insurance underwriting parameters
(non-economic assumptions). These parameters include mortality,
morbidity, longevity, lapses and unit costs.
Sensitivities
(Audited)
The following table shows the sensitivity of profit and total
equity to reasonably possible changes in non-economic assumptions
across all our insurance manufacturing subsidiaries.
Mortality and morbidity risk is typically associated with life
insurance contracts. The effect on profit of an increase in
mortality or morbidity depends on the type of business being
written. Our largest exposures to mortality and morbidity risk
exist in Hong Kong and Singapore.
Sensitivity analysis
(Audited)
The principal risk we face is that, over time, the cost of the
contract, including claims and benefits, may exceed the total
amount of premiums and investment income received.
The tables on pages 143 and 145 analyse our life insurance risk
exposures by type of contract and by geographical region.
The insurance risk profile and related exposures remain largely
consistent with those observed at 31 December 2017.
Sensitivity to lapse rates depends on the type of contracts
being written. For a portfolio of term assurance, an increase in
lapse rates typically has a negative effect on profit due to the
loss of future income on the lapsed policies. However, some
contract lapses have a positive effect on profit due to the
existence of policy surrender charges. We are most sensitive to a
change in lapse rates on unit-linked and universal life contracts
in Hong Kong and Singapore, and DPF contracts in France.
Expense rate risk is the exposure to a change in the cost of
administering insurance contracts. To the extent that increased
expenses cannot be passed on to policyholders, an increase in
expense rates will have a negative effect on our profits.
Effect on profit after tax and total equity at 31 Dec
10% increase in mortality and/or morbidity rates
10% decrease in mortality and/or morbidity rates
10% increase in lapse rates
10% decrease in lapse rates
10% increase in expense rates
10% decrease in expense rates
HSBC Holdings plc Annual Report and Accounts 2018 149
Report of the Directors | Risk
Footnotes to Risk
1 Customer risk rating ('CRR').
2 12-month point-in-time ('PIT') probability-weighted probability of default ('PD').
3 The interest rate risk on the fixed-rate securities issued by HSBC Holdings is not
included in the Group VaR. The management of this risk is
described on page 132.
4 BSM, for external reporting purposes, forms part of Corporate
Centre while daily operations and risk are managed within
GB&M.
5 The total ECL is recognised in the loss allowance for the
financial asset unless the total ECL exceeds the gross carrying
amount of the financial asset, in which case the ECL is recognised
as a provision.
6 Includes only those financial instruments that are subject to
the impairment requirements of IFRS 9. 'Prepayments, accrued income
and other assets' as presented within the consolidated balance
sheet on page 216 includes both financial and non-financial
assets.
7 31 December 2017 balances have been restated to include $44bn
of loan commitments (unsettled reverse repurchase agreements) not
previously identified for disclosure.
8 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
9 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
10 Debt instruments measured at FVOCI continue to be measured at
fair value with the allowance for ECL as a memorandum item. Change
in ECL is recognised in 'Change in expected credit losses and other
credit impairment charges' in the income statement.
11 Purchased or originated credit-impaired ('POCI').
12 Days past due ('DPD'). Up to date accounts in Stage 2 are not shown in amounts.
13 Excludes ECL and financial instruments relating to defaulted
obligors because the measurement of ECL is relatively more
sensitive to credit factors specific to the obligor than future
economic scenarios.
14 Includes off-balance sheet financial instruments that are
subject to significant measurement uncertainty.
15 Includes low credit-risk financial instruments such as Debt
instruments at FVOCI, which have low ECL coverage ratios under all
the above scenarios. Coverage ratios on loans and advances to
customers including loan commitments and financial guarantees are
typically higher. For example, in the UK the coverage ratio for
reported ECL is 0.39%, UK AD1 0.43% and UK AD2-3 0.72-0.81%. For
US, the coverage ratio for these instruments for reported ECL is
0.11% and for Hong Kong 0.06% for the reported ECL and 0.20% for
the trade Downside scenario.
16 ECL sensitivities exclude portfolios utilising less complex modelling approaches.
17 ECL sensitivity includes only on-balance sheet financial
instruments to which IFRS 9 impairment requirements are
applied.
18 For the purposes of this disclosure gross carrying value is
defined as the amortised cost of a financial asset, before
adjusting for any loss allowance. As such the gross carrying value
of debt instruments at FVOCI as presented above will not reconcile
to the balance sheet as it excludes fair value gains and
losses.
19 Revocable loan and other commitments of $188bn which are
out-of-scope of IFRS 9 are presented within the strong credit
quality classification.
20 12 month point in time (PiT) adjusted for multiple economic scenarios
21 Real estate lending within this disclosure corresponds solely
to the industry of the borrower. Commercial real estate on page 108
includes borrowers in multiple industries investing in income
producing assets and to a lesser extent, their construction and
development.
22 US mortgage-backed securities.
23 31 December 2017 balances have been restated to include $3bn
of performance and other guarantees not previously identified for
disclosure.
24 The disclosure is a comparative for the 2018 'Total wholesale
lending for loans and advances to banks and customers by stage
distribution table' and was not presented in the Annual Report and
Accounts 2017.
25 The HSBC UK Liquidity Group shown comprises four legal
entities: HSBC Bank plc (including all overseas branches, and SPEs
consolidated by HSBC Bank plc for Financial Statement purposes),
Marks and Spencer Financial Services plc, HSBC Private Bank (UK)
Ltd and HSBC Trust Company (UK) Limited, managed as a single
operating entity, in line with the application of UK liquidity
regulation as agreed with the UK PRA.
26 The HSBC UK Liquidity Group shown comprises four legal
entities: HSBC UK Bank plc (including the Dublin branch), Marks and
Spencer Financial Services plc, HSBC Private Bank (UK) Ltd and HSBC
Trust Company (UK) Limited, managed as a single operating entity,
in line with the application of UK liquidity regulation as agreed
with the UK PRA.
27 HSBC Bank plc includes all overseas branches, and SPEs
consolidated by HSBC Bank plc for Financial Statements
purposes.
28 The Hongkong and Shanghai Banking Corporation - Hong Kong
branch and The Hongkong and Shanghai Banking Corporation -
Singapore branch represent the material activities of The Hongkong
and Shanghai Banking Corporation. Each branch is monitored and
controlled for liquidity and funding risk purposes as a stand-alone
operating entity.
29 The comparative figures have been re-presented to reflect revised data.
30 HSBC France and HSBC Canada represent the consolidated
banking operations of the Group in France and Canada, respectively.
HSBC France and HSBC Canada are each managed as single distinct
operating entities for liquidity purposes.
31 In adopting the NSFR (BCBS 295) as a key internal risk
management metric, the HSBC Group has, until such time that the
NSFR becomes a binding regulatory requirement on the Group or the
operating entity locally, permitted entities to reduce the amount
of required stable funding requirement ('RSF') for listed equities
where the valuation risk has been hedged through an exchange traded
daily cash margined derivative, due to management's view as to the
speed at which these assets could be monetised under stress and the
mitigation of the valuation risk. At 31 December 2018, only HSBC
Bank plc were applying a lower RSF to such equities. The NSFRs
presented seek to reflect the internal management view of funding
risk.
32 The total shown for other principal HSBC operating entities
represents the combined position of all the other operating
entities overseen directly by the Risk Management Meeting of the
GMB.
33 Structured liabilities have moved from 'Trading liabilities' to 'Financial liabilities
designated at fair value'. Comparatives have not been restated.
See Note 37 for further detail.
34 The undiscounted cash flows potentially payable under
financial guarantees are classified on the basis of the earliest
date they can be called. Application of this policy throughout the
Group was improved in 2018, and therefore comparative information
has been represented.
35 Trading portfolios comprise positions arising from the market-making and warehousing of customer-derived positions.
36 Portfolio diversification is the market risk dispersion
effect of holding a portfolio containing different risk types. It
represents the reduction in unsystematic market risk that occurs
when combining a number of different risk types; for example,
interest rate, equity and foreign exchange, together in one
portfolio. It is measured as the difference between the sum of the
VaR by individual risk type and the combined total VaR. A negative
number represents the benefit of portfolio diversification. As the
maximum and minimum occurs on different days for different risk
types, it is not meaningful to calculate a portfolio
diversification benefit for these measures.
37 The total VaR is non-additive across risk types due to diversification effects.
38 At 31 December, we had forward foreign exchange contracts of
$5bn (2017: $5bn) in order to manage our sterling structural
foreign exchange exposure.
39 Investments in subsidiaries and equity have been allocated
based on call dates for any callable bonds. The prior year figures
have been amended to reflect this.
40 'Other Contracts' includes term insurance, credit life
insurance, universal life insurance and investment contracts not
included in the 'Unit-linked' or 'With DPF' columns.
41 Comprise mainly loans and advances to banks, cash and
inter-company balances with other non-insurance legal entities.
42 Present value of in-force long-term insurance business.
43 'Deferred tax' includes the deferred tax liabilities arising on recognition of PVIF.
44 Financial investments held to maturity ('HTM') and available for sale ('AFS').
45 HSBC has no insurance manufacturing subsidiaries in Middle
East and North Africa or North America.
46 A block of contracts in France with guaranteed nominal annual
returns in the range 1.25%-3.72% is reported entirely in the
2.1%-4.0% category in line with the average guaranteed return of
2.6% offered to policyholders by these contracts.
150 HSBC Holdings plc Annual Report and Accounts 2018
HSBC Holdings plc Annual Report and Accounts 2018 151
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END
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