REG - HSBC Holdings PLC - Annual Financial Report - Part 9
21/02/2024 16:45
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RNS Number : 9477D HSBC Holdings PLC 21 February 2024
Independent auditors' report to the members of HSBC Holdings plc
Report on the audit of the financial statements
Opinion
In our opinion, HSBC Holdings plc's group financial statements and parent
company financial statements (the "financial statements"):
- give a true and fair view of the state of the group's and of the
parent company's affairs as at 31 December 2023 and of the group's and parent
company's profit and the group's and parent company's cash flows for the year
then ended;
- have been properly prepared in accordance with UK-adopted
international accounting standards; and
- have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements, included within the Annual Report
and Accounts 2023 (the 'Annual Report'), which comprise: the consolidated and
parent company balance sheets as at 31 December 2023; the consolidated and
parent company income statements, the consolidated and parent company
statements of comprehensive income, the consolidated and parent company
statements of changes in equity, the consolidated and parent company
statements of cash flows for the year then ended; and the notes to the
financial statements, comprising material accounting policy information and
other explanatory information. Certain notes to the financial statements have
been presented elsewhere in the Annual Report, rather than in the notes to the
financial statements. These are cross-referenced from the financial statements
and are identified as '(Audited)'. The relevant disclosures are included in
the Risk review section on pages 135 to 237 and the Directors' remuneration
report disclosures on pages 279 to 305.
Our opinion is consistent with our reporting to the Group Audit Committee
('GAC').
Separate opinion in relation to international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European
Union
As explained in note 1.1(a) to the financial statements, the group and parent
company, in addition to applying UK-adopted international accounting
standards, have also applied international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European
Union.
In our opinion, the group and parent company financial statements have been
properly prepared in accordance with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union.
Separate opinion in relation to International Financial Reporting Standards as
issued by the International Accounting Standards Board
As explained in note 1.1(a) to the financial statements, the group and parent
company, in addition to applying UK-adopted international accounting
standards, have also applied international financial reporting standards as
issued by the International Accounting Standards Board ('IFRS Accounting
Standards').
In our opinion, the group and parent company financial statements have been
properly prepared in accordance with IFRS Accounting Standards.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)"), International Standards on Auditing issued by the
International Auditing and Assurance Standards Board ("ISAs") and applicable
law. Our responsibilities under ISAs (UK) and ISAs are further described in
the Auditors' responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the
UK, which includes the FRC's Ethical Standard, as applicable to listed public
interest entities, and the International Code of Ethics for Professional
Accountants (including International Independence Standards) issued by the
International Ethics Standards Board for Accountants ('IESBA Code'), and we
have fulfilled our other ethical responsibilities in accordance with these
requirements.
To the best of our knowledge and belief, we declare that non-audit services
prohibited by either the FRC's Ethical Standard or Article 5(1) of Regulation
(EU) No 537/2014 were not provided to the parent company or its controlled
undertakings.
Other than those disclosed in note 6, we have provided no non-audit services
to the parent company or its controlled undertakings in the period under
audit.
Our audit approach
Overview
Audit scope
- This was the fifth and final year that it has been my responsibility
to form this opinion on behalf of PricewaterhouseCoopers LLP, who you first
appointed on 31 March 2015 in relation to that year's audit. In addition to
forming this opinion, in this report we have also provided information on how
we approached the audit, how it changed from the previous year and details of
the significant discussions that we had with the GAC.
Key audit matters
- Expected credit losses - Impairment of loans and advances (group)
- Impairment of investment in associate - Bank of Communications Co.,
Ltd ('BoCom') (group)
- Investments in subsidiaries (parent company)
- Valuation of defined benefit pension obligations (group)
Materiality
- Overall group materiality: US$1.6bn (2022: US$1bn) based on 5% of
profit before tax adjusted for notable items.
- Overall parent company materiality: US$1.5bn (2022: US$950m) based
on 0.75% of total assets. This would result in an overall materiality of
US$2.1bn and was therefore reduced below the group materiality.
- Performance materiality: US$1.2bn (2022: US$750m) (group) and
US$1.1bn (2022: US$712m) (parent company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the
risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors' professional
judgement, were of most significance in the audit of the financial statements
of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by the
auditors, including those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts
of the engagement team. These matters, and any comments we make on the results
of our procedures thereon, were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Held for sale accounting (group), which was a key audit matter last year, is
no longer included because the risk has reduced following the completion of
the sale of the retail banking operations in France. Otherwise, the key audit
matters below are consistent with last year.
Expected credit losses - Impairment of loans and advances (group)
Determining expected credit losses ('ECL') involves management judgement and
is subject to a high degree of estimation uncertainty.
Management makes various assumptions when estimating ECL. The significant
assumptions that we focused on in our audit included those with greater levels
of management judgement and for which variations had the most significant
impact on ECL. These included assumptions made in determining economic
scenarios and their probability weightings (specifically the central and
downside scenarios given these have the most material impact on ECL) and
estimating discounted cash flows for material credit impaired exposures in
relation to the mainland China commercial real estate portfolio.
The level of estimation uncertainty and judgement has remained high during
2023 as a result of the uncertainties in the macroeconomic and geopolitical
environment, persistently high levels of inflation in some territories and the
rising global interest rate environment, as well as developments in mainland
China's commercial real estate sector and economy more broadly.
Macroeconomic conditions vary between territories and industries, leading to
uncertainty around judgements made in determining the severity and probability
weighting of economic scenarios used in ECL models.
The modelling methodologies used to estimate ECL are developed using
historical experience. The impact of the prevailing macroeconomic conditions
has resulted in certain limitations in the reliability of these methodologies
to forecast the extent and timing of future customer defaults and therefore
estimate ECL. In addition, modelling methodologies do not incorporate all
factors that are relevant to estimating ECL, such as the differentiated impact
of economic conditions on certain industry sectors. These limitations are
addressed with management judgemental adjustments, the measurement of which is
inherently judgemental and subject to estimation uncertainty.
We held discussions with the GAC covering governance and controls over ECL,
with a significant focus on the uncertain prevailing macroeconomic conditions
and developments in mainland China's commercial real estate sector. We
discussed a number of areas, including:
- the severity of economic scenarios, and their related probability
weightings, across territories;
- significant assumptions used to estimate the discounted cash flow
projections for defaulted exposures in relation to the mainland China
commercial real estate portfolio;
- assumptions made in determining judgemental management adjustments; and
- the disclosures made in relation to ECL.
We assessed the design and effectiveness of governance and controls over the
estimation of ECL. We observed management's review and challenge in governance
forums for (1) the determination of economic scenarios and their probability
weightings, and (2) the assessment of ECL for Retail and Wholesale portfolios,
including the assessment of management judgemental adjustments.
We also tested controls over:
- model validation and monitoring;
- the identification of credit impaired triggers;
- the input of critical data into source systems and the flow and
transformation of critical data from source systems to impairment models and
management judgemental adjustments;
- the calculation and approval of management judgemental adjustments to
modelled outcomes; and
- approval of significant individual impairments.
We involved our economic experts in assessing the significant assumptions made
in determining the severity and probability weighting of economic scenarios.
These assessments considered the sensitivity of ECL to variations in the
severity and probability weighting of economic scenarios. We involved our
modelling specialists in assessing the appropriateness of the significant
assumptions and methodologies used for models and certain management
judgemental adjustments. We independently re-performed the calculations for a
sample of those models and certain management judgemental adjustments. In
respect of the mainland China commercial real estate portfolio, we involved
our business recovery experts in assessing the discounted cash flows for a
sample of credit impaired exposures. We further considered whether the
judgements made in selecting the significant assumptions would give rise to
indicators of possible management bias.
In addition, we performed substantive testing over:
- the compliance of ECL methodologies and assumptions with the
requirements of IFRS 9;
- a sample of critical data used in ECL models and to estimate management
judgemental adjustments; and
- assumptions and critical data for a sample of credit impaired wholesale
exposures.
We evaluated and tested the audited Credit Risk disclosures made in the Annual
Report.
- Audited credit risk disclosures
- Group Audit Committee Report
- Note 1.2(d):Financial instruments measured at amortised cost
- Note 1.2(i): Impairment of amortised cost and FVOCI financial assets
Impairment of investment in associate - Bank of Communications Co., Ltd
('BoCom') (group)
At 31 December 2023, the fair value of the investment in BoCom, based on the
share price, had been lower than the carrying amount for a number of years.
This is an indicator of potential impairment. An impairment test was performed
by management, with supporting sensitivity analysis, using a value in use
('VIU') model. On this basis, the investment in BoCom was impaired by
US$3.0bn. The carrying value of the investment in BoCom amounts to US$21.2bn
at 31 December 2023.
The methodology applied in the VIU model is dependent on various assumptions,
both short term and long term in nature. These assumptions, which are subject
to estimation uncertainty, are derived from a combination of management's
judgement, analysts' forecasts, market data or other relevant information.
The assumptions that we focused our audit on were those with greater levels of
management judgement and subjectivity, and for which variations had the most
significant impact on the VIU. Specifically, these significant assumptions
included:
- the discount rate;
- short term assumptions for operating income growth rate, loans and
advances to customers growth rate, cost-income ratio, and expected credit
losses as a percentage of loans and advances to customers;
- long-term assumptions for profit and asset growth rates, expected credit
losses as a percentage of loans and advances to customers, and effective tax
rates; and
- capital related assumptions (risk-weighted assets as a percentage of
total assets and capital adequacy ratios).
We discussed the appropriateness of the methodology, its consistent
application period over period and significant assumptions with the GAC. We
also discussed the disclosures made in relation to BoCom, including the use of
sensitivity analysis to explain estimation uncertainty.
We had oversight of the audit work performed by our component audit team in
Hong Kong in relation to the impairment assessment of BoCom. This work
included:
- testing controls in place over the significant assumptions, the
methodology and its consistent application period over period used to
determine the VIU, assessing the appropriateness of the methodology used, its
application, and the mathematical accuracy of the calculations;
- challenging the appropriateness of the significant assumptions and,
where relevant, their interrelationships;
- obtaining evidence to corroborate and challenge the data supporting
significant assumptions, which included past experience, external market
information, third-party sources including analyst reports, information from
BoCom management and historical publicly available BoCom financial
information;
- determining a reasonable range for the discount rate assumption, with
the assistance of our valuation experts, and comparing it to the discount rate
used by management;
- assessing whether the judgements made in determining the significant
assumptions would give rise to indicators of possible management bias; and
- evaluating and testing the disclosures in relation to BoCom in the
Annual Report.
We observed certain meetings alongside the component auditor, management and
BoCom management to identify facts and circumstances impacting significant
assumptions relevant to the determination of the VIU.
Representations were obtained from management that assumptions used were
consistent with information currently available to the group.
- Group Audit Committee Report
- Note 1.2(a): Interests in associates and joint arrangements
- Note 18: Interests in associates and joint ventures
Investments in subsidiaries (parent company)
Management reviewed investments in subsidiaries for indicators of impairment
and indicators that impairment charges recognised in prior periods may no
longer exist or may have decreased in accordance with IAS 36 as at 31 December
2023. Where indicators have been identified management estimated the
recoverable amount using the higher of value in use ('VIU') or fair value less
cost to sell.
The methodology used to estimate the recoverable amount is dependent on
various assumptions, both short term and long term in nature. These
assumptions, which are subject to estimation uncertainty, are derived from a
combination of management's judgement, experts engaged by management and
market data. The significant assumptions that we focused our audit on were
those with greater levels of management judgement and for which variations had
the most significant impact on the recoverable amount. Specifically, these
included:
- HSBC's business plan for 2024 to 2028 focusing on revenue, cost and
expected credit loss forecasts;
- regulatory capital requirements;
- long term growth rates; and
- discount rates.
Management's assessment resulted in an impairment charge of US$5.5bn in
relation to the investment in HSBC Overseas Holdings (UK) Limited ('HOHU'),
which is an intermediate holding company of certain businesses in North
America. This resulted in investment in subsidiaries of US$159bn at 31
December 2023.
We discussed the impairment charge for HOHU, the appropriateness of
methodologies used and significant assumptions with the GAC, giving
consideration to the macroeconomic outlook and HSBC's strategy.
We assessed the design and tested the effectiveness of controls in place over
significant assumptions and the model used to determine the recoverable
amounts. We assessed the appropriateness of the methodology used, and tested
the mathematical accuracy of the calculations, to estimate the recoverable
amounts.
In respect of the significant assumptions, our testing included the following:
- challenging management's business plan and the prospects for HSBC's
businesses, as well as considering the achievement of historic forecasts;
- obtaining and evaluating evidence relating to significant assumptions,
from a combination of historical experience and external market and other
financial information;
- assessing whether the cash flows included in the model were in
compliance with the relevant accounting standard;
- assessing the sensitivity of the recoverable amount to reasonable
variations in significant assumptions, both individually and in aggregate; and
- determining a reasonable range for the discount rate used within the
model, with the assistance of our valuation experts, and comparing it to the
discount rate used by management.
We evaluated and tested the disclosures made in the Annual Report in relation
to investment in subsidiaries.
- Group Audit Committee Report
- Note 1.2(a): Investments in subsidiaries
- Note 19: Investments in subsidiaries
Valuation of defined benefit pensions obligations (group)
The group has a defined benefit obligation of US$27.0bn, of which US$19.8bn
relates to HSBC Bank (UK) pension scheme ('the principal plan').
The valuation of the defined benefit obligation for the principal plan is
dependent on a number of actuarial assumptions. Management uses an actuarial
expert to determine the valuation of the defined benefit obligations. The
valuation methodology uses a number of market based inputs and other financial
and demographic assumptions. The significant assumptions that we focused our
audit on were those with greater levels of management judgement and for which
variations had the most significant impact on the liability. Specifically,
these included the discount rate, inflation rate and mortality rate.
We discussed with the GAC the methodologies and significant assumptions used
by management to determine the value of the defined benefit obligation.
We assessed the design and tested the effectiveness of governance and controls
in place over the methodologies and the significant assumptions, including
those in relation to the use of management's experts. We also evaluated the
objectivity and competence of management's expert involved in the valuation of
the defined benefit obligation of the principal plan.
We assessed the appropriateness of the methodology used, and tested the
accuracy of the calculation, to estimate the liability. In respect of the
significant assumptions, we used our actuarial experts to understand the
judgements made by management and their actuarial expert in determining the
significant assumptions and compared these assumptions to our independently
compiled expected ranges based on market observable indices and the knowledge
and opinions of our actuarial experts.
We evaluated and tested the disclosures made in the Annual Report in relation
to the defined benefit pension obligation.
- Group Audit Committee Report
- Note 1.2(k): Post-employment benefit plans
- Note 5: Employee compensation and benefits
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to
be able to give an opinion on the financial statements as a whole, taking into
account the structure of the group and the parent company, the accounting
processes and controls, and the industry in which they operate.
The risks that HSBC faces are diverse, with the interdependencies between them
being numerous and complex. In performing our risk assessment we engaged with
a number of stakeholders to ensure we appropriately understood and considered
these risks and their interrelationships. This included stakeholders within
HSBC and our own experts within PwC. This engagement covered external factors
across the geopolitical, macroeconomic and regulatory and accounting
landscape, the impact of climate change risk as well as the internal
environment at HSBC, driven by strategy and transformation.
We evaluated and challenged management's assessment of the impact of climate
change risk, which is set out on page 44, including their conclusion that
there is no material impact on the financial statements. In making this
evaluation we considered management's use of stress testing and scenario
analysis to arrive at the conclusion that there is no material impact on the
financial statements. We considered management's assessment on the areas in
the financial statements most likely to be impacted by climate risk,
including:
- the impact on ECL on loans and advances to customers, for both
physical and transition risk;
- the forecast cashflows from management's five year business plan and
long term growth rates used in estimating recoverable amounts as part of
impairment assessments of investments in subsidiaries, goodwill and intangible
assets;
- the impact of climate related terms on the solely payments of
principal and interest test for classification and measurement of loans and
advances to customers; and
- climate risks relating to contingent liabilities as HSBC faces
increased reputational, legal and regulatory risk as it progresses towards its
climate ambition.
HSBC's progress on their ESG targets is not included within the scope of this
audit. We were engaged separately to provide independent limited assurance to
the Directors over the following ESG data:
- the 2021 and 2022 on-balance sheet financed emissions for 6 sectors
(page 61);
- the 2020 thermal coal financing drawn balance exposure (page 67) and
the 2020 thermal coal mining on-balance sheet financed emissions (page 61);
- the 2019, 2020, 2021 and 2022 off balance facilitated emissions for
2 sectors (page 61);
- the cumulative progress made by HSBC on providing and facilitating
sustainable financing and investments (page 49); and
- HSBC's own operations scope 1, 2 and 3 (limited to business travel)
greenhouse gas emissions data for 2023 (page 64); and supply chain greenhouse
gas emissions for purchased goods and services, and capital goods for 2023
(page 64).
The work performed for a limited assurance report is substantially less than
the work performed for our financial audit, which provides reasonable
assurance.
Scoping
Through our risk assessment, we tailored our determination as to which
entities and balances we needed to perform testing over to support our group
opinion, taking into consideration the complex and disaggregated group
structure, the accounting processes and controls as well as the industry in
which they operate. The risks of material misstatement can be reduced to an
acceptable level by testing the most financially significant entities within
the group and those that drive particular significant risks identified as part
of our risk assessment. This ensures that sufficient coverage has been
obtained for each financial statement line item ('FSLI'). We continually
assessed risks and changed the scope of our audit where necessary.
Our risk assessment and scoping identified certain entities (collectively the
'Significant Subsidiaries') for which we obtained audit opinions. We obtained
full scope audit opinions for the consolidated financial position and
performance of The Hongkong and Shanghai Banking Corporation Limited, HSBC
Bank plc, and HSBC North America Holdings Inc. We also obtained full scope
audit opinions for the company financial position and performance of HSBC UK
Bank plc, HSBC Bank Canada and HSBC Mexico S.A. Banco. We obtained audit
opinions over specific balances for HSBC Bank Middle East Limited - UAE
Operations and the HSBC UK Bank plc group. The audits for HSBC Bank plc and
HSBC UK Bank plc were performed by other PwC teams in the UK. All other audits
were performed by other PwC network firms.
Group-wide audit approach
HSBC has entity level controls that have a pervasive influence across the
group, as well as other global and regional governance and controls over
aspects of financial reporting, such as those operated by the Global Risk
function for expected credit losses. A significant amount of IT and
operational processes and controls relevant to financial reporting are
undertaken in operations centres run by Digital Business Services ('DBS').
Whilst these operations centres are not separate components, the IT and
operational processes and controls are relevant to the financial information
of the Significant Subsidiaries. Financial reporting processes and controls
are also performed centrally in HSBC's Group Finance function and finance
operation centres ('Finance Operations'), including the impairment assessment
of goodwill and intangible assets, held for sale classifications and the
consolidation of the group's results, the preparation of financial statements,
and management's oversight controls relevant to the group's financial
reporting.
Group-wide processes or processes in DBS and Finance Operations are subject to
specified audit procedures or an audit over specific FSLIs. These procedures
primarily relate to testing of IT general controls, IT dependencies, forward
looking economic scenarios for ECL, operating expenses, intangible assets,
valuation of financial instruments, existence testing of financial
instruments, intercompany eliminations, reconciliations and consolidation as
well as payroll. For these areas, we either performed audit work ourselves, or
directed and provided oversight of the audit work performed by PwC teams in
the UK, Poland, China, Sri Lanka, Malaysia, India, Mexico and the Philippines.
Some of this work was relied upon by the PwC teams auditing the Significant
Subsidiaries. This audit work, together with analytical review procedures and
assessing the outcome of local external audits, also mitigated the risk of
material misstatement for balances in entities that were not part of a
Significant Subsidiary.
Significant Subsidiaries audit approach
In March 2023, we held a meeting in Hong Kong with the partners and senior
staff from the group audit team and certain PwC teams who undertake audits of
the Significant Subsidiaries and the operations centres. The meeting focused
primarily on our approach to auditing HSBC's businesses, changes at HSBC and
in our PwC teams, and how we continue to innovate and improve the quality of
the audit with a focus on technology and our global delivery model. We also
discussed our significant audit risks.
We asked the partners and teams reporting to us on the Significant
Subsidiaries to work to assigned materiality levels reflecting the size of the
operations they audited. The overall materiality levels ranged from US$107m to
US$1.0bn. Certain Significant Subsidiaries were audited to a local statutory
audit materiality that was a lower level than our allocated group materiality.
We designed global audit approaches for the products and services that
substantially make up HSBC's global businesses, such as lending, deposits and
derivatives. These approaches were provided to the partners and teams
performing audit testing for the Significant Subsidiaries.
We were in active dialogue throughout the year with the component auditors of
the Significant Subsidiaries, including consideration of how they planned and
performed their work. Senior members of our team undertook at least one
in-person site visit where a full scope audit was requested and we had
oversight over certain areas of audit work performed. We attended Audit
Committee meetings for some of the Significant Subsidiaries. We also attended
meetings with management for each of these Significant Subsidiaries at the
year end.
The audit of The Hongkong and Shanghai Banking Corporation Limited in Hong
Kong relied upon work performed by other teams in Hong Kong and the PwC
network firms in India, mainland China and Singapore. Similarly, the audit of
HSBC Bank plc in the UK relied upon work performed by other teams in the UK
and the PwC network firms in France and Germany. We considered how the audit
partners and teams for the Significant Subsidiaries instructed and provided
oversight to the work performed in these locations. Collectively, Significant
Subsidiaries covered 83% of total assets and 74% of total operating income.
Using the work of others
We have continued our use of evidence provided by others through our reliance
on management assurance testing of certain controls across the group. This
included testing of controls performed by management themselves in certain low
risk areas including reconciliations and footnote disclosure controls. We
re-performed a portion of the testing to ensure appropriate quality of
testing, as well as assessing the competence and objectivity of those
performing the testing.
We also used the work of PwC experts, for example economic experts for our
work around the severity and probability weighting of macroeconomics variables
as part of the expected credit loss allowance and actuaries on the estimates
used in determining pension liabilities. An increasing number of controls are
operated on behalf of HSBC by third parties. We obtained audit evidence from
work that is scoped and provided by other auditors that are engaged by those
third parties. For example, we obtained a report evidencing the testing of
external systems and controls supporting HSBC's payroll and HR processes.
Materiality
The scope of our audit was influenced by our application of materiality. We
set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements
as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Overall materiality US$1.6bn (2022: US$1bn). US$1.5bn (2022: US$950m).
How we determined it 5% of profit before tax adjusted for notable items (2022: adjusted profit 0.75% of total assets. This would result in an overall materiality of US$2.1bn
before tax). and was therefore reduced below the group materiality.
Rationale for benchmark applied We believe a standard benchmark of 5% of profit before tax adjusted for A benchmark of total assets has been used, as the parent company's primary
notable items is an appropriate quantitative indicator of materiality, purpose is to act as a holding parent company with investments in the group's
although certain items could also be material for qualitative reasons. This subsidiaries, not to generate operating profits and therefore a profit based
benchmark is consistent with our approach for listed entities. measure is not relevant.
We use performance materiality to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements
exceeds overall materiality. Specifically, we use performance materiality in
determining the scope of our audit and the nature and extent of our testing of
account balances, classes of transactions and disclosures, for example in
determining sample sizes. Our performance materiality was 75% (2022: 75%) of
overall materiality, amounting to US$1.2bn (2022: US$750m) for the group
financial statements and US$1.1bn (2022: US$712m) for the parent company
financial statements.
In determining the performance materiality, we considered a number of factors
- the history of misstatements, risk assessment and aggregation risk and the
effectiveness of controls - and concluded that an amount at the upper end of
our normal range was appropriate.
We agreed with the GAC that we would report to them misstatements identified
during our audit above US$80m (group audit) (2022: US$50m) and US$80m (parent
company audit) (2022: US$50m) as well as misstatements below those amounts
that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors' assessment of the group's and the parent
company's ability to continue to adopt the going concern basis of accounting
included:
- performing a risk assessment to identify factors that could impact
the going concern basis of accounting, including both internal risks (i.e.
strategy execution) and external risks (i.e. macroeconomic conditions);
- understanding and evaluating the group's financial forecasts;
- understanding and evaluating the group's stress testing of liquidity
and regulatory capital, including the severity of the stress scenarios that
were used;
- understanding and evaluating credit rating agency ratings and
actions; and
- reading and evaluating the adequacy of the disclosures made in the
financial statements in relation to going concern.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the group's and the parent
company's ability to continue as a going concern for a period of at least
twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
However, because not all future events or conditions can be predicted, this
conclusion is not a guarantee as to the group's and the parent company's
ability to continue as a going concern.
In relation to the directors' reporting on how they have applied the UK
Corporate Governance Code, we have nothing material to add or draw attention
to in relation to the directors' statement in the financial statements about
whether the directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report
other than the financial statements and our auditors' report thereon. The
directors are responsible for the other information. Our opinion on the
financial statements does not cover the other information and, accordingly, we
do not express an audit opinion or, except to the extent otherwise explicitly
stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there
is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report
based on these responsibilities.
With respect to the Strategic report and Report of the Directors, we also
considered whether the disclosures required by the UK Companies Act 2006 have
been included.
Based on our work undertaken in the course of the audit, the Companies Act
2006 requires us also to report certain opinions and matters as described
below.
Strategic report and Report of the Directors
In our opinion, based on the work undertaken in the course of the audit, the
information given in the Strategic report and Report of the Directors for the
year ended 31 December 2023 is consistent with the financial statements and
has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and parent company
and their environment obtained in the course of the audit, we did not identify
any material misstatements in the Strategic report and Report of the
Directors.
Directors' Remuneration
In our opinion, the part of the Directors' Remuneration Report to be audited
has been properly prepared in accordance with the Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors' statements in relation
to going concern, longer-term viability and that part of the corporate
governance statement relating to the parent company's compliance with the
provisions of the UK Corporate Governance Code specified for our review. Our
additional responsibilities with respect to the corporate governance statement
as other information are described in the Reporting on other information
section of this report.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the corporate governance statement is materially
consistent with the financial statements and our knowledge obtained during the
audit, and we have nothing material to add or draw attention to in relation
to:
- The directors' confirmation that they have carried out an
appropriate assessment of the emerging and principal risks;
- The disclosures in the Annual Report that describe those principal
risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated;
- The directors' statement in the financial statements about whether
they considered it appropriate to adopt the going concern basis of accounting
in preparing them, and their identification of any material uncertainties to
the group's and parent company's ability to continue to do so over a period of
at least twelve months from the date of approval of the financial statements;
- The directors' explanation as to their assessment of the group's and
parent company's prospects, the period this assessment covers and why the
period is appropriate; and
- The directors' statement as to whether they have a reasonable
expectation that the parent company will be able to continue in operation and
meet its liabilities as they fall due over the period of its assessment,
including any related disclosures drawing attention to any necessary
qualifications or assumptions.
Our review of the directors' statement regarding the longer-term viability of
the group and parent company was substantially less in scope than an audit and
only consisted of making inquiries and considering the directors' process
supporting their statement; checking that the statement is in alignment with
the relevant provisions of the UK Corporate Governance Code; and considering
whether the statement is consistent with the financial statements and our
knowledge and understanding of the group and parent company and their
environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate governance
statement is materially consistent with the financial statements and our
knowledge obtained during the audit:
- The directors' statement that they consider the Annual Report, taken
as a whole, is fair, balanced and understandable, and provides the information
necessary for the members to assess the group's and parent company's position,
performance, business model and strategy;
- The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems; and
- The section of the Annual Report describing the work of the GAC.
We have nothing to report in respect of our responsibility to report when the
directors' statement relating to the parent company's compliance with the Code
does not properly disclose a departure from a relevant provision of the Code
specified under the Listing Rules for review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors' responsibility statement, the
directors are responsible for the preparation of the financial statements in
accordance with the applicable framework and for being satisfied that they
give a true and fair view. The directors are also responsible for such
internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the group's and the parent company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditors' responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditors' report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) and ISAs will always detect a
material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the
principal risks of non-compliance with laws and regulations related to
breaches of financial crime laws and regulations and regulatory compliance,
including regulatory reporting requirements and conduct of business, and we
considered the extent to which non-compliance might have a material effect on
the financial statements. We also considered those laws and regulations that
have a direct impact on the financial statements such as the Companies Act
2006 and relevant tax legislation. We evaluated management's incentives and
opportunities for fraudulent manipulation of the financial statements
(including the risk of override of controls), and determined that the
principal risks were related to posting inappropriate journal entries in
relation to cost targets, and management bias in accounting estimates. The
group engagement team shared this risk assessment with the component auditors
so that they could include appropriate audit procedures in response to such
risks in their work. Audit procedures performed by the group engagement team
and/or component auditors included:
- review of correspondence with and reports from regulators, including
the Prudential Regulation Authority ('PRA') and Financial Conduct Authority
('FCA');
- reviewed reporting to the GAC and GRC in respect of compliance and
legal matters;
- enquiries of management and review of internal audit reports,
insofar as they related to the financial statements;
- obtain legal confirmations from legal advisors relating to material
litigation and compliance matters;
- assessment of matters reported on the group's whistleblowing
programmes and the results of management's investigation of such matters,
insofar as they related to the financial statements;
- challenging assumptions and judgements made by management in its
significant accounting estimates, in particular in relation to the
determination of expected credit losses, the impairment assessment of the
investment in BoCom, valuation of defined benefit pensions obligations, the
impairment assessment of investment in subsidiaries and valuation of financial
instruments;
- obtaining confirmations from third parties to confirm the existence
of a sample of transactions and balances; and
- identifying and testing journal entries, including those posted with
certain descriptions, posted and approved by the same individual, backdated
journals or posted by infrequent and unexpected users.
There are inherent limitations in the audit procedures described above. We are
less likely to become aware of instances of non-compliance with laws and
regulations that are not closely related to events and transactions reflected
in the financial statements. Also, the risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain
transactions and balances, possibly using data auditing techniques. However,
it typically involves selecting a limited number of items for testing, rather
than testing complete populations. We will often seek to target particular
items for testing based on their size or risk characteristics. In other cases,
we will use audit sampling to enable us to draw a conclusion about the
population from which the sample is selected.
A further description of our responsibilities for the audit of the financial
statements in accordance with ISAs (UK) is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditors' report.
As part of an audit in accordance with ISAs, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
- identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal
control;
- obtain an understanding of internal controls relevant to the audit
in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
group's and parent company's internal controls;
- evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
management;
- conclude on the appropriateness of management's use of the going
concern basis of accounting and, based on the audit evidence obtained, whether
a material uncertainty exists related to events or conditions that may cast
significant doubt on the group's and parent company's ability to continue as a
going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor's report to the related disclosures
in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor's report. However, future
events or conditions may cause the group to cease to continue as a going
concern;
- evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and whether the
consolidated financial statements represent the underlying transactions and
events in a manner that achieves fair presentation; and
- obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the group and parent
company to express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the group and
parent company audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, actions taken to
eliminate threats or safeguards applied.
From the matters communicated with those charged with governance, we determine
those matters that were of most significance in the audit of the consolidated
financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be communicated in
our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Use of this report
This report, including the opinions, has been prepared for and only for the
parent company's members as a body in accordance with Chapter 3 of Part 16 of
the Companies Act 2006 and for no other purpose. We do not, in giving these
opinions, accept or assume responsibility for any other purpose or to any
other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our
opinion:
- we have not obtained all the information and explanations we require
for our audit; or
- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received from
branches not visited by us; or
- certain disclosures of directors' remuneration specified by law are
not made; or
- the parent company financial statements and the part of the
Directors' Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the GAC, we were appointed by the members on
31 March 2015 to audit the financial statements for the year ended 31 December
2015 and subsequent financial periods. The period of total uninterrupted
engagement is nine years, covering the years ended 31 December 2015 to 31
December 2023.
Other matter
As required by the Financial Conduct Authority Disclosure Guidance and
Transparency Rule 4.1.14R, these financial statements form part of the
ESEF-prepared annual financial report filed on the National Storage Mechanism
of the Financial Conduct Authority in accordance with the ESEF Regulatory
Technical Standard ('ESEF RTS'). This auditors' report provides no assurance
over whether the annual financial report has been prepared using the single
electronic format specified in the ESEF RTS.
Scott Berryman (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
21 February 2024
Financial statements
329 Consolidated income statement
330 Consolidated statement of comprehensive income
331 Consolidated balance sheet
332 Consolidated statement of changes in equity
335 Consolidated statement of cash flows
337 HSBC Holdings income statement
337 HSBC Holdings statement of comprehensive income
338 HSBC Holdings balance sheet
339 HSBC Holdings statement of changes in equity
340 HSBC Holdings statement of cash flows
Consolidated income statement
for the year ended 31 December 2023
2023 2022(1) 2021
Notes* $m $m $m
Net interest income 35,796 30,377 26,489
- interest income(2,3) 100,868 52,826 36,188
- interest expense(4) (65,072) (22,449) (9,699)
Net fee income 2 11,845 11,770 13,097
- fee income 15,616 15,124 16,788
- fee expense (3,771) (3,354) (3,691)
Net income from financial instruments held for trading or managed on a fair 3 16,661 10,278 7,744
value basis
Net income/(expense) from assets and liabilities of insurance businesses, 3 7,887 (13,831) 4,053
including related derivatives, measured at fair value through profit or loss
Net insurance premium income - - 10,870
Insurance finance (expense)/income 4 (7,809) 13,799 -
Insurance service result 1,078 809 -
- insurance revenue 2,259 1,977 -
- insurance service expense (1,181) (1,168) -
Gain on acquisition(5) 1,591 - -
(Impairment)/reversal of impairment relating to the sale of our retail banking 150 (2,316) -
operations in France(6)
Other operating (expense)/income(7) (1,141) (266) 1,687
Total operating income 66,058 50,620 63,940
Net insurance claims and benefits paid and movement in liabilities to - - (14,388)
policyholders
Net operating income before change in expected credit losses and other credit 66,058 50,620 49,552
impairment charges(8)
Change in expected credit losses and other credit impairment charges (3,447) (3,584) 928
Net operating income 62,611 47,036 50,480
Employee compensation and benefits 5 (18,220) (18,003) (18,742)
General and administrative expenses (10,383) (10,848) (11,592)
Depreciation and impairment of property, plant and equipment and right-of-use (1,640) (2,149) (2,261)
assets(9)
Amortisation and impairment of intangible assets (1,827) (1,701) (1,438)
Goodwill impairment - - (587)
Total operating expenses (32,070) (32,701) (34,620)
Operating profit 30,541 14,335 15,860
Share of profit in associates and joint ventures 18 2,807 2,723 3,046
Impairment of interest in associate 18 (3,000) - -
Profit before tax 30,348 17,058 18,906
Tax expense 7 (5,789) (809) (4,213)
Profit for the year 24,559 16,249 14,693
Attributable to:
- ordinary shareholders of the parent company 22,432 14,346 12,607
- preference shareholders of the parent company - - 7
- other equity holders 1,101 1,213 1,303
- non-controlling interests 1,026 690 776
Profit for the year 24,559 16,249 14,693
$ $ $
Basic earnings per ordinary share 9 1.15 0.72 0.62
Diluted earnings per ordinary share 9 1.14 0.72 0.62
* For Notes on the financial statements, see page 341.
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for
the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 Interest income includes $88,657m (2022: $45,994m; 2021: $30,916m)
of interest recognised on financial assets measured at amortised cost and
$12,134m (2022: $6,293m; 2021: $4,337m) of interest recognised on financial
assets measured at fair value through other comprehensive income.
3 Interest income is calculated using the effective interest method
and comprises mainly interest recognised on financial assets measured at
either amortised cost or fair value through other comprehensive income.
4 Interest expense includes $62,095m (2022: $20,798m; 2021: $8,227m)
of interest on financial instruments, excluding interest on debt instruments
issued by HSBC for funding purposes that are designated under the fair value
option to reduce an accounting mismatch and on derivatives managed in
conjunction with those debt instruments included in interest expense.
5 Provisional gain recognised in respect of the acquisition of SVB UK.
6 In the fourth quarter of 2023, an impairment loss of $2.0bn was
recognised relating to the sale of our retail banking operations in France.
This largely offset the $2.1bn recognised in the first quarter of 2023 on the
reversal of the held for sale classification at that time. In 2023, a total
net $0.1bn of credit was recognised in other operating income, reflecting the
net asset value disposed under the final terms of sale. The $0.4bn impairment
of goodwill recognised in the third quarter in 2022 has not been reversed.
7 Other operating (expense)/income includes a loss on net monetary
positions of $1,667m (2022: $678m; 2021: $576m) as a result of applying IAS 29
'Financial Reporting in Hyperinflationary Economies' and the disposal losses
on capitalised Markets Treasury repositioning of $977m in 2023.
8 Net operating income before change in expected credit losses and
other credit impairment charges also referred to as revenue.
9 Includes depreciation of the right-of-use assets of $663m (2022: $717m;
2021: $878m).
Consolidated statement of comprehensive income
for the year ended 31 December 2023
2023 2022(1) 2021
$m $m $m
Profit for the year 24,559 16,249 14,693
Other comprehensive income/(expense)
Items that will be reclassified subsequently to profit or loss when specific
conditions are met:
Debt instruments at fair value through other comprehensive income 2,599 (7,232) (2,139)
- fair value gains/(losses) 2,381 (9,618) (2,270)
- fair value losses/(gains) transferred to the income statement on disposal 905 (18) (464)
- expected credit (recoveries)/losses recognised in the income statement 59 56 (49)
- income taxes (746) 2,348 644
Cash flow hedges 2,953 (3,655) (664)
- fair value gains/(losses) 2,534 (4,207) 595
- fair value (gains)/losses reclassified to the income statement 1,463 (758) (1,514)
- income taxes (1,044) 1,310 255
Share of other comprehensive income/(expense) of associates and joint ventures 47 (367) 103
- share for the year 47 (367) 103
Net finance income/(expenses) from insurance contracts (364) 1,775 -
- before income taxes (491) 2,393 -
- income taxes 127 (618) -
Exchange differences (204) (9,918) (2,393)
Items that will not be reclassified subsequently to profit or loss:
Fair value gains on property revaluation 1 280 -
Remeasurement of defined benefit liability (314) (1,031) (274)
- before income taxes (413) (1,723) (107)
- income taxes 99 692 (167)
Changes in fair value of financial liabilities designated at fair value upon (1,219) 1,922 531
initial recognition arising from changes in own credit risk
- before income taxes (1,617) 2,573 512
- income taxes 398 (651) 19
Equity instruments designated at fair value through other comprehensive income (120) 107 (446)
- fair value gains/(losses) (120) 107 (443)
- income taxes - - (3)
Effects of hyperinflation 1,604 877 315
Other comprehensive income/(expense) for the year, net of tax 4,983 (17,242) (4,967)
Total comprehensive income/(expense) for the year 29,542 (993) 9,726
Attributable to:
- ordinary shareholders of the parent company 27,397 (2,810) 7,765
- preference shareholders of the parent company - - 7
- other equity holders 1,101 1,213 1,303
- non-controlling interests 1,044 604 651
Total comprehensive income/(expense) for the year 29,542 (993) 9,726
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for
the year ended 31 December 2021 are prepared on an IFRS 4 basis.
Consolidated balance sheet
at 31 December 2023
At(1)
31 Dec 31 Dec 1 Jan
2023 2022 2022
Notes* $m $m $m
Assets
Cash and balances at central banks 285,868 327,002 403,018
Items in the course of collection from other banks 6,342 7,297 4,136
Hong Kong Government certificates of indebtedness 42,024 43,787 42,578
Trading assets 11 289,159 218,093 248,842
Financial assets designated and otherwise mandatorily measured at fair value 14 110,643 100,101 110,795
through profit or loss
Derivatives 15 229,714 284,159 196,882
Loans and advances to banks 112,902 104,475 82,567
Loans and advances to customers 938,535 923,561 1,044,534
Reverse repurchase agreements - non-trading 252,217 253,754 241,648
Financial investments 16 442,763 364,726 392,005
Assets held for sale 23 114,134 115,919 3,411
Prepayments, accrued income and other assets 22 165,255 156,149 136,196
Current tax assets 1,536 1,230 970
Interests in associates and joint ventures 18 27,344 29,254 29,609
Goodwill and intangible assets 21 12,487 11,419 11,169
Deferred tax assets 7 7,754 8,360 5,432
Total assets 3,038,677 2,949,286 2,953,792
Liabilities
Hong Kong currency notes in circulation 42,024 43,787 42,578
Deposits by banks 73,163 66,722 101,152
Customer accounts 1,611,647 1,570,303 1,710,574
Repurchase agreements - non-trading 172,100 127,747 126,670
Items in the course of transmission to other banks 7,295 7,864 5,214
Trading liabilities 24 73,150 72,353 84,904
Financial liabilities designated at fair value 25 141,426 127,321 145,503
Derivatives 15 234,772 285,762 191,064
Debt securities in issue 26 93,917 78,149 78,557
Liabilities of disposal groups held for sale 23 108,406 114,597 9,005
Accruals, deferred income and other liabilities 27 136,606 134,313 115,900
Current tax liabilities 2,777 1,135 699
Insurance contract liabilities 4 120,851 108,816 119,307
Provisions 28 1,741 1,958 2,566
Deferred tax liabilities 7 1,238 972 3,294
Subordinated liabilities 29 24,954 22,290 20,487
Total liabilities 2,846,067 2,764,089 2,757,474
Equity
Called up share capital 33 9,631 10,147 10,316
Share premium account 33 14,738 14,664 14,602
Other equity instruments 17,719 19,746 22,414
Other reserves (8,907) (9,133) 6,447
Retained earnings 152,148 142,409 135,236
Total shareholders' equity 185,329 177,833 189,015
Non-controlling interests 19 7,281 7,364 7,303
Total equity 192,610 185,197 196,318
Total liabilities and equity 3,038,677 2,949,286 2,953,792
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. We have restated 2022 comparative data
and the IFRS 17 transition impact on the balance sheet at 1 January 2022.
* For Notes on the financial statements, see page 341.
The accompanying notes on pages 341 to 434 and the audited sections in the
Risk review on pages 135 to 237 (including 'Measurement uncertainty and
sensitivity analysis of ECL estimates' on pages 156 to 168, and 'Directors'
remuneration report' on pages 279 to 305 form an integral part of these
financial statements.
These financial statements were approved by the Board of Directors on 21
February 2024 and signed on its behalf by:
Mark E Tucker Georges Elhedery
Group Chairman Group Chief Financial Officer
Consolidated statement of changes in equity (continued)
for the year ended 31 December 2023
Other reserves
Called up Other Financial Cash Foreign Merger Insurance Retained earnings Total Non- Total
share capital equity assets at flow exchange and other finance (1,4) share- controlling equity
and share instru-ments FVOCI hedging reserve reserves(1,2) reserve(3) holders' interests
premium reserve reserve equity
$m $m $m $m $m $m $m $m $m $m $m
At 1 Jan 2023 24,811 19,746 (7,038) (3,808) (32,575) 33,209 1,079 142,409 177,833 7,364
185,197
Profit for the year - - - - - - - 23,533 23,533 1,026 24,559
Other comprehensive income (net of tax) - - 2,402 3,030 (211) 1 (371) 114 4,965 18 4,983
- debt instruments at fair value through other comprehensive - - 2,574 - - - - - 2,574 25 2,599
income
- equity instruments designated at fair value through other - - (93) - - - - - (93) (27) (120)
comprehensive
income
- cash flow hedges - - - 2,919 - - - - 2,919 34 2,953
- changes in fair value of financial liabilities designated at - - - - - - - (1,220) (1,220) 1 (1,219)
fair value
upon initial recognition arising from changes in own credit risk
- property revaluation - - - - - 1 - - 1 - 1
- remeasurement of defined benefit asset/liability - - - - - - - (317) (317) 3 (314)
- share of other comprehensive income of associates and joint - - - - - - - 47 47 - 47
ventures
- effects of hyperinflation - - - - - - - 1,604 1,604 - 1,604
- insurance finance income/(expense) recognised in other - - - - - - (364) - (364) - (364)
comprehensive
income
- exchange differences - - (79) 111 (211) - (7) - (186) (18) (204)
Total comprehensive income for the year - - 2,402 3,030 (211) 1 (371) 23,647 28,498 1,044 29,542
Shares issued under employee remuneration and share plans 79 - - - - - - (79) - - -
Capital securities issued(5) - 1,996 - - - - - - 1,996 - 1,996
Dividends to shareholders - - - - - - - (11,593) (11,593) (603) (12,196)
Redemption of securities(6) - (4,023) - - - - - 20 (4,003) - (4,003)
Transfers(7) - - - - - (5,130) - 5,130 - - -
Cost of share-based payment arrangements - - - - - - - 482 482 - 482
Share buy-back(8) - - - - - - - (7,025) (7,025) - (7,025)
Cancellation of shares (521) - - - - 521 - - - - -
Other movements - - 1,129 (255) (967) - 77 (843) (859) (524) (1,383)
At 31 Dec 2023 24,369 17,719 (3,507) (1,033) (33,753) 28,601 785 152,148 185,329 7,281
192,610
for the year ended 31 December 2022
Other reserves
Called up share capital and share premium Other Financial assets at FVOCI reserve Cash flow Foreign Merger Insurance Retained Total Non- Total
earnings
equity hedging exchange and other reserves(1,2) finance
share- controlling equity
(1,4)
instru-ments reserve reserve reserve(3) holders' interests
equity
$m $m $m $m $m $m $m $m $m $m $m
At 31 Dec 2021 (IFRS 4) 24,918 22,414 (634) (197) (22,769) 30,060 - 144,458 198,250 8,527
206,777
Impact on transition to IFRS 17(9) - - 683 - - - (696) (9,222) (9,235) (1,224) (10,459)
At 1 Jan 2022 24,918 22,414 49 (197) (22,769) 30,060 (696) 135,236 189,015 7,303
196,318
Profit for the year - - - - - - - 15,559 15,559 690 16,249
Other comprehensive income (net of tax) - - (7,089) (3,613) (9,806) 174 1,775 1,403 (17,156) (86) (17,242)
- debt instruments at fair value through other comprehensive - - (7,181) - - - - - (7,181) (51) (7,232)
income
- equity instruments designated at fair value through other - - 92 - - - - - 92 15 107
comprehensive
income
- cash flow hedges - - - (3,613) - - - - (3,613) (42) (3,655)
- changes in fair value of financial liabilities designated at - - - - - - - 1,922 1,922 - 1,922
fair value
upon initial recognition arising from changes in own credit risk
- property revaluation - - - - - 174 - - 174 106 280
- remeasurement of defined benefit asset/liability - - - - - - - (1,029) (1,029) (1,031)
(2)
- share of other comprehensive income of associates and joint - - - - - - (367) (367) - (367)
ventures
- effects of hyperinflation - - - - - - - 877 877 - 877
- insurance finance income/(expense) recognised in other - - - - - - 1,775 - 1,775 - 1,775
comprehensive
income
- exchange differences - - - - (9,806) - - - (9,806) (112) (9,918)
Total comprehensive income for the year - - (7,089) (3,613) (9,806) 174 1,775 16,962 (1,597) 604 (993)
Shares issued under employee remuneration and share plans 67 - - - - - - (67) - - -
Dividends to shareholders - - - - - - - (6,544) (6,544) (426) (6,970)
Redemption of securities - (2,668) - - - - - 402 (2,266) - (2,266)
Transfers - - - - - 2,499 - (2,499) - - -
Cost of share-based payment arrangements - - - - - - - 400 400 - 400
Share buy-back - - - - - - - (1,000) (1,000) - (1,000)
Cancellation of shares (174) - - - - 174 - - - - -
Other movements - - 2 2 - 302 - (481) (175) (117) (292)
At 31 Dec 2022 24,811 19,746 (7,038) (3,808) (32,575) 33,209 1,079 142,409 177,833 7,364
185,197
for the year ended 31 December 2021
Other reserves
Called up Other Financial Cash Foreign Merger Insurance Retained Total Non- Total
share equity assets at flow exchange and other finance earnings share- controlling equity
capital and instru-ments FVOCI hedging reserve reserves(1,2) reserve(3) (1,4) holders' interests
share reserve reserve equity
premium
$m $m $m $m $m $m $m $m $m $m $m
At 1 Jan 2021 24,624 22,414 1,816 457 (20,375) 26,935 - 140,572 196,443 8,552
204,995
Profit for the year - - - - - - - 13,917 13,917 776 14,693
Other comprehensive income (net of tax) - - (2,455) (654) (2,394) - - 661 (4,842) (125) (4,967)
- debt instruments at fair value through other comprehensive - - (2,105) - - - - - (2,105) (34) (2,139)
income
- equity instruments designated at fair value through other - - (350) - - - - - (350) (96) (446)
comprehensive
income
- cash flow hedges - - - (654) - - - - (654) (10) (664)
- changes in fair value of financial liabilities designated at - - - - - - - 531 531 - 531
fair value
upon initial recognition arising from changes in own credit risk
- remeasurement of defined benefit asset/liability - - - - - - - (288) (288) 14 (274)
- share of other comprehensive income of associates and joint - - - - - - - 103 103 - 103
ventures
- effects of hyperinflation - - - - - - - 315 315 - 315
- exchange differences - - - - (2,394) - - - (2,394) 1 (2,393)
Total comprehensive income for the year - - (2,455) (654) (2,394) - - 14,578 9,075 651 9,726
Shares issued under employee remuneration and share plans 354 - - - - - - (336) 18 - 18
Capital securities issued - 2,000 - - - - - (4) 1,996 - 1,996
Dividends to shareholders - - - - - - - (5,790) (5,790) (593) (6,383)
Redemption of securities - (2,000) - - - - - - (2,000) - (2,000)
Transfers - - - - - 3,065 - (3,065) - - -
Cost of share-based payment arrangements - - - - - - - 467 467 - 467
Cancellation of shares (60) - - - - 60 - (2,004) (2,004) - (2,004)
Other movements - - 5 - - - - 40 45 (83) (38)
At 31 Dec 2021 24,918 22,414 (634) (197) (22,769) 30,060 - 144,458 198,250 8,527
206,777
1 Cumulative goodwill amounting to $5,138m was charged against
reserves in respect of acquisitions of subsidiaries prior to 1 January 1998,
including $3,469m charged against the merger reserve arising on the
acquisition of HSBC Bank plc. The balance of $1,669m was charged against
retained earnings.
2 Statutory share premium relief under section 131 of the Companies
Act 1985 was taken in respect of the acquisition of HSBC Bank plc in 1992,
HSBC Continental Europe in 2000 and HSBC Finance Corporation in 2003, and the
shares issued were recorded at their nominal value only. In HSBC's
consolidated financial statements, the fair value differences of $8,290m in
respect of HSBC Continental Europe and $12,768m in respect of HSBC Finance
Corporation were recognised in the merger reserve. The merger reserve created
on the acquisition of HSBC Finance Corporation subsequently became attached to
HSBC Overseas Holdings (UK) Limited, following a number of intra-Group
reorganisations. During 2009, pursuant to section 131 of the Companies Act
1985, statutory share premium relief was taken in respect of the rights issue
and $15,796m was recognised in the merger reserve.
3 The insurance finance reserve reflects the impact of the adoption of
the other comprehensive income option for our insurance business in France.
Underlying assets supporting these contracts are measured at fair value
through other comprehensive income. Under this option, only the amount that
matches income or expenses recognised in profit or loss on underlying items is
included in finance income or expenses, resulting in the elimination of income
statement accounting mismatches. The remaining amount of finance income or
expenses for these insurance contracts is recognised in other comprehensive
income ('OCI').
4 At 31 December 2023, retained earnings included 256,289,431 treasury
shares (2022: 554,452,437; 2021: 558,397,704). These include treasury shares
held within HSBC's insurance business's retirement funds for the benefit of
policyholders or beneficiaries within employee trusts for the settlement of
shares expected to be delivered under employee share schemes or bonus plans,
and the market-making activities in Markets and Securities Services.
5 In March 2023, HSBC Holdings issued $2,000m 8.000% contingent
convertible securities on which there were $4m of external issue costs.
6 In March 2023, HSBC Holdings redeemed $2,350m 6.250% contingent
convertible securities. In September 2023, HSBC Holdings further redeemed
€1,000m 6.000% and SGD750m 5.000% contingent convertible securities.
7 At 31 December 2023, an impairment of $5,512m of HSBC Overseas
Holdings (UK) Limited was recognised, resulting in a permitted transfer of
$5,130m from the merger reserve to retained earnings and a realisation of
$382m shared-based payment reserve within retained earnings.
8 In May 2023, HSBC Holdings announced a share buy-back of up to
$2.0bn, which was completed in July 2023. In August 2023, HSBC Holdings
announced another share buy-back of up to $2.0bn, which was completed in
October 2023. In October 2023, HSBC Holdings further announced a share
buy-back of up to $3.0bn, which was completed in February 2024.
9 The impact of IFRS 17 on previously reported total equity was
$(10,831)m at 31 December 2022.
Consolidated statement of cash flows
for the year ended 31 December 2023
2023 2022(1) 2021
$m $m $m
Profit before tax 30,348 17,058 18,906
Adjustments for non-cash items:
Depreciation, amortisation and impairment 3,466 3,850 4,286
Net loss/(gain) from investing activities 1,213 11 (647)
Share of profit in associates and joint ventures (2,807) (2,723) (3,046)
Impairment of interest in associate 3,000 - -
(Gain)/loss on acquisition/disposal of subsidiaries, businesses, associates (1,775) 2,554 -
and joint ventures
Change in expected credit losses gross of recoveries and other credit 3,717 3,898 (519)
impairment charges
Provisions including pensions 266 638 1,063
Share-based payment expense 482 400 467
Other non-cash items included in profit before tax (4,299) (774) 510
Elimination of exchange differences(2) (10,678) 48,718 18,937
Changes in operating assets and liabilities
Change in net trading securities and derivatives (63,247) 20,166 (9,226)
Change in loans and advances to banks and customers (14,145) 31,649 (11,014)
Change in reverse repurchase agreements - non-trading (2,095) (23,405) 552
Change in financial assets designated and otherwise mandatorily measured at (9,994) 14,164 (4,254)
fair value
Change in other assets(3) (10,254) (12,858) 19,899
Change in deposits by banks and customer accounts 45,021 (91,194) 95,703
Change in repurchase agreements - non-trading 43,366 4,344 14,769
Change in debt securities in issue 11,945 12,518 (16,936)
Change in financial liabilities designated at fair value 10,097 (13,654) (11,425)
Change in other liabilities 8,742 6,021 (10,935)
Dividends received from associates 1,067 944 808
Contributions paid to defined benefit plans (208) (194) (509)
Tax paid (4,117) (2,776) (3,077)
Net cash from operating activities 39,111 19,355 104,312
Purchase of financial investments(3) (563,561) (511,097) (493,042)
Proceeds from the sale and maturity of financial investments(3) 504,174 492,624 521,190
Net cash flows from the purchase and sale of property, plant and equipment (1,145) (1,284) (1,086)
Net cash flows from disposal of loan portfolio and customer accounts 623 (3,530) 3,059
Net investment in intangible assets (2,550) (3,125) (2,479)
Net cash flow from (acquisition)/disposal of subsidiaries, businesses, (453) (989) (106)
associates and joint ventures(4)
Net cash from investing activities (62,912) (27,401) 27,536
Issue of ordinary share capital and other equity instruments 1,996 - 1,996
Cancellation of shares (5,812) (2,285) (707)
Net sales/(purchases) of own shares for market-making and investment purposes (614) (91) (1,386)
Net cash flow from change in stake of subsidiaries (19) (197) -
Redemption of preference shares and other equity instruments (4,003) (2,266) (3,450)
Subordinated loan capital issued 5,237 7,300 -
Subordinated loan capital repaid(5) (2,147) (1,777) (864)
Dividends paid to shareholders of the parent company and non-controlling (12,196) (6,970) (6,383)
interests
Net cash from financing activities (17,558) (6,286) (10,794)
Net increase/(decrease) in cash and cash equivalents (41,359) (14,332) 121,054
Cash and cash equivalents at 1 Jan 521,671 574,032 468,323
Exchange differences in respect of cash and cash equivalents 10,621 (38,029) (15,345)
Cash and cash equivalents at 31 Dec(6) 490,933 521,671 574,032
Cash and cash equivalents comprise:
- cash and balances at central banks 285,868 327,002 403,018
- items in the course of collection from other banks 6,342 7,297 4,136
- loans and advances to banks of one month or less 76,620 72,295 55,705
- reverse repurchase agreements with banks of one month or less 64,341 68,682 76,658
- treasury bills, other bills and certificates of deposit less than three 33,303 26,727 28,488
months
- cash collateral and net settlement accounts 15,819 19,445 11,241
- cash and cash equivalents held for sale(7) 15,935 8,087 -
- less: items in the course of transmission to other banks (7,295) (7,864) (5,214)
Cash and cash equivalents at 31 Dec(6) 490,933 521,671 574,032
Interest received was $98,910m (2022: $55,664m; 2021: $40,175m), interest paid
was $65,980m (2022: $22,856m; 2021: $12,695m) and dividends received
(excluding dividends received from associates, which are presented separately
above) were $1,869m (2022: $1,638m; 2021: $1,898m).
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data for the financial year
ended 31 December 2022 have been restated accordingly. Comparative data for
the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 Adjustment to bring changes between opening and closing balance sheet
amounts to average rates. This is not done on a line-by-line basis, as details
cannot be determined without unreasonable expense.
3 Post adoption of IFRS 17 'Insurance Contracts', certain assets have
been reclassified from 'Investing activities' to 'Operating activities'. The
comparative data have not been re-presented.
4 The 'Net cash flow on (acquisition)/disposal of subsidiaries,
businesses, associates and joint ventures' includes $1.2bn of net cash inflows
from the acquisition of Silicon Valley Bank UK Limited in March 2023.
5 Subordinated liabilities changes during the year are attributable to
repayments of $(2.1)bn (2022: $(1.8)bn; 2021: $(0.9)bn) of securities.
Non-cash changes during the year included foreign exchange gains/(losses) of
$0.6bn (2022: $(1.1)bn; 2021: $(0.3)bn) and fair value gains/(losses) of
$0.8bn (2022: $(3.1)bn; 2021: $(1.0)bn).
6 At 31 December 2023, $61.8bn (2022: $59.3bn; 2021: $33.6bn) was not
available for use by HSBC due to a range of restrictions, including currency
exchange and other restrictions.
7 Includes $5.6bn (2022: $6.5bn) of cash and balances at central banks,
$0.2bn (2022: $1.3bn) of reverse repurchase agreements with banks of one month
or less, $10.5bn (2022: $0.2bn) of loans and advances to banks of one month or
less and items in the course of transmission to other banks $(0.4)bn (2022:
$(0.2)bn).
HSBC Holdings income statement
for the year ended 31 December 2023
2023 2022 2021
Notes* $m $m $m
Net interest expense (5,339) (3,074) (2,367)
- interest income 2,864 937 380
- interest expense (8,203) (4,011) (2,747)
Fee (expense)/income 2 (3) (5)
Net income from financial instruments held for trading or managed on a fair 3 1,063 2,129 110
value basis
Changes in fair value of designated debt and related derivatives(1) 3 (1,468) 2,144 349
Changes in fair value of other financial instruments mandatorily measured at 3 3,692 (2,409) (420)
fair value through profit or loss
Gains less losses from financial investments 45 58 -
Dividend income from subsidiaries 16,824 9,478 11,404
Other operating income 332 91 230
Total operating income 15,151 8,414 9,301
Employee compensation and benefits 5 (15) (41) (30)
General and administrative expenses (1,327) (1,586) (1,845)
(Impairment) of subsidiaries/reversal of impairment 19 (5,574) 2,493 3,065
Total operating expenses (6,916) 866 1,190
Profit before tax 8,235 9,280 10,491
Tax credit(2) 977 3,077 343
Profit for the year 9,212 12,357 10,834
* For Notes on the financial statements, see page 341.
1 The debt instruments, issued for funding purposes, are designated
under the fair value option to reduce an accounting mismatch.
2 The tax credit in 2022 includes $2.2bn arising from the recognition
of a deferred tax asset from historical tax losses in HSBC Holdings. This was
a result of improved profit forecasts for the UK tax group, which accelerated
the expected utilisation of these losses and reduced uncertainty regarding
their recoverability. The amounts recorded within profit before tax with
respect to dividend income from subsidiaries and reversal of impairment of
subsidiaries are not subject to tax.
HSBC Holdings statement of comprehensive income
for the year ended 31 December 2023
2023 2022 2021
$m $m $m
Profit for the year 9,212 12,357 10,834
Other comprehensive income/(expense)
Items that will not be reclassified subsequently to profit or loss:
Changes in fair value of financial liabilities designated at fair value upon (124) 326 267
initial recognition arising from changes in own credit risk
- before income taxes (166) 435 259
- income taxes 42 (109) 8
Other comprehensive income/(expense) for the year, net of tax (124) 326 267
Total comprehensive income for the year 9,088 12,683 11,101
HSBC Holdings balance sheet
31 Dec 2023 31 Dec 2022
Notes* $m $m
Assets
Cash and balances with HSBC undertakings 7,029 3,210
Financial assets with HSBC undertakings designated and otherwise mandatorily 59,879 52,322
measured at fair value
Derivatives 15 3,344 3,801
Loans and advances to HSBC undertakings 27,354 26,765
Financial investments 16 19,558 19,466
Prepayments, accrued income and other assets 5,341 5,242
Current tax assets 924 464
Investments in subsidiaries 19 159,478 167,542
Intangible assets 180 189
Deferred tax assets 2,082 2,100
Total assets at 31 Dec 285,169 281,101
Liabilities and equity
Liabilities
Amounts owed to HSBC undertakings 168 314
Financial liabilities designated at fair value 25 43,638 32,123
Derivatives 15 6,090 6,922
Debt securities in issue 26 65,239 66,938
Accruals, deferred income and other liabilities 4,289 1,969
Subordinated liabilities 29 24,439 19,727
Total liabilities 143,863 127,993
Equity
Called up share capital 33 9,631 10,147
Share premium account 33 14,738 14,664
Other equity instruments 33 17,703 19,746
Merger and other reserves 35,946 40,555
Retained earnings 63,288 67,996
Total equity 141,306 153,108
Total liabilities and equity at 31 Dec 285,169 281,101
* For Notes on the financial statements, see page 341.
The accompanying notes on pages 341 to 434, the audited sections in the Risk
review on pages 135 to 237 and 'Directors' remuneration report' on pages 279
to 305 form an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 21
February 2024 and signed on its behalf by:
Mark E Tucker Georges Elhedery
Group Chairman Group Chief Financial Officer
HSBC Holdings statement of changes in equity
for the year ended 31 December 2023
Other reserves
Called up Share Other Retained Merger and other Total
share premium equity earnings(1,2) reserves shareholders'
capital instruments equity
$m $m $m $m $m $m
At 1 Jan 2023 10,147 14,664 19,746 67,996 40,555 153,108
Profit for the year - - - 9,212 - 9,212
Other comprehensive income (net of tax) - - - (124) - (124)
- changes in fair value of financial liabilities designated at fair value - - - (124) - (124)
due to movement in own credit risk
Total comprehensive income for the year - - - 9,088 - 9,088
Shares issued under employee share plans 5 74 - (328) - (249)
Capital securities issued(3) - - 1,980 - - 1,980
Cancellation of shares(4) (521) - - (7,025) 521 (7,025)
Dividends to shareholders - - - (11,593) - (11,593)
Redemption of capital securities(5) - - (4,023) 20 - (4,003)
Transfers(6) - - - 5,130 (5,130) -
Other movements - - - - - -
At 31 Dec 2023 9,631 14,738 17,703 63,288 35,946 141,306
At 1 Jan 2022 10,316 14,602 22,414 65,116 37,882 150,330
Profit for the year - - - 12,357 - 12,357
Other comprehensive income (net of tax) - - - 326 - 326
- changes in fair value of financial liabilities designated at fair value - - - 326 - 326
due to movement in own credit risk
Total comprehensive income for the year - - - 12,683 - 12,683
Shares issued under employee share plans 5 62 - (161) -
(94)
Capital securities issued - - - - - -
Cancellation of shares (174) - - (1,001) 174 (1,001)
Dividends to shareholders - - - (6,544) - (6,544)
Redemption of capital securities - - (2,668) 402 - (2,266)
Transfers(6) - - - (2,499) 2,499 -
Other movements - - - - - -
At 31 Dec 2022 10,147 14,664 19,746 67,996 40,555 153,108
At 1 Jan 2021 10,347 14,277 22,414 65,005 34,757 146,800
Profit for the year - - - 10,834 - 10,834
Other comprehensive income (net of tax) - - - 267 - 267
- changes in fair value of financial liabilities designated at fair value - - - 267 - 267
due to movement in own credit risk
Total comprehensive income for the year - - - 11,101 - 11,101
Shares issued under employee share plans 29 325 - (103) - 251
Capital securities issued - - 2,000 - 1,980
(20)
Cancellation of shares (60) - - (2,004) 60 (2,004)
Dividends to shareholders - - - (5,790) - (5,790)
Redemption of capital securities - - (2,000) - - (2,000)
Transfers(6) - - - (3,065) 3,065 -
Other movements - - - -
(8) (8)
At 31 Dec 2021 10,316 14,602 22,414 65,116 37,882 150,330
Dividends per ordinary share at 31 December 2023 were $0.53 (2022: $0.27;
2021: $0.22).
1 Retained earnings include unrealised profits from intercompany
transactions and share-based payment reserves, which are excluded from
distributable reserves. Distributable reserves include the distributable
portions of retained earnings and the merger reserve. Distributable reserves
are reduced by ordinary dividend payments, distributions on additional tier 1
instruments, share buy-backs and impairments in investments in subsidiaries.
They are increased by profits and the realisation of retained earnings or
merger reserves upon impairment of an associated investment in subsidiary.
2 At 31 December 2023, retained earnings included 20,018,490 ($100m)
treasury shares (2022: 331,874,221 ($2,615m); 2021: 329,871,829 ($2,542m)).
3 In March 2023, HSBC Holdings issued $2,000m 8.000% contingent
convertible securities, on which there were $20m of issue costs.
4 In May 2023, HSBC announced a share buy-back of up to $2.0bn, which
was completed in July 2023. In August 2023, HSBC announced another share
buy-back of up to $2.0bn, which was completed in October 2023. In October
2023, HSBC further announced a share buy-back of up to $3.0bn, which was
completed in February 2024.
5 In March 2023, HSBC Holdings redeemed $2,350m 6.250% contingent
convertible securities. In September 2023, HSBC Holdings further redeemed
€1,000m 6.000% and SGD750m 5.000% contingent convertible securities.
6 At 31 December 2023, an impairment of $5,512m of HSBC Overseas
Holdings (UK) Limited was recognised, resulting in a permitted transfer of
$5,130m from the merger reserve to retained earnings, and a realisation of
$382m share-based payment reserve within retained earnings. In 2022, a
part-reversal of the impairment resulted in a transfer from retained earnings
back to the merger reserve of $2,499m (2021: $3,065m).
HSBC Holdings statement of cash flows
for the year ended 31 December 2023
2023 2022 2021
$m $m $m
Profit before tax 8,235 9,280 10,491
Adjustments for non-cash items 5,611 (2,500) (2,954)
- depreciation, amortisation and impairment/expected credit losses 5,629 (2,428) (2,976)
- share-based payment expense - 1 2
- other non-cash items included in profit before tax (38) (73) 20
- elimination of exchange differences(1) 20 - -
Changes in operating assets and liabilities
Change in loans to HSBC undertakings (1,267) (1,657) 3,364
Change in financial assets with HSBC undertakings designated and otherwise (7,767) (914) (4,409)
mandatorily measured at fair value
Change in net trading securities and net derivatives (529) 4,712 47
Change in other assets 363 51 (226)
Change in financial investments - 196 20
Change in debt securities in issue 1,964 (5,625) (2,833)
Change in financial liabilities designated at fair value 3,096 (4,755) (1,396)
Change in other liabilities 1,947 (3,394) (691)
Tax received 577 215 32
Net cash from operating activities 12,230 (4,391) 1,445
Purchase of financial investments (7,803) (21,481) (16,966)
Proceeds from the sale and maturity of financial investments 20,074 17,165 16,074
Net cash flow from capital contribution, acquisition and disposal of 2,476 (1,836) 663
subsidiaries
Net investment in intangible assets (46) (39) (26)
Net cash from investing activities 14,701 (6,191) (255)
Issue of ordinary share capital and other equity instruments 2,059 67 2,334
Redemption of preference shares and other equity instruments (4,003) (2,266) (3,450)
Purchase of treasury shares (855) (438) (28)
Cancellation of shares (5,812) (2,298) (707)
Subordinated loan capital issued 5,270 7,300 -
Subordinated loan capital repaid - - -
Debt securities issued 17,180 18,076 19,379
Debt securities repaid (13,047) (10,094) (5,569)
Dividends paid on ordinary shares (10,492) (5,330) (4,480)
Dividends paid to holders of other equity instruments (1,101) (1,214) (1,310)
Net cash from financing activities (10,801) 3,803 6,169
Net increase/(decrease) in cash and cash equivalents 16,130 (6,779) 7,359
Cash and cash equivalents at 1 January 6,756 13,535 6,176
Exchange differences in respect of cash and cash equivalents(2) (72) - -
Cash and cash equivalents at 31 Dec 22,814 6,756 13,535
Cash and cash equivalents comprise:
- cash at bank with HSBC undertakings 7,029 3,210 2,590
- cash collateral and net settlement accounts 3,422 3,544 93
- treasury and other eligible bills 12,363 2 10,852
Interest received was $5,695m (2022: $2,410m; 2021: $1,636m), interest paid
was $7,754m (2022: $3,813m; 2021: $2,724m) and dividends received were
$16,824m (2022: $9,478m; 2021: $11,404m).
1 Adjustment to bring changes between opening and closing balance sheet
amounts to average rates. This is not done on a line-by-line basis, as details
cannot be determined without unreasonable expense. As this change has
immaterial impact, prior period comparatives have not been restated.
2 In 2023, additional disclosure has been made in respect of exchange
differences on cash and cash equivalents. As this change has immaterial
impact, prior period comparatives have not been restated.
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