REG - HSBC Holdings PLC - Half Year Report - 2023 Interim Report
01/08/2023 16:30
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RNS Number : 9024H HSBC Holdings PLC 01 August 2023
HSBC Holdings plc
Interim Report 2023
In fulfilment of its obligations under sections 4.2.2, 6.3.3(2) and 6.3.5(1)
of the Disclosure Guidance and Transparency Rules, HSBC Holdings plc (the
"Company") hereby releases the unedited full text of its 2023 Interim Report
(the "Interim Report") for the half-year ended 30 June 2023.
The document is now available on the Company's website at:
https://www.hsbc.com/investors/results-and-announcements/all-reporting/group
(https://www.hsbc.com/investors/results-and-announcements/all-reporting/group)
HSBC Holdings plc
Interim Report 2023
Opening up a world of opportunity
Our ambition is to be the preferred
international financial partner for our clients.
Our purpose, ambition and values reflect our
strategy and support our focus on execution.
> Read more on our values on page 4 of our Annual Report and Accounts 2022.
> Read more on our strategy on page 7.
Contents
Overview
2 Highlights
4 Group Chief Executive's review
7 Our strategy
10 ESG overview
11 Financial overview
17 Global businesses
25 Risk overview
Interim management report
28 Financial summary
39 Global businesses
49 Legal entities
57 Reconciliation of alternative performance measures
61 Risk
61 - Key developments in the first half of 2023
61 - Areas of special interest
64 - Credit risk
93 - Treasury risk
103 - Market risk
104 - Insurance manufacturing operations risk
106 Directors' responsibility statement
Interim condensed financial statements
107 Independent review report to HSBC Holdings plc
108 Interim condensed financial statements
115 Notes on the interim condensed financial statements
Additional information
141 Shareholder information
149 Forward-looking statements
150 Certain defined terms
151 Abbreviations
Our global businesses
We serve customers through three global businesses. On pages 17 to 24 we
provide an overview of our performance in the first half of 2023 for each of
the global businesses, as well as our Corporate Centre.
Wealth and Personal Banking ('WPB')
We help millions of our customers look after their day-to-day finances and
manage, protect and grow their wealth.
Commercial Banking ('CMB')
Our global reach and expertise help domestic and international businesses
around the world unlock their potential.
Global Banking and Markets ('GBM')
We provide a comprehensive range of financial services and products to
corporates, governments and institutions.
A reminder
The currency we report in is US dollars.
Constant currency performance
We supplement our IFRSs figures with non-IFRSs measures used by management
internally that constitute alternative performance measures under European
Securities and Markets Authority guidance and non-GAAP financial measures
defined in and presented in accordance with US Securities and Exchange
Commission rules and regulations. These measures are highlighted with the
following symbol: <>
> Further explanation may be found on page 13.
Cover image: Opening up a world of opportunity
Our cover features Stitt, one of HSBC's two bronze lions. Touching the lion's
paw was said to bring good luck, and that tradition continues today. The
lions, Stephen and Stitt, designed by British sculptor Henry Poole, were
commissioned to celebrate the opening of the newly-rebuilt HSBC building on
the Bund in Shanghai in 1923. Stephen and Stitt represent the strength and
endurance that is part of our heritage. Loyal and proud, they stand guard
outside our offices in Hong Kong, London and Shanghai, and symbolise good
fortune and stability.
Performance in 1H23
HSBC is one of the world's leading
international banks.
We have a clear strategy to deliver revenue
and profit growth, enhance customer service
and improve returns to shareholders.
Delivery against our financial targets
In assessing the Group's financial performance, we use a range of financial
measures that focus on the delivery of sustainable returns for our
shareholders and maintaining our financial strength.
> For our financial targets, we define medium term as three to four years
and long term as five to six years, commencing 1 January 2020.
> Further explanation of performance against Group financial targets can
be found on page 11.
Return on average tangible equity (annualised) <>
22.4%
Revised target: Mid-teens for 2023 and 2024, excluding the impact of material
acquisitions and disposals.
(Updated from ≥12% from 2023 onwards.)
(1H22: 10.6%)
Target basis operating expenses growth compared with 1H22 <>
4.3%
Target: Growth of approximately 3% compared with 2022. This measure excludes
from constant currency operating expenses: notable items, the impact of
retranslating the results of hyperinflationary economies at constant currency
and the impact of our acquisition of SVB UK and the related investments
internationally.
Common equity tier 1 capital ratio
14.7%
Target: >14%, managing in the range of 14% to 14.5% in the medium term; and
manage the range down further long term.
(31 December 2022: 14.2%)
Second interim dividend per ordinary share for 1H23
$0.10
Target: Dividend payout ratio of 50% for 2023 and 2024, excluding material
notable items.
Strategic performance indicators
Our strategy supports our ambition of being the preferred international
financial partner for our clients.
We are committed to building a business for the long term, developing
relationships that last.
> Read more on our strategic progress on page 7.
> Read more on our approach to environmental, social and governance matters
on page 10.
Commercial Banking net fee income
$2.0bn
Growth of 2% compared with 1H22.
Net new invested assets
$34bn
Generated in 1H23, of which $27bn were in Asia.
Gender diversity
33.6%
Women in senior leadership roles.
(31 December 2022: 33.3%)
Sustainable finance and investment
$255.7bn
Cumulative total provided and facilitated since January 2020.
(31 December 2022: $210.7bn)
Highlights
Financial performance reflected the impact of global interest rate rises on
revenue and strong cost and balance sheet discipline. Our strategic approach
has now changed from transformation to value creation.
Financial performance (1H23 vs 1H22)
- Profit before tax rose by $12.9bn to $21.7bn. This included a $2.1bn
reversal of an impairment relating to the planned sale of our retail banking
operations in France and a provisional gain of $1.5bn on the acquisition of
Silicon Valley Bank UK Limited ('SVB UK'). On a constant currency basis,
profit before tax increased by $13.3bn to $21.7bn. Reported profit after tax
increased by $9.1bn to $18.1bn.
- Revenue increased by $12.3bn to $36.9bn. The increase was driven by higher
net interest income in all of our global businesses due to interest rate
rises. It also included the impacts related to the planned sale in France and
the acquisition in the UK. On a constant currency basis, revenue rose by
$13.2bn to $36.9bn.
- Net interest margin ('NIM') of 1.70% increased by 46 basis points ('bps').
- Expected credit losses and other credit impairment charges ('ECL') of $1.3bn
reflected a more stable outlook in most markets, although inflationary
pressures remain. The 1H23 charge included $0.3bn relating to the commercial
real estate sector in mainland China and charges in Commercial Banking ('CMB')
in the UK. The 1H22 charge of $1.1bn reflected heightened economic
uncertainty, mainly due to the Russia-Ukraine war and inflationary pressures,
and also included $0.3bn relating to the commercial real estate sector in
mainland China, partly offset by releases of Covid-19-related allowances.
- Operating expenses of $15.5bn were $0.7bn or 4% lower than in 1H22,
primarily due to lower restructuring and other related costs following the
completion of our cost-saving programme at the end of 2022 and from a $0.2bn
impact from a reversal of historical asset impairments. This was partly offset
by higher technology costs, an increase in performance-related pay, severance
of $0.2bn in 1H23 and the effects of rising inflation. Target basis operating
expenses rose by 4.3%.
- Customer lending balances increased by $36bn since 31 December 2022. On a
constant currency basis, lending balances grew by $23bn, mainly due to the
reclassification of balances associated with our retail banking operations in
France from held for sale during the period, and $7bn of additional balances
following our acquisition of SVB UK during 1Q23. These were partly offset by
the reclassification of our business in Oman as held for sale, which resulted
in a $3bn reduction. Excluding these factors, customer lending fell,
reflecting weaker customer demand for wholesale lending, notably in Hong Kong
and Europe.
- Customer accounts increased by $25bn since 31 December 2022. On a constant
currency basis, customer accounts increased by $3bn, mainly due to the
reclassification of balances associated with our retail banking operations in
France from held for sale during the period. In addition, our acquisition of
SVB UK resulted in growth of $7bn, and in 1H23, we reclassified our business
in Oman as held for sale, resulting in a $5bn reduction. Excluding these
factors, deposits fell, reflecting reductions in Wealth and Personal Banking
('WPB') and CMB in HSBC UK, as well as in Global Banking and Markets ('GBM').
- Annualised return on average tangible equity ('RoTE') of 22.4% compared with
10.6% in 1H22. Excluding the annualised impacts related to the planned sale in
France and the acquisition in the UK, annualised RoTE was 18.5%.
- Common equity tier 1 ('CET1') capital ratio of 14.7% increased by 0.5
percentage points compared with 4Q22, which was driven by capital generation
net of the dividend accrual, and included an approximately 0.3 percentage
point impact from the reversal of an impairment on the planned sale of our
retail banking operations in France and the provisional gain on the
acquisition of SVB UK. This was partly offset by increased risk-weighted
assets ('RWAs') and the impact of the share buy-back announced with our 1Q23
results in May 2023.
- The Board has approved a second interim dividend of $0.10 per share. We also
intend to initiate a further share buy-back of up to $2bn, which we expect to
commence shortly and complete within three months.
- From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated.
For further details of our adoption of IFRS 17, see page 28.
Financial performance (2Q23 vs 2Q22)
- Reported profit before tax increased by $4.1bn to $8.8bn.
- Revenue rose by $4.5bn to $16.7bn, with growth across all of our global
businesses, primarily reflecting interest rate rises. There were good
performances in insurance in WPB and in Debt Capital Markets in GBM, which
offset reductions in Global Foreign Exchange and Equities.
- NIM of 1.72% increased by 3bps, compared with 1Q23.
- ECL of $0.9bn increased by $0.5bn. ECL in 2Q23 included $0.3bn of charges in
the commercial real estate sector in mainland China, and $0.3bn in the UK,
mainly in CMB.
- Operating expenses of $7.9bn fell by $0.1bn. This was driven by lower
restructuring and other related costs following the completion of our
cost-saving programme at the end of 2022 and the reversal of historical asset
impairments. This reduction was partly offset by $0.2bn of severance costs
incurred in 2Q23, as well as higher technology spend, an increase in our
performance-related pay accrual and the effects of rising inflation.
- Customer lending decreased by $9bn compared with 31 March 2023, which
included a reduction of $3bn related to a reclassification of our business in
Oman to held for sale. The remaining reduction was mainly in GBM in HSBC Bank
plc, reflecting client deleveraging and weaker demand as interest rates rose.
- Customer accounts decreased by $18bn compared with 31 March 2023, which
included a reduction of $5bn related to the reclassification of our business
in Oman to held for sale. The remaining reduction was in GBM in Europe, as
corporate customers used deposits to pay down their loans, and in HSBC UK,
reflecting higher cost of living and competitive pressures.
-
Outlook
- Our strategy has enabled us to further strengthen our balance sheet, - We continue to expect ECL charges of around 40bps of average gross loans in currency. Our target also excludes the impact of our acquisition of SVB UK,
providing us with a good platform for growth in the current interest rate 2023 (including lending balances transferred to held for sale). There remains and the related investments internationally, which are expected to add
cycle, while maintaining cost discipline. This has given us the confidence to a degree of uncertainty in the forward economic outlook, particularly in the approximately 1% to the Group's operating expenses. In 2Q23, we incurred
revise our returns guidance for 2023 and 2024. Based on the current path UK, and we are monitoring risks related to our exposures in mainland China's severance costs of $0.2bn, with the benefits expected to be realised towards
implied by the market for global policy rates, we are now targeting a RoTE in commercial real estate sector. Over the medium to long term, we continue to the end of 2023 and into 2024.
the mid-teens for 2023 and 2024, which excludes the impact of material use a range of 30bps to 40bps of average loans for planning our ECL charges.
acquisitions and disposals.
- We intend to manage the CET1 ratio within our medium term target range of
- We remain highly focused on maintaining cost discipline. We continue to 14% to 14.5%, and we aim to manage this range down in the long term. In
- Given the current market consensus for global central bank rates, we have target operating expense growth of approximately 3% for 2023, excluding the addition, our dividend payout ratio is 50% for 2023 and 2024, excluding
raised our 2023 full-year guidance for net interest income to above $35bn. impact of foreign currency translation differences, notable items and the material notable items. We have announced a second interim dividend of $0.10
While the interest rate outlook remains positive, we expect continued impact of retranslating the 2022 results of hyperinflationary economies at per share and intend to initiate a further share buy-back of up to $2bn, which
migration to term deposits as short-term interest rates rise. constant we expect to commence shortly and complete within three months. Further
buy-backs for 2023 and beyond will be subject to appropriate capital levels.
Strategic progress
- In March 2023, we acquired SVB UK. This acquisition strengthens our CMB
franchise and enhances our ability to serve innovative and fast-growing firms
in the technology and life science sectors in the UK, and internationally. In
June 2023, we launched HSBC Innovation Banking, which includes SVB UK together
with newly formed teams in the US, Hong Kong and Israel. This newly formed
proposition will deliver a globally connected, specialised banking proposition
to support innovation businesses and their investors.
- During 1Q23, the significant interest rate rises in France resulted in the
completion of the planned sale of our retail operations in France becoming
less certain, as the capital required to be held by the buyer at completion of
the transaction will increase significantly. As a
result we were required to change the accounting classification of our
retail banking operations in France to no longer be classified as held for
sale. In June, we agreed new terms for the sale of these operations that will
involve HSBC retaining a portfolio of home and other loans. The transaction
remains subject to information and consultation processes with respective
works councils and regulatory approvals, and the parties aim to complete on 1
January 2024. An estimated pre-tax loss of up to $2.2bn is expected to be
recognised in the second half of 2023 upon reclassification to held for sale.
- The plan to sell our banking business in Canada remains a key priority, as
we reshape the organisation to focus on our international customer base. The
transaction is now expected to complete in the first quarter of 2024, subject
to regulatory and governmental approval, and we continue to classify these
operations as held for sale.
-
We remain committed to consider the payment of a special dividend of $0.21 per
share as a priority use of the proceeds from the sale of our banking business
in Canada in the first half of 2024. The remaining proceeds will accrue into
CET1 capital in consideration for organic growth and investment, and we intend
to use any excess capital to supplement share buy-backs.
- We remain focused on investing and growing in our areas of strength, and we
have continued to make progress in executing our Wealth strategy, notably in
Asia. We attracted net new invested assets of $34bn in the first half of 2023,
of which $27bn was from Asia.
ESG highlights
Transition to net zero
- Our net zero transition plan, which we expect to publish later this year,
will bring together our strategic approach to net zero, our science-based
targets for financed emissions and our operations, and details on how we plan
to embed climate considerations into our business processes, policies, risk
management and governance. We intend to report annually on our implementation
progress in our Annual Report and Accounts.
- In the second half of 2023, we expect to complete assessments of transition
plans for remaining customers in scope of our thermal coal phase-out policy.
We also expect to complete assessments for major oil and gas, and power and
utilities customers globally, as well as other customers in EU and OECD
markets in scope of our updated energy policy.
- As part of our ambition to support our customers in their transition to net
zero and a sustainable future, we aim to provide and facilitate $750bn to $1tn
of sustainable finance and investments by 2030. In 1H23, we provided and
facilitated $45bn of sustainable finance and investments, bringing our
cumulative amount since 1 January 2020 to $255.7bn.
Build inclusion and resilience
- We have continued to focus on building a workplace for our colleagues that
is fit for the future and provides teams with the flexibility and resources to
deliver for our customers. More of our colleagues are working in a hybrid way
than in 1H22, and in the 2022 Snapshot survey, 71% of colleagues said they
have everything they needed to feel equipped for success at work. Flexible
working practices are also helping us to attract and retain talented
employees, with one-third of new joiners saying it influenced their decision
to join HSBC.
- Developing the skills of colleagues plays a pivotal role in achieving our
strategic goals and growth ambitions. We have continued to focus on programmes
critical to our strategy such as those in wealth, sustainability, and
leadership development.
Group Chief Executive's review
Noel Quinn
Group Chief Executive
We have repositioned HSBC over the last three
and a half years to enable it to reach its true potential.
Return on average tangible equity
(annualised) <>
22.4%
(1H22: 10.6%)
Constant currency revenue <>
$36.9bn
(1H22: $23.6bn)
By the time we completed the first phase of our strategy at the end of 2022,
the changes we had made were delivering an improved financial performance. Six
months into 2023, our financial performance has continued to improve, aided by
the interest rate environment. As we move further into the next phase of our
strategy focused on value creation, I am optimistic about our ability to
continue to deliver strong returns for our investors.
Our purpose of 'opening up a world of opportunity' underpins everything we do
for our customers, colleagues and the communities we serve. In the first half
of 2023, we continued to deliver on that promise by launching new products and
services, and developing our capabilities to meet the international needs of
our diverse customer base. From the new international proposition for Wealth
and Personal Banking customers launched in March and the continued development
of our Global Money and Global Wallet products, to the digitisation of
international account opening and the globally connected HSBC Innovation
Banking business launched in June, there are many examples of how my
colleagues are truly living our purpose.
Many of these achievements contributed to our strong first-half performance,
as we saw continued good revenue growth across all our global businesses,
supported by higher interest rates. We delivered a strong annualised return on
tangible equity of 22.4%, including the reversal of an impairment relating to
the planned sale of our retail banking operations in France and a provisional
gain on the acquisition of SVB UK, both of which were reported in the first
quarter. Excluding them, we achieved an annualised return on tangible equity
of 18.5%. Our strategy is working. The Board, my colleagues and our
shareholders are all focused on the shared objectives of supporting our
customers, driving stronger performance and creating more value for our
investors.
The biggest challenge we all face remains the uncertainty within the external
environment. High inflation remains a significant concern for many of our
customers. Even though headline inflation rates are now falling in most
countries, they remain persistently high in some markets. In the UK, we have
seen limited signs of stress in the mortgage book, although we are acutely
aware of the day-to-day financial challenges that some of our customers face.
With more mortgage customers due to roll off fixed-term deals in the next six
months, and further rate rises expected, tougher times are ahead. We will
continue to communicate regularly with our customers, listen to their
concerns, seek to offer them help should they want it and ensure they are
aware of the range of products available to them.
Across the global economy, growth remains uneven. China's reopening at the
start of the year lifted both its economy and the prospects for global GDP
growth in 2023, although weaker recent data underlines that its recovery may
be slower than previously expected. Other parts of Asia, such as India and the
ASEAN region, are growing robustly, as is the Middle East.
From transformation to value creation
At the end of 2022, we completed the first phase of our strategy. As a result
of the work done to transform HSBC, including to reposition our portfolio,
create broad-based profit generation, maintain strong cost discipline and
introduce a sustainable dividend, we built a strong platform for growth. This
work helped to put HSBC on track to achieve a return on tangible equity of
12%+ in 2023.
"As we move further into the next phase of our strategy focused on value
creation, I am optimistic about our ability to continue to deliver strong
returns for our investors."
In the first half of 2023, our strategic approach has changed from
transformation to value creation. While there have been - and will continue to
be - opportunities to further simplify HSBC, we have shifted our focus to
driving growth, while maintaining strong returns.
First, we have further leveraged our international connectivity. Our ability
to connect the world's major trading and investment blocs has always been, and
remains, our greatest strength. In the first-half, our wholesale cross-border
client business increased by around 50%, with growth across all regions, due
mainly to rising interest rates. In Wealth and Personal Banking, we now have
6.3 million international customers, which is up 8% on the same period last
year. There was also strong revenue growth in global transaction banking,
which was up by 63%. Within global transaction banking, there were good
performances in Foreign Exchange and in Global Payments Solutions, due to
higher rates. Trade was slightly down in line with global trade volumes,
although HSBC was recently named 'Best Bank for Trade Finance' by Euromoney
for the second year in a row, while also being named 'Best Bank in Asia'.
Second, we made further progress towards the redeployment of capital from less
strategic or low-connectivity businesses into high-growth international
opportunities. We are pleased to have agreed revised terms for the sale of our
French retail banking operations, which we now expect to complete in early
2024. The sale of our banking operations in Canada also remains on track to
complete in early 2024. We have also completed the disposal of our Greek
business, and announced the planned exit of Russia, a change to the nature of
our presence in Oman, and the wind-down of Wealth and Personal Banking in New
Zealand.
At the same time, we are investing in growth in a strategic and targeted way.
We have invested further in our Wealth business in Asia. We now have a total
of 1,400 digitally enabled wealth planners in our Pinnacle business in
mainland China, while we launched Global Private Banking in India in July. In
June, following our acquisition of SVB UK, we also launched a new
strengthened, globally connected proposition - HSBC Innovation Banking.
Through it, we are building similar businesses to the former SVB UK in the US,
Hong Kong and Israel, and using our international network and balance sheet
strength to offer new opportunities to expand globally to our clients in the
technology and life sciences sectors.
Third, we are working to diversify our revenue. A key strategic priority has
been to grow fee income by investing in our Wealth business, especially in
Asia. We saw the continuing benefit of this in the first-half as we grew net
new invested assets by $34bn, of which $27bn were in Asia. Fee income in
Commercial Banking, which is another priority area, was also up in the
first-half by 6%, while collaboration revenue from referrals between our
global businesses also increased by 5%.
Fourth, we have maintained tight cost discipline. Costs of $15.5bn in the
first-half were $0.7bn or 4% lower than the same period last year, primarily
due to lower restructuring costs following the end of our cost-saving
programme at the end of 2022. On the basis of our target to limit cost growth
to around 3% in 2023, operating expenses increased by 4% in the first-half,
including the expected severance costs booked in the second quarter. We remain
committed to disciplined cost management.
Fifth, we have reinvested cost savings in technology. Spending on technology
increased by 12.8% in the first-half, and now accounts for almost a quarter of
total operating expenses. Delivering faster services, reducing friction and
offering more competitive products has been critical to improving the customer
experience. For example, we have now migrated over 26,000 business customers
in Hong Kong and the UK to our next generation digital trade platform, which
is enabling us to future-proof a market-leading business.
Investing in technology is also key to enhancing our capabilities and building
the bank of the future. We now have a range of 'test and learn' use cases for
generative AI across HSBC, and are in the process of scaling those up. Last
month, HSBC became the first bank to join BT's and Toshiba's quantum-secured
metro network employing quantum technology for secure transmission of data,
which will enable us to evaluate how best to use this technology against
future cyber threats. We are also pleased to be working with the Hong Kong
Monetary Authority on two pilots to test the e-HKD in a new payments ecosystem
and to trial tokenised deposits.
Future growth levers
In the first half of 2023, we continued to build new sources of value
creation.
We brought in
$34bn
of net new invested assets in Wealth.
We provided and facilitated
$45bn
of sustainable finance and investment in 1H23.
Finally, we continued to build on our position as an enabler of the net zero
transition by supporting our customers' transition plans. In the first-half,
we provided and facilitated $45bn of sustainable finance and investments,
which consisted of capital markets financing and lending to clients as we
continued to work closely with them on their transitions. This included a
number of key deals in Asia and the Middle East. We have also continued to
help unlock new climate solutions, including through our Climate Tech Venture
Capital strategy. HSBC was named 'Best Bank for Sustainable Finance in Asia'
by Euromoney for the sixth consecutive year.
Translating into strong financial performance
Our strong first-half featured good broad-based profit generation around the
world. There was also higher revenue in our global businesses driven by strong
net interest income, supported by continued tight cost control. We achieved an
annualised return on tangible equity of 22.4%, or 18.5% excluding the two
material notable items reported with our first quarter results.
Profit before tax for the first half of 2023 was $21.7bn, which was an
increase of $12.9bn on the first half of 2022. This included a $2.1bn reversal
of an impairment relating to the planned sale of our retail banking operations
in France and a provisional gain of $1.5bn on the acquisition of SVB UK.
Profit after tax increased by $9.1bn to $18.1bn.
Revenue increased by $12.3bn to $36.9bn, driven mainly by higher net interest
income in all three global businesses due to interest rate rises. It also
included gains related to the two aforementioned transactions in the first
quarter.
Expected credit losses and other credit impairment charges were $1.3bn, which
was a $0.3bn increase on the first half of 2022.
Our CET1 ratio at the end of the first-half was 14.7%. We have announced a
second interim dividend of $0.10 per share, further to the $0.10 per share
dividend already paid in respect of the first quarter. We are also announcing
a second share buy-back of up to $2bn. We continue to expect to have
substantial distribution capacity going forward.
Our strong performance in the first half of 2023 and our continued strategic
progress mean that we now expect to achieve a return on tangible equity in the
mid-teens for 2023 and 2024.
Thank you to my colleagues
Over the last six months, I had the opportunity to spend time with colleagues
in France, Hong Kong, mainland China, Mexico, Saudi Arabia, the United Arab
Emirates and the UK. I have been constantly impressed by their commitment,
dedication and tireless efforts to support our customers - all of which are
evident in our many achievements. I am especially grateful to those colleagues
who have faced serious challenges so far this year, including the earthquakes
in Türkiye in February and, of course, the ongoing cost of living crisis in
many markets.
Overall, we have delivered a strong first-half performance and are confident
of delivering our revised return on tangible equity target for 2023 and 2024.
I am also pleased that we can reward our shareholders with strong capital
returns, with substantial further distribution capacity still expected ahead.
There is still much work to do, especially given the many challenges in the
global economy, but I am confident about our future as we move further into
the next phase of our strategy and focus on opportunities to drive value
creation, diversify our revenue and retain tight cost control.
Noel Quinn
Group Chief Executive
1 August 2023
Our strategy
We are implementing our strategy across the four strategic pillars
aligned to our purpose, values and ambition.
Our strategy remains anchored around our four strategic pillars, aligned to
our purpose, values and ambition, which are:
- focus on our areas of strength;
- digitise at scale to adapt our operating model for
the future;
- energise our organisation for growth; and
- support the transition to a net zero global
economy.
In our Annual Report and Accounts 2022, we shared our progress in our
transformation journey, which has resulted in improved financial performance
and a strong foundation as we look ahead.
Our strong first-half featured broad-based profit generation around the world.
There was also higher revenue across our global businesses supported by strong
net interest income.
We achieved an annualised return on tangible equity of 22.4%, or 18.5%
excluding the annualised impacts related to the planned sale in France and the
acquisition in the UK. In our global businesses, Wealth and Personal Banking
('WPB') revenue was up 61% on a constant currency basis, Commercial Banking
('CMB') up 73% and Global Banking and Markets ('GBM') up 14%.
Focus on our strengths
Across the Group, three cross-cutting themes - international connectivity,
capital deployment and cost discipline - underpin our strategy upon which our
global businesses execute.
Cross-cutting themes
International connectivity
Our strength in international connectivity, including taking advantage of our
deep liquidity pools in the UK and Hong Kong, remains our key differentiator.
In each of our global businesses, international connectivity is core to who we
serve. In our wholesale business, driven mainly by interest rates,
cross-border client business increased to approximately $7bn in 1H23, compared
with approximately $5bn in 1H22. In addition, across wholesale transaction
banking, a cornerstone of our international connectivity, revenue grew by 63%,
similarly due to interest rates. Within WPB, international clients remain our
most attractive client base, with an average customer providing over double
the revenue compared with a domestic customer. In 1H23, we grew our
international WPB client base to 6.3 million from 5.8 million customers in
1H22, with new-to-bank international customers increasing by 34%.
Capital deployment
We are repositioning our portfolio by exiting unprofitable, sub-scale or less
internationally connected portfolios and investing in growth opportunities.
The planned sale of our banking business in Canada, and of our retail banking
operations in France, as well as the planned exits of our operations in
Russia, and wind-down of our WPB business in New Zealand are all in process.
We have also completed the disposal of our branch operations in Greece. In
Oman, we are changing the nature of our presence, with the planned merger of
our business underway with plans to establish a new branch in its place
subject to regulatory approvals.
From an acquisition perspective, we acquired SVB UK in March 2023. This
acquisition strengthens our CMB franchise and enhances our ability to serve
innovative and fast-growing firms in the technology and life science sectors
in the UK, and internationally. We have made significant progress since then,
launching HSBC Innovation Banking - a stand-alone entity supported by
dedicated bankers across the UK, the US, Israel and Hong Kong, with the
purpose of bridging people, products and propositions across the bank.
Within our Asian Wealth business, Pinnacle now has approximately 1,400
personal wealth planners digitally enabled, and has witnessed a positive
momentum in business growth in 2Q23. In India, we launched Global Private
Banking in July 2023 to serve high net worth and ultra high net worth
customers onshore. We have also continued to diversify our business with more
than 35% of net new invested assets in Asia originating outside Hong Kong.
Cost discipline
We remain committed to disciplined cost management. Costs of $15.5bn in 1H23
were $0.7bn or 4% lower than the same period last year, primarily due to lower
restructuring costs following the end of our cost to achieve programme at the
end of 2022. On a 2023 target basis, the Group's operating expense increased
by 4.3% in 1H23, including severance costs which accounted for 1.4%.
We continue to use cost savings to increase investment in our efforts to
further digitise HSBC. Our spending on technology increased by 12.8% in 1H23
on a target basis, and now accounts for 23% of total operating expenses.
International
customers in WPB
6.3m
Up 8% since 1H22.
Cross-border wholesale
client business
c.$7bn
Up approximately 50% since 1H22.
Wholesale transaction
banking revenue
$13.5bn
Up 63% since 1H22.
Technology spend
+12.8%
vs 1H22.
Focus on our strengths continued
In our global businesses
In each of our global businesses, we continue to focus on areas where we are
strongest and have opportunities to grow. We aim to diversify revenue streams
with a focus on growing Wealth, fee-income streams and collaborating across
businesses.
Wealth and Personal Banking
In WPB, we continued to make progress in executing our wealth, asset
management and insurance strategy. Constant currency revenue in 1H23 was
$16.2bn, up 61% compared with 1H22. Personal Banking performed strongly, with
57% growth during the same period. We recorded net new invested assets of
$34bn, with $27bn coming from Asia.
We continue to develop our Global Money proposition, which is now live in
eight markets with over 140 features released so far this year. We also
launched our faster, fees-free payments rails for Global Money transfers in
Hong Kong and the US, giving customers access to cheaper, faster payments.
Global Money won 'Outstanding FX Services Solution' at The Digital Banker's
Middle East and Africa Innovation Awards 2023.
Net new invested assets in Asia in 1H23
$27bn
Up 21% since 1H22.
Commercial Banking
We saw strong performance in CMB, with constant currency revenue reaching
$12.2bn, a 73% increase compared with 1H22, driven by Global Payments
Solutions ('GPS'). Overall fee income, a key area of our focus, rose by 6% to
$2.0bn, driven by our GPS and Global Trade and Receivables Finance businesses.
Our digital propositions continue to gain traction. We have migrated over
26,000 customers in Hong Kong and the UK to our next generation trade
platform, HSBC Trade Solutions, enabling the digitisation of trade and
trade-as-a-service via enhanced API connectivity. Global Wallet, a digital
wallet that allows customers to transact across currencies without the need of
local accounts, has launched Merchant Box in Hong Kong, a one-stop digital
payments solution to help e-commerce merchants manage payments across
different platforms. Kinetic, our digital business account for SMEs in the UK,
now has onboarded over 66,000 customers.
CMB fee income in 1H23
$2.0bn
Up 6% since 1H22.
Global Banking and Markets
We saw sustained performance in GBM, with constant currency revenue increasing
by 14% compared with 1H22, reaching $8.5bn. Collaboration revenue with our
other global businesses, which remains a key opportunity for us, increased by
5% to approximately $2.0bn. GBM continues to drive international connectivity
across regions, with our Western clients facilitating approximately $1.4bn of
client business into Asia and the Middle East, an increase of approximately
60% compared with 1H22.(1)
Within our Markets and Securities Services business, we launched AI Markets, a
Cloud-hosted global digital service that uses natural language processing to
enable institutional investors to generate bespoke financial market analytics,
browse the latest market insights and access real-time and historical data. We
also went live on SwapConnect, enabling clients to enter into onshore
deliverable Chinese yuan interest rate swap deals settled from outside China.
Collaboration revenue between GBM and other global businesses in 1H23
c.$2.0bn
Up 5% since 1H22.
1 Client business differs from reported revenue as it relates to certain
client-specific income, and excludes certain products (including Principal
Investments, CMB and GBM Other and Asset Management), Group allocations,
recoveries and other non-client-related and portfolio level revenue. It also
excludes Hang Seng. CMB client business excludes Business Banking customers.
GBM client business includes an estimation of client-specific day one
trade-specific revenue from Markets and Securities Services products, which
excludes ongoing mark-to-market revenue and portfolio level revenue such as
hedging. Cross-border client business represents the income earned from a
client's entity domiciled in a different geography than from where the client
group's global relationship is managed.
Digitise at scale
We are continuing to invest in innovative digital solutions and deploying them
rapidly, delivering better banking services for our customers and improving
our operational efficiency. In 1H23, approximately $3.5bn or 23% of our
overall operating expenses on a target basis were dedicated to technology, up
from approximately 21% in 1H22.
We are making digital banking more seamless and efficient for our customers
and building digital solutions to enable international customers to take their
bank with them wherever they are in the world.
As a result, more of our customers are engaging with us through digital
channels. At the end of May 2023, 51% of our WPB customers were active on
our mobile services, compared with 45% at the end of May 2022. A total of 48%
of WPB sales were also made digitally at the end of May 2023, compared with
40% at the end of May 2022. Within CMB, 82% of our customers were digitally
active at the end of May 2023, compared with 76% at the end of May 2022.
To improve our operational efficiency, we are digitising our processes and
modernising our systems across the bank. We are using the power of the Cloud
to process large volumes of data. Our Cloud adoption rate, which is the
percentage of our technology services on the private or public Cloud,
increased from 31% at the end of 1H22 to 37% at the end of 1H23.
We are embracing disruptive technologies to help enhance our services,
strengthen our cybersecurity, and unlock future innovation. These include
artificial intelligence ('AI'), central bank digital currencies, and quantum
computing to develop and harness their potential to help reshape banking.
Our award-winning anti-money laundering AI solution is now deployed in five
markets, covering over 75% of our customers. We also have a range of 'test and
learn' use cases of generative AI, as we explore the potential of this
technology.
We are participating in two digital currency pilots with the Hong Kong
Monetary Authority. The first will develop a new payments ecosystem to trial
the use of eHKD, with the potential to lower transaction costs and reduce
fraud. The second will test tokenised deposits with Visa in Asia.
We are leading research into quantum computing for financial services. In
1H23, we became the first bank to join BT's and Toshiba's quantum-secured
metro network, employing quantum key distribution to securely connect our
headquarters to our data centre using data encryption keys.
Our aim is to deliver world-class digital banking, now and for the future.
Energise for growth
Empowering and energising our colleagues is crucial for inspiring a dynamic
culture. We remained focused on creating a diverse and inclusive environment,
especially in senior leadership roles. We achieved 33.6% female representation
in senior leadership positions by the end of 1H23, and are on track to achieve
our target of 35% by 2025.(1)
In 2022, we also set a Group-wide ethnicity strategy to better represent the
communities we serve. We are making good progress to meet this, with 2.8% of
leadership roles in the UK and US held by colleagues of Black heritage in
1H23.
We have strengthened the development programmes offered to our most senior
leaders through the continuation of our Enterprise Leadership Programme and
the launch of a new range of interventions designed to build the knowledge,
skills and networks of our Managing Directors.
We outline how we put our purpose and values into practice in the following
'ESG overview' section.
1 This data excludes Saudi Arabia due to local data restrictions and Canada
due to the agreed sale of the banking business.
Transition to net zero
As part of our ambition to support our customers through the transition to net
zero and to a sustainable future, we aim to provide and facilitate $750bn to
$1tn of sustainable finance and investments by 2030. In 1H23, we provided and
facilitated $45bn of sustainable finance and investments, bringing our
cumulative amount since 1 January 2020 to $255.7bn.
We also continued to demonstrate progress towards our net zero ambition. In
December 2022 we published our updated energy policy, which is now extended to
the wider energy sector.
We continue to help unlock new climate solutions, focusing on supporting
innovation in critical areas such as green technologies.
We are expanding the number of sectors where we plan to provide, and make
progress towards, 2030 on-balance sheet financed emissions targets. These
include the shipping, agriculture, commercial real estate and residential real
estate sectors, and will be in addition to the carbon-intensive sectors we
have already set targets for, as published in our Annual Report and Accounts
2022 in February.
Our aim to support our customers through their own journeys to transition to
net zero remains a key area of focus and we continue to work towards it
through the facilitation of sustainable finance and investments.
> For further details on our climate ambition, see the following 'ESG
overview' section.
ESG overview
We are committed to embedding strong environmental,
social and governance principles in the way we do business.
Our approach
Our approach to ESG is shaped by our purpose and values, and a desire to
create sustainable long-term value for our stakeholders. As an international
bank with significant breadth and scale, we understand that we can have a
significant impact in helping to tackle ESG challenges and realise
opportunities. We also recognise the complexity of ESG issues. Our ESG efforts
are focused on the areas which align most closely to our strategy, purpose and
values, and where we can help make a significant difference: the transition to
net zero, building inclusion and resilience, and acting responsibly.
Transition to net zero
We continue to make progress on our net zero ambition of becoming net zero in
our operations and supply chain by 2030 and aligning our financed emissions to
net zero by 2050, recognising we have a significant role to play in enabling
the transition to a net zero global economy.
We are expanding the number of sectors where we plan to provide, and make
progress towards, 2030 on-balance sheet financed emissions targets. These
include the shipping, agriculture, commercial real estate and residential real
estate sectors, and will be in addition to the carbon-intensive sectors we
have already set targets for, as published in our Annual Report and Accounts
2022 in February.
Our updated thermal coal exposures dating back to 31 December 2020 are
expected to be made available for reporting in 2023, although this continues
to be dependent on availability and quality of data. We aim to update our
baseline facilitated emissions from our capital markets activities for the oil
and gas, and power and utilities sectors following the publication of the
Partnership for Carbon Accounting Financials ('PCAF') standard for capital
markets, which is expected later this year.
In December 2022, we published an updated energy policy covering the broader
energy system including upstream oil and gas, oil and gas power generation,
hydrogen, renewables and hydropower, nuclear, biomass and energy from waste.
We also updated our thermal coal phase-out policy. For further details of our
policies, see page 65 of our Annual Report and Accounts 2022. We continue to
focus on the implementation of these policies through customer engagement and
assessment of their transition plans.
We continue to unlock new climate solutions, focusing on supporting innovation
in critical areas such as climate technologies. HSBC Asset Management's
Climate Tech Venture Capital strategy has deployed $30m of capital to date
including investing in Chargetrip, a European start-up developing electric
vehicle routing and range technology. In 2Q23, HSBC Asset Management launched
a 'Purpose' share class, designed to align with the corporate social
objectives of our customers. The share class focuses on addressing gender,
racial and ethnic inequality in our societies.
In the first half of 2023, we undertook an analysis of the agri-food sector in
Europe using the draft Taskforce on Nature-related Financial Disclosures'
('TNFD') framework. We aim to use this analysis to inform the next steps in
expanding our risk management framework to incorporate nature considerations.
Build inclusion and resilience
We are committed to building an inclusive workplace where the best want to
work. We place a strong focus on recruiting and retaining diverse talent to
better represent our communities. Data is core to this and we have enabled 91%
of our colleagues to disclose their ethnicity, with 58% currently choosing to
do so.
We have continued to develop the skills of our colleagues to support the
achievement of our strategic priorities. Our Sustainability Academy was
launched in 2022 to improve the skills of key groups of colleagues in support
of our net zero ambitions. The academy has been strengthened with external
partnerships with Imperial College London and the Global Association of Risk
Professionals. The Accelerating Wealth Programme has continued to support our
business growth ambitions in Asia, by attracting and developing individuals
with transferable skills into front-line wealth management roles through an
immersive re-skilling programme.
Cost of living pressures have continued to be felt around the world, and we
have provided a range of resources for colleagues, including financial
guidance and assistance programmes. Our 2022 reward survey showed a nine
percentage-point improvement in colleagues believing they are paid fairly for
the work they do. While this is encouraging progress, we continue to review
our approach to performance and pay to ensure we are able to motivate
colleagues in a way that is authentic to our culture and values.
We know that many of our customers around the world are also facing increasing
cost of living pressures, and we are committed to helping them. We continue to
proactively take steps to help prevent customers from falling into financial
difficulty, and work closely with those who could benefit from additional
assistance. We have developed a range of initiatives and tools designed to
support financial resilience and build the financial capability of our
customers.
We drive inclusion for our customers by identifying and addressing barriers to
finance and financial markets. We aim to simplify the banking experience by
providing tools to help customers manage their finances more easily, as well
as provide education and support to help them make the most of their money. We
also provide finance to our clients in a way that aims to help them improve
their social outcomes. We engage with the communities we operate within
through philanthropic giving, disaster relief and volunteering.
Act responsibly
Our purpose-led conduct approach guides us to do the right thing and to focus
on the impact we have for our customers and the financial markets in which we
operate. It is incorporated into the way we design, approve, market and manage
products and services. It complements our purpose and values and, together
with more formal policies and the tools we have to do our jobs, provides an
enterprise-wide, outcome-focused conduct method.
Financial overview
In assessing the Group's financial performance, management uses a range of
financial measures that focus on the delivery of sustainable returns for our
shareholders and maintaining our financial strength.
Executive summary
Financial performance in the first half of 2023 benefited from the impact of
interest rate rises while operating expenses continued to reflect ongoing cost
discipline, despite inflationary pressures.
Reported profit before tax of $21.7bn increased by $12.9bn compared with 1H22.
This included a $2.1bn reversal of an impairment relating to the planned sale
of our retail banking operations in France, and a provisional gain of $1.5bn
on the acquisition of SVB UK in March. The increase in reported profit before
tax also reflected revenue growth from the impact of interest rate rises.
Lower reported operating expenses mainly reflected reduced restructuring costs
following the completion of our cost-saving programme at the end of 2022 and
favourable foreign currency translation differences. Meanwhile ECL increased,
with 1H23 including charges relating to the commercial real estate sector in
mainland China and to CMB in the UK, while 1H22 benefited from releases of
Covid-19-related allowances.
Our annualised return on average tangible equity ('RoTE') for 1H23 was 22.4%,
which included the annualised impact of our provisional gain on the
acquisition of SVB UK and the reversal of an impairment on the planned sale of
our retail banking operations in France. After excluding these transactions,
annualised RoTE was 18.5%. The annualised RoTE in 1H23 is expected to be
higher than in the second half of 2023, due to the impacts of these
transactions, as well as other seasonal factors.
At 30 June 2023, the Group's CET1 ratio of 14.7% increased by 0.5 percentage
points from 31 December 2022. The Board has announced a second interim
dividend of $0.10 per ordinary share.
Delivery against Group financial targets
Return on average tangible equity (annualised) (%)
22.4%
(1H22: 10.6%)
We achieved an annualised RoTE of 22.4%, compared with 10.6% in 1H22. Our 1H23
RoTE annualised the impact of our provisional gain on the acquisition of SVB
UK and the reversal of an impairment on the planned sale of our retail banking
operations in France. Excluding the impacts related to these transactions,
annualised RoTE was 18.5%.
Our strategy has enabled us to further strengthen our balance sheet, providing
us with a good platform for growth in the current interest rate cycle, while
maintaining cost discipline. This has given us the confidence to revise our
returns guidance for 2023 and 2024. Based on the current path implied by the
market for global policy rates, we are now targeting a RoTE in the mid-teens
for 2023 and 2024, which excludes the impact of material acquisitions and
disposals.
Target basis operating expenses growth compared with 1H22 <>
4.3%
(1H23: $15.3bn; 1H22: $14.7bn)
In 2023, the Group is targeting to limit cost growth to approximately 3%,
excluding the impact of foreign currency translation differences, notable
items and the impact of retranslating the 2022 results of hyperinflationary
economies at constant currency. Our target also excludes the impact of our
acquisition of SVB UK, and the related investments internationally, which are
expected to add approximately 1% to the Group's operating expenses.
On this basis, the Group's operating expenses increased by $0.6bn or 4.3%
compared with 1H22.
We announced at our 2022 full-year results that we intend to incur up to
$0.3bn severance costs during 2023, with the benefits expected to be realised
towards the end of 2023 and into 2024. During 1H23, we incurred severance
costs of $0.2bn.
Capital and dividends
CET1 ratio
14.7%
(31 December 2022: 14.2%)
At 30 June 2023, our CET1 ratio was 14.7%, up 0.5 percentage points from 31
December 2022. This was driven by capital generation net of the dividend
accrual, and included an approximately 0.3 percentage point impact from the
reversal of an impairment on the planned sale of our retail banking operations
in France and the provisional gain on the acquisition of SVB UK. This was
partly offset by increased RWAs and the impact of the share buy-back announced
with our 1Q23 results in May 2023.
We intend to manage the CET1 ratio within our medium term target range of 14%
to 14.5%, and we aim to manage this range down in the long term. We intend to
continue to manage capital efficiently, returning excess capital to
shareholders where appropriate. Our capital distributions remain independent
of the reversal of the impairment of our retail banking operations in France
and our provisional gain on the acquisition of SVB UK.
Alongside our 1H23 results, the Board has announced a second interim dividend
of $0.10 per ordinary share. The total dividend in respect of 1H23 was $0.20
per ordinary share. We also intend to initiate a share buy-back of up to $2bn,
which we expect to commence shortly and complete within three months.
Given our current forecast returns trajectory, we are targetting a dividend
payout ratio of 50% for 2023 and 2024, excluding material notable items,
comprising the impacts of the planned sale of our retail banking operations in
France, the agreed sale of our banking business in Canada and the provisional
gain following the acquisition of SVB UK. Our dividend payout ratio also
excludes the earnings of our Canada business from 30 June 2022 until
completion of the agreed sale.
Second interim dividend per ordinary share in respect of 2023
$0.10
Key financial metrics
Half-year to
30 Jun 30 Jun
2023 2022
Reported results
Profit before tax ($m) 21,657 8,780
Profit after tax ($m) 18,071 8,931
Cost efficiency ratio (%) 41.9 65.7
Net interest margin (%) 1.70 1.24
Basic earnings per share ($) 0.86 0.40
Diluted earnings per share ($) 0.86 0.40
Dividend per ordinary share (in respect of the period) ($) 0.20 0.09
Alternative performance measures <>
Constant currency profit before tax ($m) 21,657 8,404
Constant currency cost efficiency ratio (%) 41.9 65.7
Expected credit losses and other credit impairment charges (annualised) as % 0.28 0.21
of average gross loans and advances to customers (%)
Expected credit losses and other credit impairment charges (annualised) as % 0.26 0.21
of average gross loans and advances to customers, including held for sale (%)
Basic earnings per share excluding material notable items ($)(1) 0.70 0.29
Return on average ordinary shareholders' equity (annualised) (%) 20.8 9.9
Return on average tangible equity (annualised) (%) 22.4 10.6
Return on average tangible equity excluding strategic transactions 18.5 10.6
(annualised) (%)(2)
Target basis operating expenses ($m)(3) 15,319 14,683
At
30 Jun 31 Dec
2023 2022
Balance sheet
Total assets ($m) 3,041,476 2,949,286
Net loans and advances to customers ($m) 959,558 923,561
Customer accounts ($m) 1,595,769 1,570,303
Average interest-earning assets, year to date ($m) 2,162,662 2,143,754
Loans and advances to customers as % of customer accounts (%) 60.1 58.8
Total shareholders' equity ($m) 184,170 177,833
Tangible ordinary shareholders' equity ($m) 153,234 146,927
Net asset value per ordinary share at period end ($) 8.44 8.01
Tangible net asset value per ordinary share at period end ($) 7.84 7.44
Capital, leverage and liquidity
Common equity tier 1 capital ratio (%)(4,5) 14.7 14.2
Risk-weighted assets ($m)(4,5) 859,545 839,720
Total capital ratio (%)(4,5) 19.8 19.3
Leverage ratio (%)(4,5) 5.8 5.8
High-quality liquid assets (liquidity value, average) ($bn)(5,6) 631 647
Liquidity coverage ratio (average) (%)(5,6) 132 132
Share count
Period end basic number of $0.50 ordinary shares outstanding (millions) 19,534 19,739
Period end basic number of $0.50 ordinary shares outstanding and dilutive 19,679 19,876
potential ordinary shares (millions)
Average basic number of $0.50 ordinary shares outstanding (millions) 19,693 19,849
For reconciliations of our reported results to a constant currency basis,
including lists of notable items, see page 39. Definitions and calculations of
other alternative performance measures are included in our 'Reconciliation of
alternative performance measures' on page 57.
1 At 2Q23, earnings per share included the impact of the provisional gain
recognised in respect of the acquisition of SVB UK of $0.08 (2Q22: nil); the
reversal of the impairment loss related to the planned sale of our retail
banking operations in France of $0.08 (2Q22: nil); and the agreed sale of our
banking business in Canada of $nil (2Q22: $nil). Additionally, the earnings
per share at 2Q22 included the impact of the recognition of certain tax assets
of $0.11.
2 Excludes impacts of the reversal of the impairment loss of $1.6bn (net of
tax) relating to the planned sale of our retail banking operations in France,
which is no longer classified as held for sale, and the provisional gain of
$1.5bn recognised in respect of the acquisition of SVB UK, both recognised in
1Q23.
3 Excluding the impact of retranslating prior year costs of
hyperinflationary economies at constant currency.
4 Unless otherwise stated, regulatory capital ratios and requirements are
based on the transitional arrangements of the Capital Requirements Regulation
in force at the time. At 30 June 2023, the IFRS 9 add-back to CET1 capital was
immaterial. References to EU regulations and directives (including technical
standards) should, as applicable, be read as references to the UK's version of
such regulation or directive, as onshored into UK law under the European Union
(Withdrawal) Act 2018, and as may be subsequently amended under UK law.
5 Regulatory numbers and ratios are as presented at the date of reporting.
Small changes may exist between these numbers and ratios and those
subsequently submitted in regulatory filings. Where differences are
significant, we will restate in subsequent periods.
6 The liquidity coverage ratio is based on the average month-end values over
the preceding 12 months.
Basis of presentation
IFRS 17 'Insurance Contracts'
On 1 January 2023, HSBC adopted IFRS 17 'Insurance Contracts'. As required by
the standard, the Group applied the requirements retrospectively with
comparative data previously published under IFRS 4 'Insurance Contracts'
restated from the 1 January 2022 transition date.
For more information, see 'Changes to presentation from 1 January 2023' on
page 28.
Changes to our reporting framework
On 1 January 2023, we updated our financial reporting framework. We no longer
report 'adjusted' results, which exclude the impact of both foreign currency
translation differences and significant items. Instead, we compute constant
currency performance by adjusting comparative reported results only for the
effects of foreign currency translation differences between the relevant
periods.
Constant currency performance
Constant currency performance is computed by adjusting reported results of
comparative periods for the effects of foreign currency translation
differences, which distort period-on-period comparisons.
We consider constant currency performance to provide useful information for
investors by aligning internal and external reporting, and reflecting how
management assesses period-on-period performance.
Notable items
We separately disclose 'notable items', which are components of our income
statement that management would consider as outside the normal course of
business and generally non-recurring in nature.
The tables on pages 39 to 41 and pages 51 to 54 detail the effects of notable
items on each of our global business segments and legal entities during 1H23
and 1H22.
Management view of revenue on a constant currency basis
Our global business segment commentary includes tables that provide breakdowns
of revenue on a constant currency basis by major product. These reflect the
basis on which revenue performance of the businesses is assessed and managed.
Reported results
1H23 compared with 1H22 - reported performance
Half-year to Variance
Reported results 30 Jun 2023 30 Jun 2022 1H23 vs 1H22 Impact of FX
$m $m $m % %
Net operating income before change in expected credit losses and other credit 36,876 24,545 12,331 50 (6)
impairment charges ('revenue')
ECL (1,345) (1,087) (258) (24) 2
Net operating income 35,531 23,458 12,073 51 (6)
Total operating expenses (15,457) (16,127) 670 4 4
Operating profit/(loss) 20,074 7,331 12,743 >100 (11)
Share of profit in associates and joint ventures 1,583 1,449 134 9 (7)
Profit before tax 21,657 8,780 12,877 >100 (11)
Tax income/(expense) (3,586) 151 (3,737) >(100) >(100)
Profit/(loss) after tax 18,071 8,931 9,140 >100 (7)
Half-year to
30 Jun 2023 30 Jun 2022
Notable items $m $m
Revenue
Disposals, acquisitions and related costs 3,321 (288)
Fair value movements on financial instruments 15 (371)
Restructuring and other related costs - 68
Currency translation on revenue notable items - 14
Operating expenses
Disposals, acquisitions and related costs (118) -
Restructuring and other related costs 47 (1,040)
Currency translation on operating expenses notable items - 31
1H23 compared with 1H22 - reported performance continued
Reported profit
Reported profit before tax of $21.7bn was $12.9bn higher than in 1H22. This
was primarily driven by an increase in revenue due to continued growth in net
interest income, reflecting the impact of interest rate rises. Revenue growth
also included a $2.1bn reversal of an impairment relating to the planned sale
of our retail banking operations in France, and a provisional gain of $1.5bn
recognised on the acquisition of SVB UK. Reported operating expenses were
lower, mainly reflecting reduced restructuring and other related costs
following the completion of our cost-saving programme at the end of 2022.
Reported profit after tax of $18.1bn was $9.1bn higher than in 1H22. This
included a higher tax expense, notably as 1H22 included a net $1.8bn gain,
mainly on the recognition of a deferred tax asset.
Reported revenue
Reported revenue of $36.9bn was $12.3bn or 50% higher, and included the
reversal of an impairment relating to the planned sale of our retail banking
operations in France and a provisional gain on the acquisition of SVB UK, as
described above.
The increase also reflected the impact of interest rate rises, mainly in
Global Payments Solutions ('GPS') in CMB and GBM, and in Personal Banking and
Global Private Banking in WPB.
In GBM, revenue increased in Markets and Securities Services ('MSS'), mainly
in Global Debt Markets reflecting favourable primary market conditions and a
better trading performance, and also in Securities Services and Global Foreign
Exchange.
There was a good performance in our insurance business in WPB, while the
increase in revenue in Corporate Centre included higher revenue in Central
Treasury and lower losses relating to the restructuring of our business in
Europe.
These factors were partly offset by lower Credit and Lending revenue in CMB,
primarily driven by margin compression, and in GBM, reflecting an enhanced
focus on returns and weaker client demand. In MSS in GBM, Equities revenue
fell due to lower customer activity. Revenue also reduced in Markets Treasury
due to the impact of rising interest rates on our funding costs and flattening
yield curves. This revenue is allocated to our global businesses.
Reported ECL
Reported ECL of $1.3bn were $0.3bn or 24% higher. The 1H23 charge included
stage 3 charges of $1.1bn. There were charges of $0.3bn related to the
commercial real estate sector in mainland China and charges in CMB in the UK.
The 1H23 charge reflected a more stable outlook in most markets, although
inflationary pressures remain.
In 1H22, ECL included charges of $0.3bn relating to the commercial real estate
sector in mainland China, as well as Russia-related exposures. It also
included additional stage 1 and stage 2 allowances to reflect heightened
levels of economic uncertainty and inflationary pressures, in part offset by
the release of most of our remaining Covid-19-related allowances.
Reported operating expenses
Reported operating expenses of $15.5bn were $0.7bn or 4% lower, mainly due to
a reduction in restructuring and other related costs of $1.1bn following the
completion of our cost-saving programme, which concluded at the end of 2022.
The reduction also included a $0.2bn impact from the reversal of historical
asset impairments, the impact of our continued cost discipline, and favourable
foreign currency translation differences between the periods of $0.6bn.
These factors were partly offset by higher technology spend of $0.5bn, an
increase in our performance-related pay accrual of $0.2bn and severance
payments of $0.2bn. Our operating expenses also rose due to the impact of
higher inflation and incremental costs following our acquisition of SVB UK.
Reported share of profit from associates and JVs
Reported share of profit from associates and joint ventures of $1.6bn was
$0.1bn or 9% higher, reflecting an increase in the share of profit from Saudi
Awwal Bank ('SAB'), formerly The Saudi British Bank, and Bank of
Communications Co., Limited ('BoCom').
Tax expense
Tax in 1H23 was a charge of $3.6bn, representing an effective tax rate of
16.6%. The effective tax rate for 1H23 was reduced by 1.9 percentage points by
the non-taxable provisional gain on the acquisition of SVB UK and by 2.1
percentage points by the release of provisions for uncertain tax positions.
Tax in 1H22 was a credit of $151m. This was mainly due to a $2.1bn credit
arising from the recognition of a deferred tax asset on historical tax losses
of HSBC Holdings as a result of improved profit forecasts for the UK tax group
and a charge of $0.3bn for uncertain tax positions. Excluding these items, the
effective tax rate for 1H22 was 18.4%.
Return on average tangible equity
In 1H23, our annualised RoTE was 22.4%. Excluding the impact of the reversal
of an impairment relating to the planned sale of our retail banking operations
in France and the provisional gain of $1.5bn on the acquisition of SVB UK,
annualised RoTE was 18.5%.
Reported profit after tax in 1H23
$18.1bn
(1H22: $8.9bn)
Reported net interest income in 1H23
$18.3bn
Up 36% compared with 1H22.
Reported performance - 2Q23 vs 2Q22
Quarter ended
Reported results 30 Jun 2023 30 Jun 2022 31 Mar 2023 2Q23 vs 2Q22 Impact of FX
$m $m $m $m % %
Net operating income before change in expected credit losses and other credit 16,705 12,240 20,171 4,465 36 (2)
impairment charges ('revenue')
ECL (913) (447) (432) (466) (104) 3
Net operating income 15,792 11,793 19,739 3,999 34 (2)
Total operating expenses (7,871) (7,949) (7,586) 78 1 2
Operating profit/(loss) 7,921 3,844 12,153 4,077 106 (2)
Share of profit in associates and joint ventures 850 792 733 58 7 (6)
Profit before tax 8,771 4,636 12,886 4,135 89 (3)
Tax income/(expense) (1,726) 863 (1,860) (2,589) 300
Profit/(loss) after tax 7,045 5,499 11,026 1,546 28
Quarter ended
30 Jun 2023 30 Jun 2022 31 Mar 2023
Notable items $m $m $m
Revenue
Disposals, acquisitions and related costs (241) (288) 3,562
Fair value movements on financial instruments - (171) 15
Restructuring and other related costs - (12) -
Currency translation on revenue notable items - 23 77
Operating expenses
Disposals, acquisitions and related costs (57) - (61)
Restructuring and other related costs 47 (589) -
Currency translation on operating expenses notable items - 1 (2)
Reported profit
Reported profit before tax of $8.8bn was $4.1bn higher than in 2Q22,
reflecting an increase in revenue driven by rising interest rates. Growth also
reflected the non-recurrence of losses related to the planned restructure of
our businesses in Europe.
Reported profit after tax of $7.0bn was $1.5bn higher than in 2Q22. This
included a higher tax expense, notably as 2Q22 included a $1.8bn deferred tax
gain.
Reported revenue
Reported revenue grew by $4.5bn to $16.7bn. Net interest income increased in
all global businesses, mainly as a result of higher interest rates, a good
performance in life insurance manufacturing in WPB and increased activity in
debt capital markets in GBM.
These increases were partly offset by reductions in revenue in Global Foreign
Exchange, compared with a strong 2Q22, and in Equities. There was also a
reduction in Markets Treasury revenue from lower net interest income due to
the impact of rising interest rates on our funding costs and flattening yield
curves. This revenue is allocated to our global businesses.
'Disposals, acquisitions and related costs' in 2Q23 primarily related to fair
value losses on the foreign exchange hedging of the proceeds from the agreed
sale of our banking business in Canada.
Reported ECL
Reported ECL in 2Q23 of $0.9bn were $0.5bn higher. ECL in 2Q23 included $0.3bn
of charges against exposures in the commercial real estate sector in mainland
China and charges in the UK in CMB.
Reported operating expenses
Reported operating expenses of $7.9bn were $0.1bn lower, mainly due to the
favourable impact of foreign currency translation differences of $0.1bn. The
non-recurrence of restructuring and other related costs following the
completion of our cost-reduction programme at the end of 2022 and a $0.2bn
impact from the reversal of historical asset impairments, together with
continued cost discipline, broadly offset increases in technology spend, a
higher performance-related pay accrual, increased severance costs and
inflationary impacts.
Reported profit after tax in 2Q23
$7.0bn
(2Q22: $5.5bn)
Net interest margin in 2Q23
1.72%
Up 3 basis points from 1Q23.
Constant currency results
1H23 compared with 1H22 - constant currency basis
Results - on a constant currency basis <> Half-year to 1H23 vs 1H22
30 Jun 2023 30 Jun 2022 $m %
$m
$m
Revenue 36,876 23,647 13,229 56
ECL (1,345) (1,074) (271) (25)
Total operating expenses (15,457) (15,532) 75 -
Operating profit 20,074 7,041 13,033 >100
Share of profit in associates and joint ventures 1,583 1,363 220 16
Profit before tax 21,657 8,404 13,253 >100
Profit before tax of $21.7bn was $13.3bn higher than in 1H22 on a constant
currency basis.
Revenue increased by $13.2bn or 56%, and included a $2.1bn reversal of an
impairment relating to the planned sale of our retail banking operations in
France, and a provisional gain of $1.5bn recognised on the acquisition of SVB
UK. The increase in revenue was also due to higher net interest income
reflecting the impact of global interest rates rises and revenue growth in MSS
in GBM, despite a weaker performance in Equities. There was also a good
performance from our insurance business in WPB and higher revenue in Corporate
Centre.
ECL were $0.3bn higher. In 1H23, ECL included charges relating to the
commercial real estate sector in mainland China and stage 3 charges in CMB in
the UK. This compared with 1H22 charges, which reflected heightened economic
uncertainty mainly due to the Russia-Ukraine war, inflationary pressures and
charges related to the commercial real estate sector in mainland China,
although it benefited from releases of Covid-19-related allowances.
Operating expenses remained stable, as the non-recurrence of restructuring and
other related costs following the completion of our cost-saving programme at
the end of 2022 broadly offset other cost growth. The impact of retranslating
the prior year results of our operations in hyperinflationary economies at
1H23 average rates of foreign exchange resulted in cost growth of $160m.
Balance sheet and capital
Balance sheet strength
Total assets of $3.0tn were $92bn higher than at 31 December 2022 on a
reported basis, and included the favourable impact of foreign currency
translation differences of $46bn. On a constant currency basis, total assets
increased by $46bn, mainly from an increase in financial investments and
higher trading asset balances. In addition, there was growth in loans and
advances to customers.
Reported loans and advances to customers of $1.0tn increased by $36bn. On a
constant currency basis, loans and advances to customers grew by $23bn
including the reclassification of lending balances from 'assets held for sale'
relating to the planned sale of our retail banking operations in France and
increases following the acquisition of SVB UK. While our near-term outlook on
lending growth remains cautious, we expect mid-single-digit percentage annual
loan growth in the medium to long term.
Reported customer accounts of $1.6tn increased by $25bn. On a constant
currency basis, customer accounts increased by $3bn, which also included the
reclassification of balances from held for sale relating to the planned sale
of our retail banking operations in France and increases following the
acquisition of SVB UK. These increases were partly offset by reductions in
deposit balances in HSBC UK.
Loans and advances to customers as a percentage of customer accounts was 60%,
compared with 59% at 31 December 2022.
Distributable reserves
The distributable reserves of HSBC Holdings at 30 June 2023 were $25.7bn,
compared with $35.2bn at 31 December 2022. The decrease was primarily driven
by ordinary dividend payments and additional tier 1 coupon distributions of
$7.1bn, a share buy-back programme of $2bn and a reduction in other reserves
of $0.4bn. The profits generated of $6.3bn in 1H23 will be reflected in the
distributable reserves as at 31 December 2023.
Capital position
We actively manage the Group's capital position to support our business
strategy and meet our regulatory requirements at all times, including under
stress, while optimising our capital efficiency. To do this, we monitor our
capital position using a number of measures. These include our capital ratios
and the impact on our capital ratios as a result of stress.
Our CET1 ratio at 30 June 2023 was 14.7%, up from 14.2% at 31 December 2022,
reflecting an increase in CET1 capital of $7.1bn including the reversal of an
impairment on the planned sale of our retail banking operations in France and
the provisional gain on the acquisition of SVB UK. This was partly offset by
an increase in RWAs of $19.8bn and the impact of the share buy-back announced
with our 1Q23 results.
Liquidity position
We actively manage the Group's liquidity and funding to support our business
strategy and meet regulatory requirements at all times, including under
stress. To do this, we monitor our position using a wider set of measures,
including the liquidity coverage ratio ('LCR') and the net stable funding
ratio. At 30 June 2023, the Group's LCR was 132% and we held high-quality
liquid assets of $631bn. For further details, see page 99.
Wealth and Personal Banking
We serve around 40 million customers globally,
including over 6 million who are international, from retail
customers to ultra high net worth individuals and their families.
Contribution to Group 1H23
profit before tax <>
To meet our customers' needs, we offer a full suite of products and services
across transactional banking, lending and wealth.
WPB continued to make strategic investments in our digital capabilities and
colleagues, to expand our Wealth franchise in Asia, and enhance our offering
to customers with international needs. Performance benefited from our product
diversification, as the rise in interest rates, and growth in lending and
wealth deposits, as well as a good performance in our insurance business,
offset lower revenue in equities and mutual funds.
Results - on a constant currency basis <> Half-year to 1H23 vs 1H22
30 Jun 30 Jun $m %
2022
2023
$m
$m
Net operating income 16,200 10,058 6,142 61
ECL (502) (584) 82 14
Operating expenses (7,141) (6,995) (146) (2)
Share of profit in associates and JVs 35 8 27 >100
Profit before tax 8,592 2,487 6,105 >100
RoTE (annualised)(1) (%) 43.1 11.5
1 RoTE (annualised) in 1H23 included a 10.5 percentage point favourable impact
of the reversal of the impairment losses relating to the planned sale of our
retail banking operations in France.
Divisional highlights
$34bn
WPB net new invested assets, a decrease of 13% compared with 1H22.
Constant currency profit before tax <> ($bn)
$8.6bn
Half-year to
6.3 million
International customers at 30 June 2023, an increase of 8% compared with 1H22.
Constant currency net operating income <> ($bn)
$16.2bn
Half-year to
> International customers are those who bank in more than one market, those
whose address is different from the market we bank them in and customers whose
nationality, or country of birth for non-resident Indians and overseas
Chinese, is different to the market we bank them in. Customers may be counted
more than once when banked in multiple countries. Customer numbers include 1.7
million customers acquired through our purchase of L&T Investment
Management.
Management view of revenue <> Half-year to 1H23 vs 1H22
30 Jun 30 Jun $m %
2022
2023
$m
$m
Wealth 3,921 3,382 539 16
- investment distribution 1,281 1,263 18 1
- Global Private Banking 1,141 941 200 21
net interest income 580 387 193 50
non-interest income 561 554 7 1
- life insurance 875 651 224 34
- asset management 624 527 97 18
Personal Banking 10,217 6,500 3,717 57
- net interest income 9,557 5,858 3,699 63
- non-interest income 660 642 18 3
Other(1) 2,062 176 1,886 >100
- of which: reversal of impairment loss relating to the planned sale of our 2,034 - 2,034 100
retail banking operations in France
Net operating income(2) 16,200 10,058 6,142 61
1 'Other' includes Markets Treasury, HSBC Holdings interest expense and
hyperinflation. It also includes the distribution and manufacturing (where
applicable) of retail and credit protection insurance, disposal gains
and other non-product-specific income.
2 'Net operating income' means net operating income before change in expected
credit losses and other credit impairment charges (also referred to as
'revenue').
Half-year to
30 Jun 2023 30 Jun 2022
Notable items $m $m
Revenue
Disposals, acquisitions and related costs 2,034 -
Restructuring and other related costs - 93
Currency translation on revenue notable items - (1)
Operating expenses
Disposals, acquisitions and related costs (23) -
Restructuring and other related costs - (113)
Currency translation on operating expenses notable items - 4
Financial performance
Profit before tax of $8.6bn was $6.1bn higher than in 1H22 on a constant
currency basis, including a $2.0bn reversal of an impairment relating to the
sale of our retail banking operations in France. The growth in profit before
tax reflected an increase in revenue of $6.1bn, notably from higher net
interest income due to wider margins from rising interest rates, and a fall in
ECL of $0.1bn, partly offset by a $0.1bn increase in operating expenses.
Revenue of $16.2bn was $6.1bn or 61% higher on a constant currency basis. This
included the impact of a reversal of an impairment relating to the planned
sale of our retail banking operations in France included within 'Other'. There
was strong growth in Personal Banking net interest income of $3.7bn, due to
wider margins from rising interest rates, higher revenue of $0.2bn in life
insurance, a rise of $0.2bn in Global Private Banking net interest income and
a $0.1bn increase in revenue in asset management. These were partly offset by
a reduction in revenue allocated from Corporate Centre of $0.4bn, including
from Markets Treasury.
In Wealth, revenue of $3.9bn was $0.5bn or 16% higher.
- Life insurance revenue was $0.2bn or 34% higher.(1) The new business
contractual service margin written of $0.7bn in 1H23 was up $0.1bn, mainly in
Hong Kong due to the mainland China border reopening and the launch of new
products in 1H23.
- Global Private Banking revenue was $0.2bn or 21% higher due to the
positive impact of wider margins from rising interest rates on net interest
income.
- Asset management revenue was $0.1bn or 18% higher, driven by increased
assets under management and positive market movements in the seed investment
portfolio. Performance continued to be impacted by market volatility.
In Personal Banking, revenue of $10.2bn was up $3.7bn or 57%.
- Net interest income was $3.7bn or 63% higher due to the benefit of wider
margins following interest rate rises and balance sheet growth, excluding the
impact of transfers to held for sale. Lending grew in HSBC UK, and in Hong
Kong, Mexico and the US. Mortgage lending rose in HSBC UK by $5bn and in Hong
Kong by $5bn. Compared with 1H22, unsecured lending increased by $1bn, notably
in Mexico by $1bn, and in Hong Kong by $1bn, partly offset by the closure of
the John Lewis cards portfolio.
ECL of $0.5bn were $0.1bn lower than in 1H22 on a constant currency basis. The
modest reduction was primarily due to higher charges in 1H22 relating to the
Russia-Ukraine war. Credit performance in 1H23 remained resilient as
delinquencies and write-offs remained broadly stable, despite a significant
rise in inflationary pressures.
Operating expenses of $7.1bn were 2% higher on a constant currency basis,
reflecting continued investment in Wealth in Asia, higher technology spend and
from the impact of higher inflation. These were partly offset by continued
cost discipline, the non-recurrence of restructuring and other related costs
following the completion of our cost-saving programme at the end of 2022, and
a $0.1bn reversal related to historical asset impairments.
1.From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Under IFRS 17, the future profits from
new business are capitalised in the contractual service margin, and not
recognised immediately in the income statement, as was the case for the value
of new business measure under IFRS 4.
Commercial Banking
We support businesses in 55 countries and territories,
ranging from small enterprises to large corporates operating globally.
Contribution to Group 1H23
profit before tax
We help businesses grow by supporting their financial needs, facilitating
cross-border trade and payments, and providing access to products and
services. We help them access international markets, provide expert financial
advice and offer access to a full suite of HSBC solutions from across the
Group's other businesses.
In the first half of 2023, CMB acquired SVB UK, demonstrating our continued
commitment to the UK economy.
The subsequent launch of HSBC Innovation Banking has strengthened our
Commercial Banking franchise by enhancing our ability to serve innovative and
fast-growing firms in the innovation ecosystem with an international
proposition for businesses in the technology and life science sectors.
CMB delivered a strong revenue performance in 1H23, reflecting interest rate
rises and growth in collaboration revenue with GBM, while ECL and operating
expenses both increased.
Results - on a constant currency basis <> Half-year to 1H23 vs 1H22
30 Jun 30 Jun $m %
2023 2022
$m
$m
Net operating income 12,216 7,055 5,161 73
ECL (704) (278) (426) >(100)
Operating expenses (3,572) (3,345) (227) (7)
Share of profit in associates and JVs (1) - (1) -
Profit before tax 7,939 3,432 4,507 >100
RoTE (annualised)(1) (%) 28.8 12.2
1 RoTE (annualised) in 1H23 included a 6.2 percentage point favourable impact
of the provisional gain on the acquisition of SVB UK.
Divisional highlights
154%
Increase in GPS revenue.
Constant currency profit before tax <>
($bn)
$7.9bn
Half-year to
11%
Increase in collaboration income from the sale of products to CMB clients.
Constant currency net operating income <>
($bn)
$12.2bn
Half-year to
Management view of revenue <> Half-year to 1H23 vs 1H22
30 Jun 30 Jun $m %
2022
2023
$m
$m
Global Trade and Receivables Finance 1,026 1,053 (27) (3)
Credit and Lending 2,745 2,908 (163) (6)
Global Payments Solutions 5,967 2,352 3,615 >100
GBM products, Insurance and Investments, and Other(1) 2,478 742 1,736 >100
- of which: share of revenue from Markets and Securities Services and 658 592 66 11
Banking products
- of which: provisional gain on the acquisition of Silicon Valley Bank UK 1,507 - 1,507 100
Limited
Net operating income(2) 12,216 7,055 5,161 73
1 Includes CMB's share of revenue from the sale of Markets and Securities
Services and Banking products to CMB customers. GBM's share of revenue
from the sale of these products to CMB customers is included within the
corresponding lines of the GBM management view of revenue. Also
includes allocated revenue from Markets Treasury, HSBC Holdings interest
expense and hyperinflation.
2 'Net operating income' means net operating income before change in expected
credit losses and other credit impairment charges (also referred to as
'revenue').
Half-year to
30 Jun 2023 30 Jun 2022
Notable items $m $m
Revenue
Disposals, acquisitions and related costs 1,507 -
Currency translation on revenue notable items - (1)
Operating expenses
Disposals, acquisitions and related costs (15) -
Restructuring and other related costs 29 (66)
Currency translation on operating expenses notable items - 2
Financial performance
Profit before tax of $7.9bn was $4.5bn higher than in 1H22 on a constant
currency basis, primarily driven by an increase in revenue in all of our main
legal entities. This reflected a $3.5bn increase in net interest income in
Global Payments Solutions ('GPS'). It also included a provisional gain of
$1.5bn from HSBC UK's acquisition of SVB UK. These increases were partly
offset by a higher ECL charge and growth in operating expenses.
Revenue of $12.2bn was $5.2bn or 73% higher on a constant currency basis:
- In GPS, revenue rose by $3.6bn, with growth in all
main legal entities, reflecting wider margins from interest rate rises and
business actions, while average balances decreased marginally. There was also
a 9% increase in fee income, notably in cards and payments, with growth in
most of our main legal entities, mainly in the UK and Asia.
- In Global Trade and Receivables Finance ('GTRF'),
revenue was down 3%, driven by lower balances reflecting the softer trade
cycle, notably in our main legal entity in Asia. This was partly offset by
growth in HSBC UK from higher average balances and improved margins. Fee
income was broadly stable.
- In Credit and Lending, revenue decreased by $0.2bn
or 6%, primarily in our legal entities in Europe and Asia due to lower
balances as rising interest rates softened demand, and from higher funding
costs.
- In GBM products, Insurance and Investments, and
Other, revenue increased by $1.7bn, reflecting the provisional gain of $1.5bn
on the acquisition of SVB UK, and an 11% increase in collaboration revenue
from GBM products, notably Foreign Exchange. These increases were partly
offset by a fall in Markets Treasury revenue and the adverse impacts of
hyperinflation accounting, which are allocated to the global businesses.
ECL of $0.7bn were $0.4bn higher than in 1H22 on a constant currency basis.
The increase was mainly due to releases in 1H22 of our remaining
Covid-19-related allowances, and from higher charges in 1H23, mainly in the
UK. The 1H23 period included charges of $0.2bn relating to the commercial real
estate sector in mainland China, compared with charges of $0.2bn in 1H22.
Operating expenses of $3.6bn were $0.2bn higher on a constant currency basis,
largely driven by an increase in the performance-related pay accrual,
incremental costs of $0.1bn following the acquisition of SVB UK, investment in
technology and inflationary impacts. These increases were partly mitigated by
the impact of our continued cost discipline around hiring and strategic
cost-saving initiatives.
Global Banking and Markets
We support multinational corporates, financial institutions and institutional
clients, as well as public sector and government bodies.
Contribution to Group 1H23
profit before tax<>
We are a leader in facilitating global trade and payments, particularly into
and within Asia and the Middle East, enabling our clients in the East and West
to achieve their objectives by accessing our expertise and geographical reach.
Our product specialists deliver a comprehensive range of transaction banking,
financing, capital markets and advisory, and risk management services.
GBM delivered a strong performance in 1H23, achieving a RoTE of 14.2%. We grew
revenue by 14%, while maintaining cost discipline, even as we continued to
invest in technology and people to improve operating resilience and support
our clients. Revenue growth was driven by higher interest rates and good
client activity. We also had a reduction in ECL, reflecting a stable credit
performance.
Results - on a constant currency basis <> Half-year to 1H23 vs 1H22
30 Jun 30 Jun $m %
2022
2023
$m
$m
Net operating income 8,501 7,459 1,042 14
ECL (136) (210) 74 35
Operating expenses (4,785) (4,557) (228) (5)
Share of profit in associates and JVs - - - -
Profit before tax 3,580 2,692 888 33
RoTE (annualised) (%) 14.2 11.5
Divisional highlights
14.2%
RoTE in 1H23, up 2.7 percentage points compared with 1H22.
Constant currency profit before tax <>
($bn)
$3.6bn
Half-year to
111%
Increase in GPS revenue.
Constant currency net operating income <>
($bn)
$8.5bn
Half-year to
Management view of revenue <> Half-year to 1H23 vs 1H22
30 Jun 30 Jun $m %
2022
2023
$m
$m
Markets and Securities Services 4,763 4,658 105 2
- Securities Services 1,220 933 287 31
- Global Debt Markets 588 423 165 39
- Global Foreign Exchange 2,225 2,138 87 4
- Equities 236 594 (358) (60)
- Securities Financing 513 458 55 12
- Credit and funding valuation adjustments (19) 112 (131) >(100)
Banking 4,273 3,097 1,176 38
- Global Trade and Receivables Finance 341 333 8 2
- Global Payments Solutions 2,197 1,043 1,154 >100
- Credit and Lending 987 1,170 (183) (16)
- Capital Markets and Advisory 558 424 134 32
- Other(1) 190 127 63 50
GBM Other (535) (296) (239) (81)
- Principal Investments 13 78 (65) (83)
- Other(2) (548) (374) (174) (47)
Net operating income(3) 8,501 7,459 1,042 14
1 Includes portfolio management, earnings on capital and other capital
allocations on all Banking products.
2 Includes notional tax credits and Markets Treasury, HSBC Holdings
interest expense and hyperinflation.
3 'Net operating income' means net operating income before change in
expected credit losses and other credit impairment charges (also referred to
as 'revenue').
Half-year to
30 Jun 2023 30 Jun 2022
Notable items $m $m
Revenue
Restructuring and other related costs - (26)
Currency translation on revenue notable items - -
Operating expenses
Disposals, acquisitions and related costs 3 -
Restructuring and other related costs - (87)
Currency translation on operating expenses notable items - 3
Financial performance
Profit before tax of $3.6bn was $0.9bn or 33% higher than in 1H22 on a
constant currency basis. This was driven by an increase in revenue of $1.0bn
or 14%, notably from higher net interest income and a lower ECL charge
compared with 1H22. Operating expenses increased by $0.2bn.
Revenue of $8.5bn was $1.0bn or 14% higher on a constant currency basis.
In Markets and Securities Services, revenue increased by $0.1bn or 2%, despite
adverse movements in credit and funding valuation adjustments of $0.1bn which
included methodology changes.
- In Securities Services, revenue grew by $0.3bn or 31% due to higher net
interest income as global interest rates rose.
- In Global Debt Markets, revenue increased by $0.2bn or 39% from more
favourable primary market conditions, and due to the reopening of mainland
China's borders, and a better trading performance. The 1H22 period was
impacted by lower primary activity and client flow due to uncertainty and
challenging market conditions.
- In Global Foreign Exchange, revenue growth of $0.1bn or 4% reflected
strong client activity and trading performance due to market-wide volatility,
and the macroeconomic impacts from rising inflation and increasing interest
rates.
- In Securities Financing, revenue increased by $0.1bn or 12% due to
strong prime trading performance and from the reopening of mainland China's
borders.
- In Equities, revenue fell by $0.4bn or 60% in the context of a strong
1H22, and due to lower client activity as a result of reduced market
volatility.
In Banking, revenue increased by $1.2bn or 38%.
- In GPS, revenue increased by $1.2bn from higher global interest rates.
- Capital Markets and Advisory revenue increased by $0.1bn or 32%.
Investment banking fees were stable, despite a reduction in the global market
fee pool, due to an increase in capital markets activity. Issuer Services
revenue also increased due to higher interest rates.
- Credit and Lending revenue decreased by $0.2bn or 16%, due to weaker
client demand and an enhanced focus on returns.
In GBM Other, Principal Investments revenue declined by $0.1bn, as 1H23
included lower revaluation gains compared with 1H22. There was also a
reduction in revenue from Markets Treasury and from adverse impacts of
hyperinflationary accounting, which are allocated to the global businesses.
ECL were $0.1bn, compared with charges of $0.2bn in 1H22 on a constant
currency basis, reflecting a stable credit performance.
Operating expenses of $4.8bn increased by $0.2bn or 5% on a constant currency
basis, due to the impact of higher inflation, partly offset by the impact of
our cost-saving initiatives.
Corporate Centre
Contribution to Group 1H23 profit before tax <>
The results of Corporate Centre primarily comprise the share of profit from
our interests in our associates and joint ventures. It also includes Central
Treasury, stewardship costs and consolidation adjustments.
Corporate Centre performance in 1H23 primarily reflected the non-recurrence of
adverse fair value movements on financial instruments, restructuring of our
business in Europe, including losses on the completed sale of our branch
operations in Greece, planned sale of our operations in Russia, and the
non-recurrence of restructuring and other related costs following the
completion of our cost-saving programme at the end of 2022. In addition, our
share of profit from associates and joint ventures increased.
Results - on a constant currency basis <> Half-year to 1H23 vs 1H22
30 Jun 30 Jun $m %
2022
2023
$m
$m
Net operating income (41) (925) 884 96
ECL (3) (2) (1) (50)
Operating expenses 41 (635) 676 >100
Share of profit in associates and JVs 1,549 1,355 194 14
Profit before tax 1,546 (207) 1,753 >100
RoTE (annualised) (%) 8.0 7.3
Divisional highlights
Constant currency profit before tax <>
($bn)
$1.5bn
Half-year to
Constant currency net operating income <>
($m)
$(41)m
Half-year to
Management view of revenue <> Half-year to 1H23 vs 1H22
30 Jun 30 Jun $m %
2022
2023
$m
$m
Central Treasury(1) 81 (378) 459 >100
Legacy portfolios (11) 6 (17) >(100)
Other(2,3) (111) (553) 442 80
Net operating income(4) (41) (925) 884 96
1 Central Treasury comprises valuation differences on issued long-term debt
and associated swaps and fair value movements on financial instruments.
2 Other comprises consolidation adjustments, funding charges on property and
technology assets, revaluation gains and losses on investment properties and
property disposals, gains and losses on certain planned business disposals,
and other revenue items not allocated to global businesses.
3 Revenue from Markets Treasury, HSBC Holdings net interest expense and
hyperinflation are allocated out to the global businesses, to align them
better with their revenue and expense. The total Markets Treasury revenue
component of this allocation for 1H23 was $450m (1H22: $822m; 2H22: $624m).
4 'Net operating income' means net operating income before change in expected
credit losses and other credit impairment charges (also referred to as
'revenue').
Half-year to
30 Jun 2023 30 Jun 2022
Notable items $m $m
Revenue
Disposals, acquisitions and related costs (220) (288)
Fair value movements on financial instruments 15 (371)
Restructuring and other related costs - 1
Currency translation on revenue notable items - 16
Operating expenses
Disposals, acquisitions and related costs (83) -
Restructuring and other related costs 18 (774)
Currency translation on operating expenses notable items - 27
Financial performance
Profit before tax of $1.5bn compared with a loss before tax of $0.2bn in 1H22,
on a constant currency basis. This increase primarily reflected higher revenue
and lower restructuring and other related costs, together with an increase in
the share of profit from associates and joint ventures.
Revenue was $0.9bn or 96% higher on a constant currency basis. This reflected
the non-recurrence of adverse fair value movements on financial instruments,
favourable valuation differences on long-term debt and associated swaps, and
valuation gains on structural hedging. In addition, the increase reflected the
impacts of the restructuring of our business in Europe, including the
non-recurrence of 1H22 losses associated with the completed sale of our branch
operations in Greece and lower losses related to the planned disposal of our
operations in Russia. These were partly offset by fair value losses in 1H23 of
$0.3bn relating to the foreign exchange hedging of the expected proceeds from
the agreed sale of our banking business in Canada.
Operating expenses decreased by $0.7bn on a constant currency basis, primarily
driven by the non-recurrence of restructuring and other related costs
following the completion of our cost-saving programme at the end of 2022,
partly offset by costs related to the planned disposals of our retail banking
operation in France and our banking business in Canada.
Share of profit from associates and joint ventures of $1.5bn rose by $0.2bn or
14% on a constant currency basis, primarily driven by increases in the share
of profit from SAB and BoCom.
Risk overview
Active risk management helps us to achieve our strategy, serve our customers
and communities and grow our business safely.
Managing risk
The economic outlook improved in most markets during the first half of 2023,
although there remained key economic and regulatory risks. While the
Russia-Ukraine war has continued to have far-reaching geopolitical
implications, the global economy has adapted to the resulting imposition of
significant sanctions and trade restrictions. In particular, European
countries have diversified their energy sources to reduce dependence on
Russian energy supplies.
However, the continuation of - or any further escalation in - the
Russia-Ukraine war could have additional economic, social and political
consequences. These include further sanctions and trade restrictions,
longer-term changes in the macroeconomic environment with the risk of higher
and sustained inflation, and a continued volatility in energy prices.
The relationship between China and several countries, including the US and the
UK, remains complex. Efforts across a variety of sectors have been undertaken
to decrease vulnerabilities to geopolitical shocks through de-risking supply
chains. The US, the UK, the EU and other countries have imposed various
sanctions and trade restrictions on Chinese persons and companies. In
response, China has imposed sanctions and introduced new laws and trade
restrictions that could impact the Group and its customers. Further sanctions
or counter-sanctions, whether in connection with Russia or China, may affect
the Group and its customers by creating regulatory, reputational and market
risks.
Central banks in both developed and emerging markets continued to tighten
monetary policy in the first half of 2023, and with further tightening
expected in the second half. While accumulated policy tightening has increased
the risks of recession and financial instability, and even though inflation
has started to fall in most developed markets, central banks are expected to
sustain higher interest rates to address persistent underlying inflation
pressures through to mid-2024.
Fiscal policies are likely to remain relatively generous in both developed and
emerging markets, as demand increases for public spending on items including
social welfare, defence and decarbonisation initiatives. Against a backdrop of
slower economic growth, volatile energy prices and high interest rates, this
could increase the strains on highly indebted sovereigns, corporates and
households in both emerging and developed markets.
Key risk appetite metrics
Component Measure Risk appetite 1H23
Capital CET1 ratio - end point basis ≥13.0% 14.7 %
Change in expected credit losses and other credit impairment charges Change in expected credit losses and other credit impairment charges as a % of ≤0.50% 0.23%
advances: Retail (WPB)
Change in expected credit losses and other credit impairment charges as a % of ≤0.45% 0.46%
advances: Wholesale (GBM, CMB)
The mainland China commercial real estate market showed signs of recovery and
stabilisation in early 2023, but recent market data remains mixed, suggesting
both an uncertain and protracted recovery. Chinese government policy measures
introduced in late 2022 have resulted in improved financial support for
onshore borrowers, although offshore financial market conditions remain
challenged with a continued shortage of liquidity. Corporates operating in
this sector are likely to face continued challenges and the risk of further
credit deterioration.
We continue to closely monitor the impact of the increasing cost of living on
our retail customers. Our primary concern is to ensure that we offer the right
support to our customers in line with regulatory, government and wider
stakeholder expectations. As part of the ongoing support to our retail
mortgage customers, specifically in the UK, we have accepted and implemented
the government's commitments outlined in the Mortgage Charter, released in
June 2023, which will help provide additional assistance options to customers
that may need help. For further details in relation to the full range of
support available to our UK customers, see www.hsbc.co.uk.
We are engaging closely with our key regulators to help ensure we continue to
meet their expectations of financial institutions' activities during times of
market volatility.
For IFRS 9 'Financial Instruments', our approach to macroeconomic scenarios
remained unchanged in the second quarter, but the shift in UK interest rate
expectations resulted in updates to key scenario variables.
In addition, management adjustments to ECL were applied to reflect persisting
uncertainty in certain sectors, driven by inflation, interest rate volatility
and other macroeconomic risks, which were not fully captured by our models.
We continue to monitor, and seek to manage, the potential implications of all
the above developments on our customers and our business. While the financial
performance of our operations varied in different geographies, our balance
sheet and liquidity remained strong.
> For further details on our approach to geopolitical and macroeconomic
risks, see 'Areas of special interest' on page 61.
> For further details of our Central and other scenarios, see 'Measurement
uncertainty and sensitivity analysis of ECL estimates' on page 69.
Our risk appetite
Our risk appetite defines our desired forward-looking risk profile and informs
the strategic and financial planning process. It provides an objective
baseline to guide strategic decision making, helping to ensure that planned
business activities provide an appropriate balance of return for the risk
assumed, while remaining within acceptable risk levels. Risk appetite supports
senior management in allocating capital, funding and liquidity optimally to
finance growth, while monitoring exposure to non-financial risks.
At 30 June 2023, our CET1 ratio and retail ECL charges were within their
defined risk appetite thresholds. Wholesale ECL charges were outside of
appetite, reflecting the default of several mainland China commercial real
estate developer clients and a number of UK borrowers. During the first half
of 2023, we enhanced the coverage of interest rate risk in the banking book
within the Group's appetite statement.
Managing risk continued
Stress tests
We regularly conduct stress tests to assess the resilience of our balance
sheet and our capital adequacy, as well as to provide actionable insights into
how key elements of our portfolios may behave during a crisis. We use the
outcomes to calibrate our risk appetite and to review the robustness of our
strategic and financial plans, helping to improve the quality of management's
decision making. The results from the stress tests also drive recovery and
resolution planning to help enhance the Group's financial stability under
various macroeconomic scenarios. The selection of stress scenarios is based
upon the identification and assessment of our top risks, emerging risks and
our risk appetite.
On 12 July 2023 the Bank of England published the Financial Stability Report,
which sets out the view of its Financial Policy Committee on the UK financial
system. This report incorporates the results from the 2022 annual cyclical
scenario stress test of the UK banking system. The stress scenario explored
the potential impacts of a global economic contraction, persistently higher
inflation and interest rates in advanced economies with materially increased
unemployment, and a sharp fall in asset prices. The 2022 annual cyclical
scenario outcomes will be used by the Bank of England as a direct input for
setting stress capital buffers.
The Bank of England judged that this 2022 annual cyclical scenario stress test
did not reveal any capital inadequacies for HSBC given its balance sheet as of
30 June 2022.
Under this stress scenario, the Bank of England's results indicated that HSBC
Holdings is sufficiently capitalised, with the Group's CET1 capital ratio on
an IFRS 9 transitional basis projected to fall to a low point of 10.7%, which
is above the Group's CET1 reference rate of 7.0%. On an IFRS 9
non-transitional basis the Group's CET1 capital ratio is projected to reach a
low point of 9.9%, which is above its IFRS 9 non-transitional CET1 reference
rate of 6.2%.
For the 2022 annual cyclical scenario, HSBC was asked to submit results for
HSBC UK, our ring-fenced bank, on a stand-alone basis for the first time. The
stand-alone results also showed that HSBC UK is sufficiently capitalised,
indicating that its CET1 capital ratio on an IFRS 9 transitional basis would
fall to a low point of 10.1%, above its CET1 reference rate of 6.2%. On an
IFRS 9 non-transitional basis, HSBC UK's CET1 capital ratio is projected to
reach a low point of 8.9%, which is above its IFRS 9 non-transitional CET1
reference rate of 6.4%.
Both the Group's and HSBC UK's results incorporated strategic management
actions. In practice, under such adverse economic circumstances, the Group
would consider a variety of management actions depending on the prevailing
circumstances at the time.
Climate stress tests
To support the requirements for assessing the impacts of climate change, we
have developed a set of capabilities to execute climate stress testing and
scenario analysis. These are used to help improve our understanding of our
risk exposures for risk management and business decision making.
In the second half of 2022, we ran an internal climate scenario analysis to
help identify challenges and opportunities to our net zero strategy, and risks
posed to our business model by transition and physical risk, as well as to
inform capital planning and risk appetite. The internal climate scenario
analysis outcomes were used to test our capital adequacy under the internal
capital adequacy assessment process, and management concluded that the Group
remains adequately capitalised.
In the second half of 2023, we will run a new internal climate scenario
analysis with improved models and expanded scenarios for internal use as part
of our strategic planning, as well as to respond to climate stress tests for
regulators such as those from the Hong Kong Monetary Authority and Central
Bank of the United Arab Emirates.
> For further details of our approach to climate risk stress testing, see
'Insights from scenario analysis' on page 67 of our Annual Report and Accounts
2022.
Climate risk
Climate risk relates to the financial and non-financial impacts that may arise
as a result of climate change and the move to a greener economy. Climate risk
can impact us either directly or through our relationships with our clients.
These include the potential risks arising as a result of our net zero
ambition, which could lead to reputational concerns, and potential legal
and/or regulatory action if we are perceived to mislead stakeholders on our
business activities or if we fail to achieve our stated net zero targets. Our
most material exposure to climate risk relates to corporate client financing
activities and retail mortgages within our banking portfolio. We also have
significant responsibilities in relation to asset ownership by our insurance
business, employee pension plans and asset management business.
We seek to manage climate risk across all our businesses in line with our
Group-wide risk management framework, and are incorporating climate
considerations within our existing risk types.
> For further details of our approach to climate risk management, see
'Climate risk' on page 221 of our Annual Report and Accounts 2022.
> For further details of our TCFD disclosures, see the 'ESG review' on page
44 of our Annual Report and Accounts 2022.
Our operations
We remain committed to investing in the reliability and resilience of our IT
systems and critical services, including those provided by third parties, that
support all parts of our business. We do so to help protect our customers,
affiliates and counterparties, and to help ensure that we minimise any
disruption to services that could result in reputational, legal and regulatory
consequences. In our approach to defending against these threats, we invest in
business and technical controls to help us detect, manage and recover from
issues in a timely manner.
We continue to focus on improving the quality and timeliness of the data used
to inform management decisions, through measures such as early warning
indicators, prudent active management of our risk appetite, and ensuring
regular communication with our Board and key stakeholders.
We continue to make progress with the implementation of our business and risk
transformation plans. We seek to manage change execution risk so we can
prioritise, manage and deliver change initiatives effectively and safely, and
at the scale, complexity and pace required.
> For further details on our risk management framework and risks associated
with our banking and insurance manufacturing operations, see pages 133 and 142
of the Annual Report and Accounts 2022, respectively.
Top and emerging risks
Our top and emerging risks report identifies forward-looking risks so that
they can be considered in determining whether any incremental action is needed
to either prevent them from materialising or to limit their effect. Top risks
are those that have the potential to have a material adverse impact on the
financial results, reputation or business model of the Group. We actively
manage and take actions to mitigate our top risks. Emerging risks are those
that, while they could have a material impact on our risk profile were they to
occur, are not considered immediate and are not under active management. Our
suite of top and emerging risks is subject to regular review by senior
governance forums. We continue to monitor closely the identified risks and
ensure management actions are in place, as required.
> For further details on our top and emerging risks see pages 135 to 141 of
the Annual Report and Accounts 2022.
Risk Trend Description
Externally driven
Geopolitical and macroeconomic risks → Our operations and portfolios are subject to risks associated with political
instability, civil unrest and military conflict, which could lead to
disruption of our operations, physical risk to our staff and/or physical
damage to our assets. While global supply chain disruptions have abated,
geopolitical tensions remain high and global interest rates and the uncertain
economic outlook for China are nevertheless prompting a global slowdown that
may affect our credit portfolio.
Technology and cybersecurity risk → We face a risk of service disruption or loss of data resulting from technology
failures or malicious activities by internal or external threats. We continue
to monitor ongoing geopolitical events and changes to the threat landscape. We
operate a continuous improvement programme to help protect our technology
operations and to counter a fast-evolving cyber threat environment.
Evolving regulatory environment risk ↑ The regulatory and compliance risk environment is becoming increasingly
complex, in part driven by heightened geopolitical tensions. Regulatory
scrutiny of financial institutions following recent banking failures,
alongside other regulatory priorities, may result in change requirements
across the Group in the short to medium term. We continue to monitor
regulatory and wider industry developments closely, engaging with regulators
as appropriate.
Financial crime risk ↑ We are exposed to financial crime risk from our customers, staff and third
parties engaging in criminal activity. The financial crime risk environment
continues to evolve, due to increasingly complex geopolitical challenges, the
macroeconomic outlook, evolving sanctions regulations, rapid technological
developments, an increasing number of national data privacy requirements and
the increasing sophistication of fraud. As a result, we will continue to face
the possibility of regulatory enforcement and reputational risk.
Ibor transition risk ↓ We remain exposed to regulatory compliance, legal and resilience risks as
contracts transition away from the remaining demising Ibor benchmarks to new
reference rates. We continue to consider the fairness of client outcomes, our
compliance with regulatory expectations and the operation of our systems and
processes. The key risks have diminished as the majority of contracts in the
remaining demising Ibors, specifically US dollar Libor, have been successfully
transitioned.
Environmental, social and governance ('ESG') risks ↑ We are subject to ESG risks relating to climate change, nature and human
rights. These risks have increased owing to the pace and volume of regulatory
developments globally, and due to stakeholders placing more emphasis on
financial institutions' actions and investment decisions in respect of ESG
matters. Failure to meet these evolving expectations may result in financial
and non-financial costs, including adverse reputational consequences.
Digitalisation and technological advances ↑ Developments in technology and changes in regulations have enabled new
entrants to the banking industry, and new products and services offered by
competitors. This challenges us to continue to innovate with new digital
capabilities to best serve our customers by adapting our products, and to
attract and retain customers and colleagues. Along with opportunities, new
technology can introduce risks. We continue to ensure these are understood and
managed with appropriate controls.
Internally driven
Risks associated with workforce capability, capacity and environmental factors → Our businesses, functions and geographies are exposed to risks associated with
with potential impact on growth employee retention and talent availability, and compliance with employment
laws and regulations. While high employee attrition has eased generally, some
markets continue to experience heightened inflation, turnover and labour
market difficulties. We monitor hiring activities and levels of employee
attrition, and each business and function has workforce plans in place to aim
to ensure effective workforce forecasting to meet business demands.
Risks arising from the receipt of services from third parties → We procure goods and services from a range of third parties. It is critical
that we have appropriate risk management policies and processes to select and
govern third parties, including third parties' supply networks, particularly
for key activities that could affect our operational resilience. Any
deficiency in the management of risks associated with our third parties could
affect our ability to support our customers and meet regulatory expectations.
Model risk ↑ Model risk arises whenever business decision making includes reliance on
models. We use models in both financial and non-financial contexts, as well as
in a range of business applications. Evolving regulatory requirements are
driving material changes to the way model risk is managed across the banking
industry, with particular focus on capital models. New technologies including
generative artificial intelligence ('AI') and large language models utilising
AI are driving a need for enhanced model risk controls.
Data risk → We use data to serve our customers and run our operations, often in real-time
within digital experiences and processes. If our data is not accurate and
timely, our ability to serve customers, operate with resilience or meet
regulatory requirements could be impacted. We need to ensure that non-public
data is kept confidential, and that we comply with the growing number of
regulations that govern data privacy and cross-border movement of data.
Change execution risk → Failure to effectively prioritise, manage and/or deliver transformation across
the organisation impacts our ability to achieve our strategic objectives. We
aim to monitor, manage and oversee change execution risk to ensure our change
portfolios and initiatives continue to deliver the right outcomes for our
customers, people, investors and communities.
↑ Risk heightened during the first half of 2023 Ä Risk decreased
during the first half of 2023 → Risk remained at the same level as 2022
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