REG - HSBC Holdings PLC - Half-year Report - Part 2
31/07/2024 16:15
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RNS Number : 5739Y HSBC Holdings PLC 31 July 2024
Financial summary
Contents
28 Key financial measures: basis of preparation
29 Use of alternative performance measures
30 Summary consolidated income statement
31 Distribution of results by global business and legal entity
32 Income statement commentary
32 Net interest income
33 Banking net interest income
35 Tax expense
35 Supplementary table for planned disposals
36 Summary consolidated balance sheet
37 Balance sheet commentary compared with 31 December 2023
Key financial measures: basis of preparation
Return on average tangible equity excluding notable items
From 1 January 2024, we revised the adjustments made to our adjusted RoTE
measure. Prior to this we adjusted RoTE for the impact of strategic
transactions and the impairment of our investment in Bank of Communications
Co., Limited ('BoCom'), whereas from 1 January 2024 we have excluded all
notable items. This was intended to improve alignment with the treatment of
notable items in our other income statement disclosures. RoTE excluding
notable items has been re-presented for 1H23 on the revised basis and we no
longer disclose RoTE excluding strategic transactions and the impairment of
BoCom. The calculation for RoTE excluding notable items adjusts the 'profit
attributable to the ordinary shareholders, excluding goodwill and other
intangible assets impairment' for the post-tax impact of notable items. It
also adjusts the 'average tangible equity' for the post-tax impact of notable
items in each period, which remain as adjusting items for all relevant periods
within that calendar year. For a reconciliation from return on equity to RoTE
excluding notable items, see page 58. We will now target a RoTE excluding
notable items in the mid-teens for both 2024 and 2025. We do not reconcile our
forward RoTE guidance to the equivalent reported measure.
Banking net interest income
Banking net interest income ('banking NII') adjusts our NII, primarily for the
impact of funding trading and fair value activities reported in interest
expense. It represents the Group's banking revenue that is directly impacted
by changes in interest rates.
We use this measure to determine the deployment of our surplus funding, and to
help optimise our structural hedging and risk management actions. For more
information on banking NII, see page 33.
Target basis operating expenses
Target basis operating expenses is computed by excluding the direct cost
impact of our France retail banking operations and Canada banking business
disposals from the 2023 baseline. It is measured on a constant currency basis
and excludes notable items and the impact of retranslating the prior year
results of hyperinflationary economies at constant currency, which we consider
to be outside of our control. We consider target basis operating expenses to
provide useful information to investors by quantifying and excluding the
notable items that management considered when setting and assessing
cost-related targets. For a reconciliation from reported operating expenses to
target basis operating expenses, see page 60.
In 2024, we are targeting growth of approximately 5% compared with 2023 on a
target basis. This target reflects our current business plan for 2024, and
includes an increase in staff compensation, higher technology spend and
investment for growth and efficiency, in part mitigated by cost savings from
actions taken during 2023. We do not reconcile our forward target basis
operating expenses guidance to the reported operating expenses.
Dividend payout ratio target basis
Given our current returns trajectory, we are targeting a dividend payout ratio
target basis of 50% for 2024. For the purposes of computing our dividend
payout ratio target basis, we exclude from earnings per share material notable
items and related impacts. Material notable items are components of our income
statement that management would consider as outside the normal course of
business and generally non-recurring in nature, which are excluded from our
dividend payout ratio calculation and our earnings per share measure, along
with related impacts. Material notable items are a subset of notable items for
which categorisation is dependent on the nature of each item in conjunction
with the financial impact on the Group's income statement. They comprise the
impacts of the sales of our banking business in Canada and our retail banking
operations in France, the gain following the acquisition of SVB UK, the
impacts of the planned sale of our business in Argentina and the impairment of
BoCom. We also exclude HSBC Bank Canada's financial results from the 30 June
2022 net asset reference date until completion, as the gain on sale was
recognised through a combination of the consolidation of HSBC Bank Canada's
results in the Group's results since this date, and the remaining gain on sale
was recognised at completion, inclusive of the recycling of related reserves
and fair value gains on related hedges. Following the completion of the sale
of our banking business in Canada, the Board approved a special dividend of
$0.21 per share, which was paid in June 2024, alongside the first interim
dividend.
For the planned sale of our business in Argentina, there is a mechanism by
which the loss on sale will vary by changes in the net asset value of HSBC
Argentina, and in the fair value of consideration including price adjustments
and migration costs (see page 139 for details). There were no additional
related impacts identified, and the ongoing profits from HSBC Argentina will
not be excluded from our dividend payout ratio target basis.
For a reconciliation of basic earnings per share to basic earnings per share
excluding material notable items and related impacts, see page 60. We do not
reconcile our forward dividend payout ratio target basis guidance to the
reported dividend payout ratio.
Use of alternative performance measures
Our reported results are prepared in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board
('IFRS Accounting Standards') as detailed in the interim condensed
consolidated financial statements starting on page 113.
To measure our performance, we supplement our IFRS Accounting Standards
figures with non-IFRS Accounting Standards measures, which 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 include those derived from our reported results that eliminate
factors that distort period-on-period comparisons. The 'constant currency
performance' measure used in the Interim Report 2024 is described below.
Definitions and calculations of other alternative performance measures are
included in our 'Reconciliation of alternative performance measures' on page
Error! Bookmark not defined.. In addition, insurance-specific non-GAAP
measures including 'Insurance manufacturing value of new business' and
'Insurance equity plus CSM net of tax' are provided on pages 46 to 47,
together with their definitions and reconciliation to GAAP measures. All
alternative performance measures are reconciled to the closest reported
performance measure.
The global business segmental results are presented on a constant currency
basis in accordance with IFRS 8 'Operating Segments' as detailed in Note 5:
'Segmental analysis' on page 122.
Constant currency performance
Constant currency performance is computed by adjusting reported results 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 and material 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.
Certain notable items are classified as 'material notable items', which are a
subset of notable items. Categorisation as a material notable item is
dependent on the nature of each item in conjunction with the financial impact
on the Group's income statement. We exclude material notable items when
computing our dividend payout ratio target basis. Material notable items
currently comprise the sale of our retail operations in France banking and our
business in Canada, the planned sale of our business in Argentina, the
acquisition of SVB UK and the impairment of our investment in BoCom.
The tables on pages 40 to Error! Bookmark not defined. and pages 52 to Error!
Bookmark not defined. detail the effects of notable items on each of our
global business segments, legal entities and selected countries/territories in
1H24 and 1H23.
Constant currency revenue and profit before tax excluding notable items
We separately report constant currency revenue excluding notable items and
profit before tax excluding notable items which exclude the impact of notable
items and the impact of foreign exchange translation. We consider this measure
to provide useful information to investors as it removes items which distort
period-on-period comparisons. For a reconciliation of constant currency
revenue excluding notable items and profit before tax excluding notable items
to reported revenue and reported profit respectively, see page 58.
Constant currency revenue and profit before tax excluding notable items and
the impact of strategic transactions
To aid the understanding of our results, we separately disclose constant
currency revenue and profit before tax excluding notable items and the impact
of strategic transactions. This measure excludes the impact of strategic
transactions classified as material notable items from constant currency
revenue and profit before tax excluding notable items. At 1H24, strategic
transactions classified as material notable items comprise the disposal of our
retail banking operations in France, our banking business in Canada, the
planned sale of our business in Argentina and the acquisition of SVB UK.
The impacts quoted include the gains or losses on classification to held for
sale or acquisition and all other related notable items. They also include the
distorting impact between the periods of the operating income statement
results related to acquisitions and disposals that affect period-on-period
comparisons. It is computed by including the operating income statement
results of each business in any period for which there are no results in the
comparative period. We consider the monthly impacts of distorting income
statement results when calculating the impact of strategic transactions.
Foreign currency translation differences
Foreign currency translation differences reflect the movements of the US
dollar against most major currencies during 2024.
We exclude them to derive constant currency data, allowing us to assess
balance sheet and income statement performance on a like-for-like basis and to
better understand the underlying trends in the business.
Foreign currency translation differences for the half-year to 30 June 2024 are
computed by retranslating into US dollars for non-US dollar branches,
subsidiaries, joint ventures and associates:
- the income statement for the half-year to 30 June 2023 at the
average rate of exchange for the half-year to 30 June 2024; and
- the balance sheets at 30 June 2023 and 31 December 2023 at the
prevailing rates of exchange on 30 June 2024.
No adjustment has been made to the exchange rates used to translate foreign
currency-denominated assets and liabilities into the functional currencies of
any HSBC branches, subsidiaries, joint ventures or associates. The constant
currency data of our operations in Argentina and Türkiye has not been
adjusted further for the impacts of hyperinflation. When reference is made to
foreign currency translation differences in tables or commentaries,
comparative data reported in the functional currencies of HSBC's operations
have been translated at the appropriate exchange rates applied in the current
period on the basis described above.
Impact of hyperinflationary accounting
We continue to treat Argentina and Türkiye as hyperinflationary economies for
accounting purposes. The impact of applying IAS 29 'Financial Reporting in
Hyperinflationary Economies' and the hyperinflation provisions of IAS 21 'The
Effects of Changes in Foreign Exchange Rates' in the current period for our
operations in both Argentina and Türkiye was a decrease in the Group's profit
before tax of $646m (1H23: $396m), comprising a decrease in revenue, including
loss on net monetary position, of $594m (1H23: $411m) and an increase in ECL
and operating expenses of $52m (1H23: decrease of $15m). The consumer price
index ('CPI') at 30 June 2024 for Argentina was 6,352, with an increase in the
period of 2,776 (1H23: 562 increase). The CPI for Türkiye was 2,319 with an
increase in the period of 460 (1H23: 223 increase).
Summary consolidated income statement
Half-year to
30 Jun 2024 30 Jun 2023
$m $m
Net interest income 16,911 18,264
Net fee income 6,200 6,085
Net income from financial instruments held for trading or managed on a fair 10,516 8,112
value basis(1)
Net income from assets and liabilities of insurance businesses, including 2,376 4,304
related derivatives, measured at fair value through profit or loss
Insurance finance expense (2,486) (4,234)
Insurance service result 662 524
Gain on acquisition(2) - 1,507
Gain less impairment relating to sale of business operations(3) 3,256 2,130
Other operating (expense)/income (143) 184
Net operating income before change in expected credit losses and other credit 37,292 36,876
impairment charges(4)
Change in expected credit losses and other credit impairment charges (1,066) (1,345)
Net operating income 36,226 35,531
Total operating expenses (16,296) (15,457)
Operating profit 19,930 20,074
Share of profit in associates and joint ventures 1,626 1,583
Profit before tax 21,556 21,657
Tax expense (3,891) (3,586)
Profit after tax 17,665 18,071
Attributable to:
- ordinary shareholders of the parent company 16,586 16,966
- other equity holders 526 542
- non-controlling interests 553 563
Profit after tax 17,665 18,071
$ $
Basic earnings per share 0.89 0.86
Diluted earnings per share 0.88 0.86
Dividend per ordinary share (paid in the period)(5) 0.62 0.33
% %
Post-tax return on average total assets (annualised) 1.2 1.2
Return on average ordinary shareholders' equity (annualised) 19.8 20.8
Return on average tangible equity (annualised) 21.4 22.4
1 Includes a $255m gain (1H23: $284m loss) on the foreign exchange
hedging of the proceeds from the sale of our banking business in Canada.
2 Gain recognised in respect of the acquisition of SVB UK.
3 In the first half of 2024, a gain of $4.6bn inclusive of the
recycling of $0.6bn in foreign currency translation reserve losses and $0.4bn
of other reserves recycling losses on the sale of our banking business in
Canada, and an impairment loss of $1.2bn relating to the planned sale of our
business in Argentina was recognised. In the first quarter of 2023, the $2.1bn
reversal of the held for sale classification was recognised relating to the
sale of our retail banking operations in France.
4 Net operating income before change in expected credit losses and
other credit impairment charges, also referred to as revenue.
5 The $0.62 dividend paid during the period consisted of a fourth
interim dividend of $0.31 per ordinary share in respect of the financial year
ended 31 December 2023 paid in April 2024, a first interim dividend of $0.10
per ordinary share in respect of the financial year ending 31 December 2024
and a special dividend of $0.21 per ordinary share from the Canada sale
proceeds.
Distribution of results by global business and legal entity
Distribution of results by global business
Half year to
30 Jun 2024 30 Jun 2023
$m $m
Constant currency revenue(1)
Wealth and Personal Banking 14,312 16,095
Commercial Banking 10,896 12,086
Global Banking and Markets 8,742 8,321
Corporate Centre(2) 3,342 -
Total 37,292 36,502
Constant currency profit before tax
Wealth and Personal Banking 6,458 8,626
Commercial Banking 6,463 7,933
Global Banking and Markets 3,813 3,409
Corporate Centre(2) 4,822 1,504
Total 21,556 21,472
1 Constant currency net operating income before change in expected
credit losses and other credit impairment charges including the effects of
foreign currency translation differences, also referred to as constant
currency revenue.
2 On 1 January 2024, HSBC Continental Europe completed the sale of its
retail banking operations in France to CCF, a subsidiary of Promontoria MMB
SAS ('My Money Group'). With effect from this date, we have prospectively
reclassified the portfolio of retained loans, profit participation interest
and licence agreement of the CCF brand from WPB to Corporate Centre.
Distribution of results by legal entity
Half year to
30 Jun 2024 30 Jun 2023
$m $m
Reported profit/(loss) before tax
HSBC UK Bank plc 3,734 4,791
HSBC Bank plc 1,436 3,498
The Hongkong and Shanghai Banking Corporation Limited 10,893 10,917
HSBC Bank Middle East Limited 536 673
HSBC North America Holdings Inc. 423 701
HSBC Bank Canada 186 475
Grupo Financiero HSBC, S.A. de C.V. 466 436
Other trading entities(1) 1,034 1,282
- of which: other Middle East entities (including Oman, Türkiye, Egypt and 411 420
Saudi Arabia)
- of which: Saudi Awwal Bank 317 272
Holding companies, shared service centres and intra-Group eliminations(2) 2,848 (1,116)
Total 21,556 21,657
Constant currency profit/(loss) before tax
HSBC UK Bank plc 3,734 4,939
HSBC Bank plc 1,436 3,538
The Hongkong and Shanghai Banking Corporation Limited 10,893 10,783
HSBC Bank Middle East Limited 536 674
HSBC North America Holdings Inc. 423 701
HSBC Bank Canada 186 470
Grupo Financiero HSBC, S.A. de C.V. 466 462
Other trading entities(1) 1,034 1,024
- of which: other Middle East entities (including Oman, Türkiye, Egypt and 411 333
Saudi Arabia)
- of which: Saudi Awwal Bank 317 272
Holding companies, shared service centres and intra-Group eliminations(2) 2,848 (1,119)
Total 21,556 21,472
1 Other trading entities includes the results of entities located in
Oman (pre merger with Sohar International Bank SAOG in August 2023), Türkiye,
Egypt and Saudi Arabia (including our share of the results of Saudi Awwal
Bank) which do not consolidate into HSBC Bank Middle East Limited.
Supplementary analysis is provided on page 55 for a fuller picture of the
Middle East, North Africa and Türkiye ('MENAT') regional performance.
2 Includes a $4.8bn gain on disposal of our banking business in
Canada, inclusive of a $0.3bn gain on the foreign exchange hedging of the sale
proceeds, the recycling of $0.6bn in foreign currency translation reserve
losses and $0.4bn of other reserves recycling losses. This is partly offset by
a $1.2bn impairment recognised in relation to the planned sale of our business
in Argentina.
The tables on pages 40 and 52 reconcile reported to constant currency results
for each of our global business segments and legal entities.
Income statement commentary
The below tables and commentary compare Group financial performance for the
half-year to 30 June 2024 with the half-year to 30 June 2023, unless otherwise
stated. For further financial performance data of our global business
segments, see pages 40 to 49. For further financial performance data by major
legal entity, see pages 50 to 55.
Net interest income
Half-year to Quarter to
30 Jun 2024 30 Jun 2023 30 Jun 2024 31 Mar 2024 30 Jun 2023
$m $m $m $m $m
Interest income 55,372 46,955 27,107 28,265 24,863
Interest expense (38,461) (28,691) (18,849) (19,612) (15,558)
Net interest income 16,911 18,264 8,258 8,653 9,305
Average interest-earning assets 2,097,866 2,162,662 2,055,283 2,140,446 2,172,324
% % % % %
Gross interest yield(1) 5.31 4.38 5.30 5.31 4.59
Less: gross interest payable(1) (4.08) (3.12) (4.05) (4.10) (3.33)
Net interest spread(2) 1.23 1.26 1.25 1.21 1.26
Net interest margin(3) 1.62 1.70 1.62 1.63 1.72
1 Gross interest yield is the average annualised interest rate earned
on average interest-earning assets ('AIEA'). Gross interest payable is the
average annualised interest cost as a percentage of average interest-bearing
liabilities.
2 Net interest spread is the difference between the average annualised
interest rate earned on AIEA, net of amortised premiums and loan fees, and the
average annualised interest rate payable on average interest-bearing
liabilities.
3 Net interest margin is net interest income expressed as an
annualised percentage of AIEA.
Summary of interest income by type of asset
Half-year to Full-year to
30 Jun 2024 30 Jun 2023 31 Dec 2023
Average Interest Yield Average Interest Yield Average Interest Yield
balance
income
balance
income
balance
income
$m $m % $m $m % $m $m %
Short-term funds and loans and advances to banks 354,570 7,611 4.32 425,103 6,961 3.30 403,674 14,770 3.66
Loans and advances to customers 943,836 25,059 5.34 954,171 22,747 4.81 957,717 47,673 4.98
Reverse repurchase agreements - non-trading(1) 234,712 9,022 7.73 239,945 6,173 5.19 240,263 14,391 5.99
Financial investments 455,723 10,209 4.50 382,384 7,378 3.89 407,363 16,858 4.14
Other interest-earning assets 109,025 3,471 6.40 161,059 3,696 4.63 152,729 7,176 4.70
Total interest-earning assets 2,097,866 55,372 5.31 46,955 4.38 100,868 4.67
2,162,662 2,161,746
Summary of interest expense by type of liability
Half-year to Full-year to
30 Jun 2024 30 Jun 2023 31 Dec 2023
Average Interest Cost Average Interest Cost Average Interest Cost
balance
expense
balance
expense
balance
expense
$m $m % $m $m % $m $m %
Deposits by banks(2) 63,100 1,422 4.53 61,901 1,117 3.64 60,392 2,401 3.98
Customer accounts(3) 1,353,221 20,153 2.99 14,722 2.25 34,162 2.56
1,317,536 1,334,803
Repurchase agreements - non-trading(1) 187,931 7,872 8.42 134,936 4,550 6.80 146,605 10,858 7.41
Debt securities in issue - non-trading 195,038 6,378 6.58 181,682 5,199 5.77 184,867 11,223 6.07
Other interest-bearing liabilities 98,359 2,636 5.39 157,218 3,103 3.98 146,216 6,428 4.40
Total interest-bearing liabilities 1,897,649 38,461 4.08 28,691 3.12 65,072 3.47
1,853,273 1,872,883
1 The average balances for repurchase and reverse repurchase
agreements include net amounts where the criteria for offsetting are met,
resulting in a lower net balance reported for repurchase agreements and thus
higher cost.
2 Including interest-bearing bank deposits only.
3 Including interest-bearing customer accounts only.
Net interest income ('NII') for 1H24 was $16.9bn, a decrease of $1.4bn or 8%
compared with 1H23. as growth in HSBC UK, and a number of other markets, was
more than offset by reductions due to business disposals, deposit migration,
and redeployment into the trading book in HSBC Bank plc and our main entity in
Hong Kong.
Excluding the unfavourable impact of foreign currency translation differences,
NII decreased by $0.8bn or 5%.
NII for 2Q24 was $8.3bn, down 11% compared with 2Q23, and down 5% compared
with 1Q24. The decline compared with 2Q23 was predominantly due to the impact
of the disposal of our businesses in Canada and France, and higher interest
expense which included the impact of deposit migration. The decline compared
with 1Q24 was predominantly driven by the impact of the disposal of our Canada
business.
Net interest margin ('NIM') for 1H24 of 1.62% was 8 basis points ('bps') lower
compared with 1H23, reflecting a rise in the funding cost of average
interest-bearing liabilities.
The decrease in NIM in 1H24 included the unfavourable impact of foreign
currency translation differences. Excluding this, NIM still would have
declined by 8bps.
NIM for 2Q24 was 1.62%, 10bps lower year-on-year, and down 1bp compared with
the previous quarter. The year-on-year decline was predominantly driven by a
rise in the funding cost of average interest-bearing liabilities including the
impact of deposit migration.
Interest income for 1H24 of $55.4bn increased by $8.4bn, compared with 1H23.
This was primarily due to higher asset yields, partly offset by the impact of
the disposal of our Canada business.
The change in interest income included $1bn from the adverse effect of foreign
currency translation differences. Excluding this, interest income increased by
$9.4bn.
Interest income of $27.1bn in 2Q24 was up $2.2bn compared with 2Q23, and
$1.2bn lower compared with 1Q24. The increase compared with 2Q23 was
predominantly driven by the impact of higher asset yields, partly offset by a
reduction in term lending and the impact of the disposal of our Canada
business. The decrease compared with 1Q24 was predominantly driven by the
impact of the disposal of our Canada business.
Interest expense for 1H24 of $38.5bn increased by $9.8bn or 34% compared with
1H23. This was primarily driven by a rise in the funding cost of average
interest-bearing liabilities which included the impact of deposit migration
notably in our main entities in Asia and Europe.
The rise in interest expense included the favourable effects of foreign
currency translation differences of $0.4bn. Excluding this, interest expense
increased by $10.2bn.
Interest expense of $18.8bn in 2Q24 was up $3.2bn compared with 2Q23, and
$0.8bn lower compared with 1Q24. The increase compared with 2Q23 was
predominantly driven by a rise in the funding cost of average interest-bearing
liabilities which included the impact of deposit migration notably in our main
entities in Asia and Europe. The decline compared with 1Q24 was predominantly
driven by the impact of the disposal of our Canada business.
Banking net interest income
Banking net interest income
Half-year to Quarter to
30 Jun 2024 30 Jun 2023 30 Jun 2024 31 Mar 2024 30 Jun 2023
$bn $bn $bn $bn $bn
Net interest income 16.9 18.3 8.2 8.7 9.3
Banking book funding costs used to generate 'net income from financial 5.5 3.8 2.8 2.7 2.4
instruments held for trading or managed on a fair value basis'
Third-party net interest income from insurance (0.2) (0.2) (0.1) (0.1) (0.1)
Banking net interest income 22.2 21.9 10.9 11.3 11.6
- of which:
Hongkong and Shanghai Banking Corporation Limited 10.8 10.6 5.3 5.4 5.5
HSBC UK Bank plc 5.1 4.8 2.5 2.5 2.5
HSBC Bank plc 2.3 2.2 1.2 1.1 1.3
Banking net interest income ('banking NII') adjusts our NII, primarily for
the impact of funding trading and fair value activities reported in interest
expense. It represents the Group's banking revenue that is directly impacted
by changes in interest rates. It is defined as Group net interest income after
deducting:
- the internal cost to fund trading and fair value net assets for which
associated revenue is reported in 'Net income from financial instruments held
for trading or managed on a fair value basis', also referred to as 'trading
and fair value income'. These funding costs reflect proxy overnight or term
interest rates as applied by internal funds transfer pricing;
- the funding cost of foreign exchange swaps in Markets Treasury, where an
offsetting income or loss is recorded in trading and fair value income. These
instruments are used to manage foreign currency deployment and funding in our
entities; and
- third-party net interest income in our insurance business.
In our segmental disclosures, the funding costs of trading and fair value net
assets are predominantly recorded in GBM in 'net income from financial
instruments held for trading or managed on a fair value basis'. On
consolidation, this funding is eliminated in Corporate Centre, resulting in an
increase in the funding cost reported in net interest income with an
equivalent offsetting increase in 'net income from financial instruments held
for trading or managed on a fair value basis' in this segment. In the
consolidated Group results, the cost to fund these trading and fair value net
assets is reported in net interest income.
Banking NII was $22.2bn in 1H24. The funding costs associated with generating
trading and fair value income were $5.5bn, an increase of $1.7bn compared with
1H23, primarily reflecting growth in net trading and fair value assets.
Banking NII also deducts third-party NII related to our insurance business,
which was $0.2bn, broadly stable compared with 1H23. In HSBC UK, banking NII
increased in part due to the acquisition of SVB UK in 1Q23, which resulted in
a $0.1bn increase. The movement in banking NII also included a reduction of
$0.2bn relating to a reclassification, from 1 January 2024, of cash flow hedge
revenue between NII and non-NII.
The internally allocated funding to generate trading and fair value income was
approximately $207bn at 30 June 2024, a rise of approximately $77bn since 30
June 2023. This relates to trading, fair value and associated net asset
balances predominantly in GBM.
To supplement banking NII, we also provide banking NII sensitivity to
demonstrate our revenue sensitivity to interest rate movements. Management
uses these measures to determine the deployment of our surplus funding, and to
help optimise our structural hedging and risk management actions.
For further details on banking NII sensitivity, see page 105.
Net fee income of $6.2bn was $0.1bn higher than in 1H23, and included a $0.1bn
adverse impact from foreign currency translation differences, as well as a
reduction of $0.2bn due to the impact of the disposal of our banking business
in Canada. On a constant currency basis, net fee income was $0.2bn higher, as
an increase in WPB was partly offset by reductions in GBM and CMB.
In WPB, fee income grew, primarily from higher income from unit trusts and
funds under management, notably in Hong Kong. This reflected stronger equity
markets and improved customer sentiment, supported by business initiatives.
Cards income grew, notably in our main entity in Hong Kong and also in Mexico,
as customer spending increased. The growth in cards activity resulted in a
corresponding rise in fee expense.
In GBM, fee income grew in broking income in our main entity in Europe,
although this was largely offset by a rise in associated fee expense. In
addition, there was higher fee expense relating to broking and custody, as
well as intercompany fee expenses incurred on behalf of other global
businesses.
In CMB, fee income from credit facilities reduced, notably due to disposal of
our banking operations in Canada. This reduction was partly offset by an
increase in fee income from GBM products sold to CMB customers.
Net income from financial instruments held for trading or managed on a fair
value basis of $10.5bn was $2.4bn higher compared with 1H23. This reflected a
rise in income of $1.7bn, primarily relating to trading activities in GBM, for
which the associated funding costs are reported in net interest income,
notably in our main legal entities in Hong Kong and Europe.
Trading income increased in Corporate Centre reflecting favourable fair value
movements of $0.5bn on the foreign exchange hedging of the proceeds of the
sale of our banking business in Canada until the completion of the sale.
In WPB, trading income rose by $0.2bn due to gains on hedges in our insurance
business.
Net income from assets and liabilities of insurance businesses, including
related derivatives, measured at fair value through profit or loss of $2.4bn
was $1.9bn lower than in 1H23. This decrease was mainly in Hong Kong,
reflecting adverse fair value movements on debt securities due to movements in
interest rates.
This unfavourable movement resulted in a corresponding movement in insurance
finance expense, which has an offsetting impact for the related liabilities to
policyholders.
Insurance finance expense of $2.5bn was $1.7bn lower than in 1H23, reflecting
the impact of investment returns on underlying assets on the value of
liabilities to policyholders, which moves inversely with 'net income from
assets and liabilities of insurance businesses, including related derivatives,
measured at fair value through profit or loss'.
Insurance service result of $0.7bn increased by $0.1bn compared with 1H23,
primarily due to an increase in the release of the contractual service margin
('CSM') of $0.1bn. This primarily reflected a higher CSM balance from higher
new business written.
Gain on acquisitions fell by $1.5bn, reflecting the non-recurrence of a gain
recognised in respect of the acquisition of SVB UK in 1Q23.
Gains less impairment relating to sale of business operations was $3.3bn
compared with $2.1bn in 1H23. In 1H24, there was a gain of $4.6bn inclusive of
the recycling of $0.6bn in foreign currency translation reserve losses and
$0.4bn of other reserves recycling losses on the sale of our banking business
in Canada. This was partly offset by an impairment loss of $1.2bn relating to
the planned sale of our business in Argentina. In 1H23, we recognised a $2.1bn
reversal of an impairment relating to the sale of our retail banking
operations in France, as the sale became less certain. In the second half of
2023, this impairment was reinstated as we reclassified these operations as
held for sale. The sale completed on 1 January 2024.
Other operating expense of $0.1bn was $0.3bn lower than the income of $0.2bn
in 1H23. The net expense in 1H24 included a loss of $0.1bn related to the
recycling of reserves following the completion of the sale of our business in
Russia, and an impairment loss related to the planned disposal of our
operations in Armenia.
Change in expected credit losses and other credit impairment charges ('ECL')
of $1.1bn was $0.3bn lower than in 1H23. ECL benefited from a release of stage
3 allowances in GBM in HSBC Bank plc related to a single client, while lower
charges in CMB were primarily in HSBC UK due to allowance releases, as well as
lower charges in relation to the commercial real estate sector in mainland
China compared with 1H23. ECL charges in WPB were broadly stable as a release
of allowances in HSBC UK were offset by higher charges in Mexico, reflecting
unemployment trends and growth in our unsecured portfolio.
For further details on the calculation of ECL, including the
measurement uncertainties and significant judgements applied to such
calculations, the impact of economic scenarios and management judgemental
adjustments, see pages 69 to 81.
Operating expenses
Half-year to
30 Jun 2024 30 Jun 2023
$m $m
Gross employee compensation and benefits 9,935 9,433
Capitalised wages and salaries (743) (479)
Property and equipment 2,299 2,047
Amortisation and impairment of intangible assets 1,102 809
Legal proceedings and regulatory matters 53 56
Other operating expenses(1) 3,650 3,591
Reported operating expenses 16,296 15,457
Currency translation (213)
Constant currency operating expenses 16,296 15,244
1 Other operating expenses includes professional fees, contractor
costs, transaction taxes, marketing and travel. The increase was primarily
driven by the Bank of England levy and FDIC special assessment. This was
partly offset by favourable currency translation differences.
Staff numbers (full-time equivalents)(1)
At
30 Jun 2024 30 Jun 2023 31 Dec 2023
Global businesses
Wealth and Personal Banking 121,501 129,188 128,399
Commercial Banking 45,639 46,006 45,884
Global Banking and Markets 46,474 46,247 46,241
Corporate Centre 364 323 337
Total staff numbers 213,978 221,764 220,861
1 Represents the number of full-time
equivalent people with contracts of service with the Group who are being paid
at the reporting date.
Operating expenses of $16.3bn were $0.8bn or 5% higher than in 1H23, mainly
due to higher technology costs of $0.3bn, including investment, the impacts of
inflation, and an increase in our performance-related pay accrual of $0.3bn,
which reflects a change in the expected quarterly phasing of the
performance-related pay pool relative to 1H23. Our operating expenses also
rose due to the incremental costs from IVB of $0.1bn, and the non-recurrence
of a $0.2bn impact from the reversal of historical asset impairments in 1H23.
These factors were partly offset by the impact of disposals in Canada and
France, continued cost discipline and favourable foreign currency translation
differences between the periods of $0.2bn.
The number of employees expressed in full-time equivalent staff ('FTE') at 30
June 2024 was 213,978, a decrease of 6,883 from 31 December 2023, primarily
reflecting the completion of the sales of our banking business in Canada and
our retail banking operations in France. Additionally, the number of
contractors at 30 June 2024 was 4,364, a decrease of 312 from
31 December 2023.
Share of profit in associates and joint ventures of $1.6bn was $43m or 3%
higher, including an increase in the share of profit from Saudi Awwal Bank
('SAB').
In relation to BoCom, at 30 June 2024 we concluded there is no indication of
further significant impairment (or indication that an impairment may no longer
exist or may have decreased significantly) since 31 December 2023.
For further details of our impairment review process, see
Note 10 on the interim condensed consolidated financial statements.
Tax expense
Half-year to
30 Jun 2024 30 Jun 2023
$m $m
Tax (charge)/credit
Reported (3,891) (3,586)
Currency translation - 72
Constant currency tax (charge)/credit (3,891) (3,514)
Notable items
Half-year to
30 Jun 2024 30 Jun 2023
$m $m
Tax
Tax (charge)/credit on notable items 14 (500)
Recognition of losses - -
Uncertain tax positions - 427
Tax in 1H24 was a charge of $3.9bn, representing an effective tax rate of
18.1%. The effective tax rate for 1H24 was reduced by the non-taxable gain on
the sale of our banking business in Canada and increased by the non-deductible
loss recorded on the planned sale of our business in Argentina. Excluding
these items, the effective rate for 1H24 was 21.4%.
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 gain recognised on the acquisition of SVB UK and by 2.1
percentage points by the release of provisions for uncertain tax positions.
Supplementary table for planned disposals
The income statements and selected balance sheet metrics for the half-year to
30 June 2024 of our banking business in Argentina are presented below.
The asset and liability balances relating to these planned disposals are
reported on the Group balance sheet within 'Assets held for sale' and
'Liabilities of disposal groups held for sale', respectively, as at 30 June
2024.
Income statement and selected balance sheet metrics of disposal groups held
for sale
Half-year to
30 Jun 2024
Argentina
$bn
Revenue 0.5
ECL 0.0
Operating expenses (0.3)
Profit before tax 0.2
At
30 Jun 2024
$bn
Loans and advances to customers 1.6
Customer accounts 3.1
RWAs(1) 7.8
Foreign currency translation and other reserves losses (5.0)
1 RWAs quoted exclude operational
risk RWAs.
For further details on the impact of strategic transactions on the
Group and our global business segments, see page 42.
Summary consolidated balance sheet
At
30 Jun 2024 31 Dec 2023
$m $m
Assets
Cash and balances at central banks 277,112 285,868
Trading assets 331,307 289,159
Financial assets designated and otherwise mandatorily measured at fair value 117,014 110,643
through profit or loss
Derivatives 219,269 229,714
Loans and advances to banks 102,057 112,902
Loans and advances to customers 938,257 938,535
Reverse repurchase agreements - non-trading 230,189 252,217
Financial investments 467,356 442,763
Assets held for sale 5,821 114,134
Other assets 286,621 262,742
Total assets 2,975,003 3,038,677
Liabilities
Deposits by banks 82,435 73,163
Customer accounts 1,593,834 1,611,647
Repurchase agreements - non-trading 202,770 172,100
Trading liabilities 77,455 73,150
Financial liabilities designated at fair value 140,800 141,426
Derivatives 217,096 234,772
Debt securities in issue 98,158 93,917
Insurance contract liabilities 125,252 120,851
Liabilities of disposal groups held for sale 5,041 108,406
Other liabilities 241,748 216,635
Total liabilities 2,784,589 2,846,067
Equity
Total shareholders' equity 183,293 185,329
Non-controlling interests 7,121 7,281
Total equity 190,414 192,610
Total liabilities and equity 2,975,003 3,038,677
Selected financial information
30 Jun 2024 31 Dec 2023
$m $m
Called up share capital 9,310 9,631
Capital resources(1) 172,084 171,204
Undated subordinated loan capital 17 18
Preferred securities and dated subordinated loan capital(2) 35,877 36,413
Risk-weighted assets 835,118 854,114
Total shareholders' equity 183,293 185,329
Less: preference shares and other equity instruments (18,825) (17,719)
Total ordinary shareholders' equity 164,468 167,610
Less: goodwill and intangible assets (net of tax) (11,359) (11,900)
Tangible ordinary shareholders' equity 153,109 155,710
Financial statistics
Loans and advances to customers as a percentage of customer accounts (%) 58.9 58.2
Average total shareholders' equity to average total assets (%) 6.15 6.01
Net asset value per ordinary share at period end ($)(3) 8.97 8.82
Tangible net asset value per ordinary share at period end ($)(3) 8.35 8.19
Tangible net asset value per fully diluted ordinary share at period end ($) 8.30 8.14
Number of $0.50 ordinary shares in issue (millions) 18,621 19,263
Basic number of $0.50 ordinary shares outstanding (millions) 18,330 19,006
Basic number of $0.50 ordinary shares outstanding and dilutive potential 18,456 19,135
ordinary shares (millions)
Closing foreign exchange translation rates to $:
$1: £ 0.791 0.784
$1: € 0.934 0.903
1 Capital resources are total regulatory capital, the
calculation of which is set out on page 99.
2 Including perpetual preferred securities.
3 For the definition, see page 57.
A more detailed consolidated balance sheet is contained in the
interim condensed consolidated financial statements on page 115.
Combined view of customer lending and customer deposits
At
30 June 2024 31 Dec 2023
$m $m
Loans and advances to customers 938,257 938,535
Loans and advances to customers of disposal groups reported in 'Assets held 2,253 73,285
for sale'
- banking business in Canada - 56,129
- retail banking operations in France - 16,902
- business in Argentina 1,559 -
- operations in Armenia 478 -
- other 216 254
Non-current assets held for sale 161 92
Combined customer lending 940,670 1,011,912
Currency translation - (15,403)
Combined customer lending at constant currency 940,670 996,508
Customer accounts 1,593,834 1,611,647
Customer accounts reported in 'Liabilities of disposal groups held for sale' 4,037 85,950
- banking business in Canada - 63,001
- retail banking operations in France - 22,307
- business in Argentina 3,077 -
- operations in Armenia 457 -
- other 503 642
Combined customer deposits 1,597,871 1,697,597
Currency translation - (24,244)
Combined customer deposits at constant currency 1,597,871 1,673,353
Balance sheet commentary compared with 31 December 2023
At 30 June 2024, total assets of $3.0tn were $64bn or 2% lower on a reported
basis, and decreased $23bn or 1% on a constant currency basis.
Our asset base included lower assets held for sale following the completion of
the sales of our retail banking operations in France and our banking business
in Canada during 1H24. This was partly offset by a rise in trading assets,
notably in our main legal entities in Hong Kong and Europe, and higher
financial investments as we increased our holdings of treasury bills and debt
securities.
Reported loans and advances to customers as a percentage of customer accounts
was 58.9% compared with 58.2% at 31 December 2023.
Assets
Cash and balances at central banks decreased by $9bn or 3%, primarily due to
the adverse impact from foreign currency translation differences of $7bn. The
reduction was mainly in HSBC UK, reflecting an increase in the deployment of
our cash surplus into financial investments and a fall in customer account
balances. This was partly offset by increases in HSBC Bank plc and our main
legal entity in the US.
Trading assets rose by $42bn or 15%, reflecting an increase in client activity
in equity and debt securities, particularly in our legal entity in Hong Kong
and in HSBC Bank plc.
Derivative assets decreased by $10bn or 5%, reflecting a reduction in foreign
exchange contracts, mainly in HSBC Bank plc, as a result of reduced volatility
in foreign exchange rate movements. The decrease in derivative assets was
broadly consistent with the fall in derivative liabilities, as the underlying
risk is broadly matched.
Loans and advances to banks of $102bn were $11bn lower, reflecting lower
central bank placements, notably in our main legal entities in Singapore and
mainland China, as well as a decrease in central bank loans, notably in HSBC
UK.
Loans and advances to customers of $938bn were stable on a reported basis.
This included an adverse impact from foreign currency translation differences
of $13bn.
On a constant currency basis, customer lending balances were $12bn or 1%
higher, reflecting the following movements.
Customer lending balances increased in CMB by $6bn, primarily in HSBC Bank plc
(up $3bn) as well as in our main legal entities in mainland China (up $2bn)
and India (up $1bn) due to an increase in term lending balances. These
increases were partly offset by a decrease in term lending in our main legal
entity in Hong Kong (down $2bn) from lower market-wide loan demand.
In GBM, customer lending balances were $3bn higher, mainly in our main legal
entity in Singapore (up $2bn) from an increase in term lending, and in HSBC
Bank plc (up $1bn) reflecting higher overdraft balances. Lending also grew in
our main legal entities in India and Australia. These increases were partly
offset by a reduction in term lending in our main legal entity in Hong Kong
(down $3bn).
In WPB, customer lending balances decreased by $3bn. This primarily reflected
the $7.6bn transfer to Corporate Centre of a portfolio of home and certain
other loans retained following the sale of our retail banking operations in
France. This was partly offset by increases in HSBC UK (up $3bn) and the US
(up $1bn) primarily from growth in mortgage lending balances.
In Corporate Centre, the increase in customer lending balances of $7.6bn
reflected the transfer of balances from WPB, mentioned above.
Reverse repurchase agreements - non-trading decreased by $22bn or 9%,
primarily in our main legal entities in Asia and in HSBC Bank plc reflecting
reduced client demand.
Financial investments increased by $25bn or 6%, mainly as we increased our
holdings of treasury bills and debt securities, notably in HSBC Bank plc and
the HSBC UK. This was partly offset by decreases in our main legal entities in
Hong Kong and mainland China.
Assets held for sale decreased by $108bn or 95% following the completion of
the sales of our retail banking operations in France and our banking
operations in Canada during 1H24.
Other assets grew by $24bn or 9%, primarily due to an increase of $19bn in
settlement accounts, notably in HSBC Bank plc and the US, from higher trading
activity, compared with the seasonal reduction in December 2023.
Liabilities
Customer accounts of $1.6tn decreased by $18bn or 1% on a reported basis. This
included an adverse impact from foreign currency translation differences of
$21bn.
On a constant currency basis, customer accounts were $3bn higher, reflecting
the following movements:
In GBM, customer accounts increased $7bn, reflecting higher balances in HSBC
Bank plc due to a short-term deposit by a single customer, and an increase in
time deposits in our legal entity in Hong Kong. Deposit balances also grew in
our main legal entities in India and the Middle East. These increases were
partly offset by lower balances in our entities in the US and Singapore due to
the impact of repricing actions.
Customer accounts decreased in WPB by $2bn, primarily driven by a reduction in
our main legal entity in Hong Kong of $5bn, which included outflows into
Wealth products due to an improvement in market sentiment as well as a
reduction in money-market term deposits. These reductions were partly offset
by growth in a number of other markets, notably in our main legal entities in
Singapore and mainland China.
In CMB, customer accounts decreased by $2bn, primarily with outflows in the US
and in our main legal entity in Singapore due to seasonality and attrition,
and in HSBC UK due to seasonality and market-wide tightening of liquidity.
These reductions were partly offset by higher deposits, notably in HSBC Bank
plc and in our main legal entity in Mexico.
Deposits by banks increased by $9bn or 13%, reflecting an increase in client
inflows, notably in HSBC Bank plc, as well as growth in money-market term
deposits, notably in our main legal entities in the Middle East, Singapore and
HSBC Bank plc.
Repurchase agreements - non-trading increased by $31bn or 18%, primarily in
our main legal entities in Hong Kong reflecting higher client funding needs
and in the US for funding in our Global Markets business.
Derivative liabilities decreased by $18bn or 8%, which is consistent with the
reduction in derivative assets, since the underlying risk is broadly matched.
Liabilities of disposal groups held for sale decreased by $103bn or 95%,
following the completion of the sales of our retail banking operations in
France and our banking operations in Canada during 1H24.
Other liabilities increased by $25bn or 12%, notably from a rise of $20bn in
settlement accounts in our main legal entities in Europe, the US, mainland
China and Hong Kong from an increase in trading activity, compared with the
seasonal reduction in December 2023.
Equity
Total shareholders' equity, including non-controlling interests, decreased by
$2bn or 1% compared with 31 December 2023.
Profits generated of $18bn were more than offset by dividends paid of $13bn
and the impact of share buy-backs of $5bn, as well as net losses through other
comprehensive income ('OCI') of $2bn.
Financial investments
As part of our interest rate hedging strategy, we hold a portfolio of debt
instruments, reported within financial investments, which are classified as
hold-to-collect-and-sell. As a result, the change in value of these
instruments is recognised through 'debt instruments at fair value through
other comprehensive income' in equity.
At 30 June 2024, we had recognised a pre-tax cumulative unrealised loss
reserve through other comprehensive income of $4.2bn related to these
hold-to-collect-and-sell positions. This reflected a $0.3bn pre-tax loss in
1H24, inclusive of movements on related fair value hedges. Overall, the Group
is positively exposed to rising interest rates through net interest income,
although there is an adverse impact on our capital base in the early stages of
a rising interest rate environment due to the fair value of
hold-to-collect-and-sell instruments. Over time, these adverse movements will
unwind as the instruments reach maturity, although not all will necessarily be
held to maturity.
Risk-weighted assets
Risk-weighted assets ('RWAs') reduced by $19.0bn during the first half of
2024. Excluding a decrease of $12.8bn from foreign currency translation
differences, RWAs fell by $6.2bn, largely as a result of the following:
- a $36.3bn decrease primarily due to the disposal of our banking business
in Canada and the sale of our retail banking operations in France.
- These were partly offset by:
- a $21.2bn increase, mainly driven by higher value at risk and
incremental risk charge in market risk. Further increases were due to
corporate lending, notably in SAB, HSBC UK Bank plc and HSBC Bank plc, and
higher sovereign exposures, mainly in Argentina;
- a $7.0bn increase mainly follows a revision to the definition of default
in our probability of default ('PD') models for exposures to financial
institutions; and
- a $2.1bn increase due to methodology changes and risk parameter
refinements notably in Argentina, HBSC UK Bank plc and HSBC Bank plc, offset
by Asia.
We also hold a portfolio of financial investments measured at amortised cost,
which are classified as hold-to-collect. At 30 June 2024, there was a
cumulative unrecognised loss of $3.0bn. Within this, $2.2bn related to debt
instruments held to manage our interest rate exposure, representin
g a $1.2bn deterioration during 1H24.
Customer accounts by country/territory
At
30 Jun 2024 31 Dec 2023
$m $m
Hong Kong 543,776 543,504
UK 505,118 508,181
US 93,060 99,607
Singapore 71,191 73,547
Mainland China 57,452 56,006
France 40,237 42,666
Australia 30,450 32,071
Germany 25,272 30,641
Mexico 28,997 29,423
UAE 26,341 24,882
India 27,806 24,377
Taiwan 16,193 16,949
Malaysia 16,025 15,983
Switzerland 3,260 8,047
Egypt 4,183 5,858
Indonesia 5,383 5,599
Türkiye 3,021 3,510
Other 96,069 90,796
At end of period 1,593,834 1,611,647
Global businesses
Contents
39 Summary
39 Basis of preparation
40 Supplementary analysis of constant currency results and notable items by
global business
42 Strategic transactions supplementary analysis
43 Reconciliation of reported risk-weighted assets to constant currency
risk-weighted assets
44 Supplementary tables for WPB
Summary
The Group Chief Executive, supported by the rest of the Group Executive
Committee ('GEC'), reviews operating activity on a number of bases, including
by global business and legal entities. Our global businesses - Wealth and
Personal Banking, Commercial Banking, and Global Banking and Markets - along
with Corporate Centre are our reportable segments under IFRS 8 'Operating
Segments', and are presented below and in Note 5: 'Segmental analysis' on page
122.
Descriptions of the global businesses are provided in the Overview
section on pages 18 to 24.
Basis of preparation
The Group Chief Executive, supported by the rest of the GEC, is considered the
Chief Operating Decision Maker ('CODM') for the purposes of identifying the
Group's reportable segments. Global business results are assessed by the CODM
on the basis of constant currency performance. 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. Constant currency performance information for 1H23 is presented as
described on page 29.
As required by IFRS 8, reconciliations of the total constant currency global
business results to the Group's reported results are presented on page 123.
Supplementary reconciliations from reported to constant currency results by
global business are presented on pages 40 to 43 for information purposes.
Global business performance is also assessed using return on tangible equity
('RoTE'). A reconciliation of global business RoTE to the Group's RoTE is
provided on page 58.
Our operations are closely integrated and, accordingly, the presentation of
data includes internal allocations of certain items of income and expense.
These allocations include the costs of certain support services and global
functions to the extent that they can be meaningfully attributed to global
businesses and legal entities. While such allocations have been made on a
systematic and consistent basis, they necessarily involve a degree of
subjectivity. Costs that are not allocated to global businesses are included
in Corporate Centre.
Where relevant, income and expense amounts presented include the results of
inter-segment funding along with inter-company and inter-business line
transactions. All such transactions are undertaken on arm's length terms. The
intra-Group elimination items for the global businesses are presented in
Corporate Centre.
HSBC Holdings incurs the liability of the UK bank levy, with the cost being
recharged to its UK operating subsidiaries. The current year expense will be
reflected in the fourth quarter as it is assessed on our balance sheet
position as at 31 December.
The results of main legal entities are presented on a reported and constant
currency basis, including HSBC UK Bank plc, HSBC Bank plc, The Hongkong and
Shanghai Banking Corporation Limited, HSBC Bank Middle East Limited, HSBC
North America Holdings Inc. and Grupo Financiero HSBC, S.A. de C.V.
The results of legal entities are presented on a reported basis on page 50 and
a constant currency basis on page 52.
Supplementary analysis of constant currency results and notable items by
global business
Constant currency results(1)
Half-year to 30 Jun 2024
Wealth and Commercial Global Corporate Total
Personal Banking Banking and Centre(2)
Banking(2) Markets
$m $m $m $m $m
Revenue(3) 14,312 10,896 8,742 3,342 37,292
ECL (476) (573) (11) (6) (1,066)
Operating expenses (7,406) (3,861) (4,918) (111) (16,296)
Share of profit in associates and joint ventures 28 1 - 1,597 1,626
Profit before tax 6,458 6,463 3,813 4,822 21,556
Loans and advances to customers (net) 445,882 310,356 174,376 7,643 938,257
Customer accounts 794,807 467,362 331,269 396 1,593,834
1 In the current period, constant currency results are equal to
reported as there is no currency translation.
2 With effect from 1 January 2024, following the sale of our retail
banking business in France, we have prospectively reclassified the portfolio
of retained loans, profit participation interest and licence agreement of the
CCF brand from WPB to Corporate Centre.
3 Net operating income before change in expected credit losses and other
credit impairment charges, also referred to as
revenue.
Notable items
Half-year to 30 Jun 2024
Wealth and Personal Banking Commercial Banking Global Corporate Centre Total
Banking and Markets
$m $m $m $m $m
Revenue
Disposals, acquisitions and related costs(1) 55 - (14) 3,530 3,571
Operating expenses
Disposals, acquisitions and related costs - 2 - (103) (101)
Restructuring and other related costs(2) 4 3 3 9 19
1 Includes a $4.8bn gain on disposal of our banking business in
Canada, inclusive of a $0.3bn gain on the foreign exchange hedging of the
sales proceeds, the recycling of $0.6bn in foreign currency translation
reserve losses and $0.4bn of other reserves recycling losses. This is partly
offset by a $1.2bn impairment recognised in relation to the planned sale of
our business in Argentina.
2 Relates to reversals of restructuring provisions recognised during
2022.
Reconciliation of reported results to constant currency results - global
businesses
Half-year to 30 Jun 2023
Wealth and Commercial Global Corporate Total
Personal Banking Banking and Centre
Banking Markets
$m $m $m $m $m
Revenue(1)
Reported 16,200 12,216 8,501 (41) 36,876
Currency translation (105) (130) (180) 41 (374)
Constant currency 16,095 12,086 8,321 - 36,502
ECL
Reported (502) (704) (136) (3) (1,345)
Currency translation 18 10 - - 28
Constant currency (484) (694) (136) (3) (1,317)
Operating expenses
Reported (7,141) (3,572) (4,785) 41 (15,457)
Currency translation 121 114 9 (31) 213
Constant currency (7,020) (3,458) (4,776) 10 (15,244)
Share of profit in associates and joint ventures
Reported 35 (1) - 1,549 1,583
Currency translation - - - (52) (52)
Constant currency 35 (1) - 1,497 1,531
Profit/(loss) before tax
Reported 8,592 7,939 3,580 1,546 21,657
Currency translation 34 (6) (171) (42) (185)
Constant currency 8,626 7,933 3,409 1,504 21,472
Loans and advances to customers (net)
Reported 463,836 319,246 176,182 294 959,558
Currency translation (3,441) (3,975) (1,127) (1) (8,544)
Constant currency 460,395 315,271 175,055 293 951,014
Customer accounts
Reported 809,864 472,146 313,126 633 1,595,769
Currency translation (5,902) (5,844) (3,600) (5) (15,351)
Constant currency 803,962 466,302 309,526 628 1,580,418
1 Net operating income before change in expected credit losses and
other credit impairment charges, also referred to as revenue.
Notable items (continued)
Half-year to 30 Jun 2023
Wealth and Personal Commercial Banking Global Corporate Total
Banking Banking and Markets Centre
$m $m $m $m $m
Revenue
Disposals, acquisitions and related costs(1,2) 2,034 1,507 - (220) 3,321
Fair value movements on financial instruments(3) - - - 15 15
Operating expenses
Disposals, acquisitions and related costs (23) (15) 3 (83) (118)
Restructuring and other related costs(4) - 29 - 18 47
1 Includes the reversal of a $2.1bn impairment loss relating to
the sale of our retail banking operations in France.
2 Includes the gain of $1.5bn recognised in respect of the
acquisition of SVB UK.
3 Fair value movements on non-qualifying hedges in HSBC Holdings.
4 Relates to reversals of restructuring provisions recognised
during 2022.
Strategic transactions supplementary analysis
The following table presents the selected impacts of strategic transactions to
the Group and our global business segments. These comprise the strategic
transactions where the financial impacts of the acquisition or disposal have
qualified for material notable item treatment in our results. Material notable
items are a subset of notable items and categorisation is dependent on the
financial impact on the Group's income statement. At 1H24, strategic
transactions classified as material notable items comprise the disposal of our
retail banking operations in France, our banking business in Canada, the
planned sale of our business in Argentina and the acquisition of SVB UK.
The impacts quoted include the gains or losses on classification to held for
sale or acquisition and all other related notable items. They also include the
distorting impact between the periods of the operating income statement
results related to acquisitions and disposals that affect period-on-period
comparisons. It is computed by including the operating income statement
results of each business in any period for which there are no results in the
comparative period. We consider the monthly impacts of distorting income
statement results when calculating the impact of strategic transactions.
Constant currency results
Half year to 30 Jun 2024
Wealth and Commercial Global Corporate Total
Personal Banking Banking and Centre
Banking Markets
$m $m $m $m $m
Revenue 54 179 - 3,680 3,912
ECL - (3) - - (3)
Operating expenses (7) (76) - (103) (186)
Share of profit in associates and joint ventures - - - - -
Profit before tax 47 100 - 3,577 3,724
- HSBC Innovation Banking(1) 100 - 100
- Retail banking operations in France 47 (4) 43
- Banking business in Canada - 4,773 4,773
- Business in Argentina (1,192) (1,192)
Of which: notable items
Revenue 55 - - 3,680 3,735
Profit before tax 55 - - 3,577 3,632
Of which: distorting impact of operating results between periods
Revenue (1) 179 - - 178
Profit before tax (8) 100 - - 92
Half year to 30 Jun 2023
Revenue 2,443 1,800 51 4,085
(210)
ECL (5) (33) 5 - (33)
Operating expenses (370) (94) (570)
(24) (82)
Share of profit in associates and joint ventures - - - - -
Profit/(loss) before tax 2,068 1,673 32 3,481
(292)
- HSBC Innovation Banking(1) 1,530 - 1,530
- Retail banking operations in France 1,980 54 2,034
- Banking business in Canada 88 143 32 (82)
(345)
- Business in Argentina - -
Of which: notable items
Revenue 2,058 1,572 - 3,420
(210)
Profit before tax 2,034 1,560 - 3,302
(292)
Of which: distorting impact of operating results between periods
Revenue 385 228 - - 613
Profit before tax 34 113 - - 147
1 Includes the impact of our acquisition of SVB UK, which in June 2023
changed its legal entity name to HSBC Innovation Bank Limited.
Constant currency results (continued)
Quarter ended 30 Jun 2024
Wealth and Commercial Global Corporate Total
Personal Banking Banking and Centre
Banking Markets
$m $m $m $m $m
Revenue 3 - - (6) (3)
ECL - - - - -
Operating expenses (1) 3 - (42) (39)
Share of profit in associates and joint ventures - - - - -
Profit/(loss) before tax 2 3 - (48) (43)
- HSBC Innovation Banking(1) 3 - 3
- Retail banking operations in France 2 (3) (1)
- Banking business in Canada 10 10
- Business in Argentina (55) (55)
Of which: notable items
Revenue 2 - - (6) (4)
Profit before tax 3 3 - (48) (42)
Of which: distorting impact of operating results between periods
Revenue 1 - - - 1
Profit before tax (1) - - - (1)
Quarter ended 30 Jun 2023
Revenue 318 224 51 (244) 349
ECL (5) (6) 5 - (6)
Operating expenses (220) (86) (24) (39) (369)
Share of profit in associates and joint ventures - - - - -
Profit/(loss) before tax 93 132 32 (283) (26)
- HSBC Innovation Banking(1) (11) 8 (3)
- Retail banking operations in France 5 (30) (25)
- Banking business in Canada 88 143 32 (260) 3
- Business in Argentina - -
Of which: notable items
Revenue 14 (4) - (244) (234)
Profit before tax 11 (19) - (283) (291)
Of which: distorting impact of operating results between periods
Revenue 304 228 - - 532
Profit before tax 82 151 - - 233
1 Includes the impact of our acquisition of SVB UK, which in June 2023
changed its legal entity name to HSBC Innovation Bank Limited.
Reconciliation of reported risk-weighted assets to constant currency
risk-weighted assets
At 30 Jun 2024
Wealth and Commercial Global Corporate Total
Personal Banking Banking and Centre
Banking Markets
$bn $bn $bn $bn $bn
Risk-weighted assets
Reported 182.5 335.7 225.1 91.8 835.1
Constant currency 182.5 335.7 225.1 91.8 835.1
At 30 Jun 2023
Risk-weighted assets
Reported 186.6 353.8 227.0 92.1 859.5
Currency translation (17.2)
(5.1) (8.7) (2.8) (0.6)
Constant currency 181.5 345.1 224.2 91.5 842.3
At 31 Dec 2023
Risk-weighted assets
Reported 192.9 354.5 218.5 88.2 854.1
Currency translation (4.1) (7.3) (3.4) (0.8) (15.6)
Constant currency 188.8 347.2 215.1 87.4 838.5
Supplementary tables for WPB
WPB performance by business unit (constant currency)
A breakdown of WPB by business unit is presented below to reflect the basis of
how the revenue performance of the business units is assessed and managed.
WPB - summary (constant currency basis)
Total Consists of
WPB
Banking Life insurance Global Private Asset
operations(2) Banking management
$m $m $m $m $m
Half-year to 30 Jun 2024
Net operating income before change in expected credit losses and other credit 14,312 11,411 912 1,327 662
impairment charges(1)
- net interest income 10,231 9,469 158 598 6
- net fee income 2,941 1,726 84 500 631
- other income 1,140 216 670 229 25
ECL (476) (479) - 3 -
Net operating income 13,836 10,932 912 1,330 662
Total operating expenses (7,406) (5,740) (334) (842) (490)
Operating profit 6,430 5,192 578 488 172
Share of profit in associates and joint ventures 28 7 21 - -
Profit before tax 6,458 5,199 599 488 172
Half-year to 30 Jun 2023
Net operating income before change in expected credit losses and other credit 16,095 13,480 851 1,147 617
impairment charges(1)
- net interest income 10,130 9,412 138 585
(5)
- net fee income 2,675 1,624 75 396 580
- other income 3,290 2,444 638 166 42
ECL 3 -
(484) (484) (3)
Net operating income 15,611 12,996 848 1,150 617
Total operating expenses (7,020) (5,433)
(349) (783) (455)
Operating profit 8,591 7,563 499 367 162
Share of profit in associates and joint ventures 35 7 28 - -
Profit before tax 8,626 7,570 527 367 162
1 Net operating income before change in expected credit losses and
other credit impairment charges, also referred to as revenue.
2 Includes investment distribution.
Life insurance business performance
The following table provides an analysis of the performance of our life
insurance business for the period. It comprises income earned by our insurance
manufacturing operations within our WPB business, as well as income earned and
costs incurred within our Wealth insurance distribution channels and
consolidation and inter-company elimination entries.
Results of WPB's life insurance business unit (constant currency basis)
Half-year to 30 Jun 2024
Insurance manufacturing operations Wealth insurance and other(1) Life insurance
$m $m $m
Net interest income 158 - 158
Net fee income/(expense) (7) 91 84
Other income 654 16 670
- insurance service results 701 (9) 692
- net investment returns (excluding net interest income) (59) (6) (65)
- other operating income 12 31 43
Net operating income before change in expected credit losses and other credit 805 107 912
impairment charges(2)
ECL - - -
Net operating income 805 107 912
Total operating expenses (283) (51) (334)
Operating profit 522 56 578
Share of profit in associates and joint ventures 21 - 21
Profit before tax 543 56 599
Half-year to 30 Jun 2023
Net interest income 138 - 138
Net fee income/(expense) 100 75
(25)
Other income 646 638
(8)
- insurance service results 557 535
(22)
- net investment returns (excluding net interest income) 3
(19) (16)
- other operating income 108 11 119
Net operating income before change in expected credit losses and other credit 759 92 851
impairment charges(2)
ECL -
(3) (3)
Net operating income 756 92 848
Total operating expenses
(265) (84) (349)
Operating profit 491 8 499
Share of profit in associates and joint ventures 28 - 28
Profit before tax 519 8 527
1 'Wealth insurance and other' includes fee income earned and
operating expenses incurred within our Wealth distribution channels. It also
includes the IFRS 17 consolidation entries arising from transactions between
our insurance manufacturing operations and Wealth distribution channels and
with the wider Group, as well as allocations of central costs benefiting life
insurance.
2 Net operating income before change in expected credit losses and
other credit impairment charges, also referred to as revenue.
WPB insurance manufacturing (constant currency basis)
The following table shows the results of our insurance manufacturing
operations for our WPB business and for all global business segments in
aggregate.
Results of insurance manufacturing operations(1,2)
Half-year to
30 Jun 2024 30 Jun 2023
WPB All global WPB All global
businesses businesses
$m $m $m $m
Net interest income (3) 158 177 138 155
Net fee expense (7) (12) (25) (18)
Other income 654 657 646 639
Insurance service result 701 701 557 557
- release of contractual service margin 629 629 522 522
- risk adjustment release 35 35 20 20
- experience variance and other 30 30 4 4
- loss from onerous contracts 7 7 11 11
Net investment returns (excluding net interest income)(3) (59) (55) (19) (23)
- insurance finance expense (2,489) (2,489) (4,191) (4,190)
- other investment income 2,430 2,434 4,172 4,167
Other operating income 12 11 108 105
Net operating income before change in expected credit losses and other credit 805 822 759 776
impairment charges(4)
Change in expected credit losses and other credit impairment charges - - (3) (3)
Net operating income 805 822 756 773
Total operating expenses (283) (284) (265) (268)
Operating profit 522 538 491 505
Share of profit in associates and joint ventures 21 21 28 28
Profit before tax of insurance business operations(5) 543 559 519 533
Additional information
Insurance manufacturing new business contractual service margin (reported 1,324 1,324 747 747
basis)
Consolidated Group new business contractual service margin (reported basis) 1,437 1,437 811 811
Annualised new business premiums of insurance manufacturing operations 2,792 2,792 1,888 1,888
1 Constant currency results are derived by adjusting for
period-on-period effects of foreign currency translation differences. The
impact of foreign currency translation differences on 'All global businesses'
profit before tax was $2m unfavourable for 1H23 (reported: $535m).
2 The results presented for insurance manufacturing operations are
shown before elimination of inter-company transactions with HSBC non-insurance
operations. The 'All global businesses' result consists primarily of WPB
business, as well as a small proportion of CMB business.
3 Net investment return for all global businesses for the half-year to
30 June 2024 was $122m (30 June 2023: $132m), which consisted of net interest
income, net income on assets held at fair value through profit or loss, and
insurance finance expense.
4 Net operating income before change in expected credit losses and
other credit impairment charges, also referred to as revenue.
5 The effect on insurance manufacturing operations of applying
hyperinflation accounting in Argentina resulted in a decrease in 'All global
businesses' profit before tax in 1H24 of $41m (1H23: decrease of $6m).
Insurance manufacturing
The following commentary, unless otherwise stated, relates to the constant
currency results for 'All global businesses'.
Profit before tax of $0.6bn reported in 1H24 reflected the following:
- Insurance service result of $0.7bn in 1H24 increased by $0.1bn compared
with 1H23 reflecting an increase to the release of CSM of $0.1bn. This was
driven by a higher closing CSM balance primarily from the effect of new
business written and favourable market experience.
- Net investment return (excluding net interest income) of $0.1bn loss was
marginally lower than 1H23, with returns on investments before net interest
income largely offset by insurance finance expense.
- Other operating income reduced by $0.1bn primarily from losses on
reinsurance arrangements in Hong Kong.
Annualised new business premiums ('ANP') is used to assess new insurance
premiums generated by the business. It is calculated as 100% of annualised
first year regular premiums and 10% of single premiums, before reinsurance
ceded. ANP in 1H24 increased by 48% compared with 1H23, primarily from strong
new business sales in Hong Kong and a shift in product mix from single to
multi-premium products.
Insurance manufacturing value of new business
Insurance manufacturing value of new business is a non-GAAP alternative
performance measure that provides information about value generation from new
business sold during the period. It is a metric used internally to measure the
long-term profitability of new business sold, and is calculated as the sum of
the IFRS 17 new business CSM and loss component adjusted for:
- a full attribution of expenses incurred within our insurance
manufacturing operations. IFRS 17 considers only directly attributable
expenses within the new business CSM measurement; and
- long-term asset spreads expected to be generated over the contract term.
Under IFRS 17, new business CSM is in contrast calculated on a market
consistent risk neutral basis. This also necessitates changes to the
underlying economic scenario models used in the valuation of policyholder
guarantees to reflect this basis.
There were no other adjustments made, with demographic and expense assumptions
remaining unchanged, except for inclusion of future non-attributable expenses
as described above. The IFRS 17 risk adjustment remained unchanged, with no
additional allowances made for market risks. Insurance manufacturing value of
new business was measured before tax and after inclusion of the impact of
reinsurance.
Insurance manufacturing value of new business
Half-year to
30 Jun 2024 30 Jun 2023
$m $m
Insurance manufacturing operations new business CSM and loss component(1) 1,319 740
Inclusion of incremental expenses not attributable to the contractual service (191) (143)
margin
Long-term asset spreads 266 195
Insurance manufacturing value of new business 1,394 792
1 Insurance manufacturing new business contractual service margin
was $1,324m (1H23: $747m) and the loss component was $5m (1H23: $7m).
Insurance equity plus CSM net of tax
Insurance equity plus CSM net of tax is a non-GAAP alternative performance
measure that provides information about our insurance manufacturing
operations' net asset value plus the future earnings from in-force business.
At 30 June 2024, insurance equity plus CSM net of tax on a reported basis was
$17,572m (31 December 2023: $16,583m; 30 June 2023: $16,310m).
At 30 June 2024, insurance equity plus CSM net of tax was calculated as
insurance manufacturing operations equity of $7,531m plus CSM of $12,218m less
tax of $2,177m. At 31 December 2023, it was calculated as insurance
manufacturing operations equity of $7,731m
plus CSM of $10,786m less tax of $1,934m. At 30 June 2023, it was calculated
as insurance manufacturing operations equity of $7,661m plus CSM of $10,571m
less tax of $1,922m.
Insurance manufacturing proxy embedded value
Insurance manufacturing proxy embedded value was previously presented as a
non-GAAP performance measure in the Annual Report and Accounts 2023. The Group
continues to review its use of non-GAAP performance measures following
implementation of IFRS 17, and this measure has now been discontinued as
'Equity plus CSM net of tax' is considered a measure of value more closely
aligned with IFRS 17.
WPB: Wealth balances
The following table shows the wealth balances, which include invested assets
and wealth deposits. Invested assets comprise customer assets either managed
by our Asset Management business or by external third-party investment
managers, as well as self-directed investments by our customers.
WPB - reported wealth balances(1)
At
30 Jun 2024 30 Jun 2023 31 Dec 2023
$bn $bn $bn
Global Private Banking invested assets 390 341 363
- managed by Global Asset Management 62 64 61
- external managers, direct securities and other 328 277 302
Retail invested assets 412 372 383
- managed by Global Asset Management 172 207 178
- external managers, direct securities and other 240 165 205
Asset Management third-party distribution 469 384 445
Reported invested assets(1) 1,271 1,097 1,191
Wealth deposits (Premier, Jade and Global Private Banking)(2) 530 533 536
Total reported wealth balances 1,801 1,630 1,727
1 Invested assets are not reported on the Group's balance sheet,
except where it is deemed that we are acting as principal rather than agent in
our role as investment manager.
2 Premier, Jade and Global Private Banking deposits, which include
Prestige deposits in Hang Seng Bank, form part of the total WPB customer
accounts balance of $795bn (30 June 2023: $810bn; 31 December 2023: $805bn) on
page 40.
Asset Management: Funds under management
The following table shows the funds under management of our Asset Management
business. Funds under management represents assets managed, either actively or
passively, on behalf of our customers.
Asset Management - reported funds under management(1)
Half-year to
30 Jun 2024 30 Jun 2023 31 Dec 2023
$bn $bn $bn
Opening balance 684 595 628
Net new invested assets 3 9 45
Net market movements 24 15 8
Foreign exchange and others (8) 9 3
Closing balance 703 628 684
Asset Management - reported funds under management by legal entities
At
30 Jun 2024 30 Jun 2023 31 Dec 2023
$bn $bn $bn
HSBC Bank plc 164 141 162
The Hongkong and Shanghai Banking Corporation Limited 212 188 198
HSBC North America Holdings Inc. 54 55 71
Grupo Financiero HSBC, S.A. de C.V. 15 11 15
Other trading entities(2) 258 233 238
Closing balance 703 628 684
1 Funds under management are not reported on the Group's balance
sheet, except where it is deemed that we are acting as principal rather than
agent in our role as investment manager.
2 Funds under management of $193bn (30 June 2023: $164bn; 31 December
2023: $177bn) related to our Asset Management entity in the UK are reported
under 'other trading entities' in the table above.
At 30 June 2024, Asset Management funds under management were $703bn, an
increase of $19bn or 3% compared with 31 December 2023. The increase was
driven by favourable market performances and net new invested assets, notably
in the UK and Hong Kong.
Net new invested assets of $3bn reflected inflows into long-term products,
primarily passive investment products, developed market fixed income and
private equity investment products. These inflows were largely offset by
redemptions from money market instruments in the US.
Global Private Banking client balances(1)
The following table shows the client balances of our Global Private Banking
business.
Global Private Banking - reported client balances(2)
Half-year to
30 Jun 2024 30 Jun 2023 31 Dec 2023
$bn $bn $bn
Opening balance 447 383 419
Net new invested assets 16 17 -
Increase/(decrease) in deposits 1 3 6
Net market movements 13 14 5
Foreign exchange and others 2 2 17
Closing balance 479 419 447
Global Private Banking - reported client balances by legal entities
At
30 Jun 2024 30 Jun 2023 31 Dec 2023
$bn $bn $bn
HSBC UK Bank plc 33 29 32
HSBC Bank plc 141 62 54
The Hongkong and Shanghai Banking Corporation Limited 234 187 209
HSBC Bank Middle East Limited(3) 3 - -
HSBC North America Holdings Inc. 66 65 64
Grupo Financiero HSBC, S.A. de C.V. 2 2 3
Other trading entities(4) - 74 85
Closing balance 479 419 447
1 Client balances are translated at the rates of exchange applicable
for their respective period-ends, with the effects of currency translation
reported separately.
2 Client balances are not reported on the Group's balance sheet,
except where it is deemed that we are acting as principal rather than agent in
our role as investment manager. Customer deposits included in these client
assets are recorded on our balance sheet.
3 In 1H24, there was a transfer of $3bn from Retail invested assets to
GPB client balances to align with the management of these balances.
4 In 1H24, there was a transfer of $77bn from HSBC Private Bank
(Suisse) SA to HSBC Bank plc.
Retail invested assets
The following table shows the invested assets of our retail customers. These
comprise customer assets either managed by our Asset Management business or by
external third-party investment managers as well as self-directed investments
by our customers. Retail invested assets are not reported on the Group's
balance sheet, except where it is deemed that we are acting as principal
rather than agent in our role as investment manager.
Retail invested assets
Half-year to
30 Jun 2024 30 Jun 2023 31 Dec 2023
$bn $bn $bn
Opening balance 383 363 372
Net new invested assets(1) 21 14 12
Net market movements 4 6 1
Foreign exchange and others 4 (11) (2)
Closing balance 412 372 383
Retail invested assets by legal entities
At
30 Jun 2024 30 Jun 2023 31 Dec 2023
$bn $bn $bn
HSBC UK Bank plc 31 29 29
HSBC Bank plc 32 36 31
The Hongkong and Shanghai Banking Corporation Limited 318 280 292
HSBC Bank Middle East Limited 3 3 3
HSBC North America Holdings Inc. 15 13 14
Grupo Financiero HSBC, S.A. de C.V. 9 8 9
Other trading entities 4 3 5
Closing balance 412 372 383
1 'Retail net new invested assets' covers 13 markets, comprising Hong
Kong including Hang Seng Bank (Hong Kong), mainland China, Malaysia,
Singapore, India, Indonesia, Taiwan, HSBC UK, Channel Islands, UAE, the US and
Mexico. The 'net new invested assets' related to all other geographies is
reported in 'Foreign exchange and other'.
WPB invested assets
'Net new invested assets' represents the net customer inflows from retail
invested assets, Asset Management third-party distribution and Global Private
Banking invested assets. It excludes all customer deposits. The 'net new
invested assets' in the table below is non-additive from the tables above, as
net new invested assets managed by Asset Management that are generated by
retail clients or Global Private Banking will be recorded in both businesses.
WPB: Invested assets
Half-year to
30 Jun 2024 30 Jun 2023 31 Dec 2023
$bn $bn $bn
Opening balance 1,191 1,015 1,097
Net new invested assets 32 34 50
Net market movements 36 29 14
Foreign exchange and others 12 19 30
Closing balance 1,271 1,097 1,191
WPB: Net new invested assets by legal entities
Half-year to
30 Jun 2024 30 Jun 2023 31 Dec 2023
$bn $bn $bn
HSBC UK Bank plc 1 - 1
HSBC Bank plc 5 1 2
The Hongkong and Shanghai Banking Corporation Limited 38 27 20
HSBC Bank Middle East Limited 0 - 1
HSBC North America Holdings Inc.(1) (22) (7) 14
Grupo Financiero HSBC, S.A. de C.V. 1 1 4
Other trading entities 9 12 8
Total 32 34 50
1 Net new invested assets in the half-year to 30 June 2024 primarily
reflected outflows from liquidity products in Asset Management.
Legal entities
Contents
50 Analysis of reported results by legal entities
52 Summary information - legal entities and selected countries
Error! No bookmark name given. Analysis by country/territory
Analysis of reported results by legal entities
HSBC reported profit/(loss) before tax and balance sheet data
Half-year to 30 Jun 2024
HSBC UK Bank plc HSBC Bank plc The Hongkong and Shanghai Banking Corporation Limited HSBC Bank Middle East Limited HSBC North America Holdings Inc. HSBC Bank Canada Grupo Financiero HSBC, S.A. de C.V. Other trading entities Holding companies, shared service centres and intra Total
-Group eliminations
$m $m $m $m $m $m $m $m $m $m
Net interest income 5,063 832 7,454 804 730 300 1,187 1,618 (1,077) 16,911
Net fee income 810 827 2,689 260 674 129 328 530 (47) 6,200
Net income from financial instruments held for trading 276 2,786 5,996 167 492 33 265 182 319 10,516
or managed on a fair
value basis
Net income/(expense) from assets and liabilities of - 545 1,722 - - - 30 84 (5) 2,376
insurance businesses,
including related derivatives, measured at fair value
through profit and loss
Insurance finance income/(expense) - (678) (1,708) - - - (40) (68) 8 (2,486)
Insurance service result - 130 524 - - - 41 (9) (24) 662
Other income/(expense)(1) 81 51 288 25 239 - 31 (602) 3,000 3,113
Net operating income before change in expected credit 6,230 4,493 16,965 1,256 2,135 462 1,842 1,735 2,174 37,292
losses and other credit
impairment charges(2)
Change in expected credit losses and other credit (62) 66 (455) (102) (33) (40) (386) (59) 5 (1,066)
impairment charges
Net operating income 6,168 4,559 16,510 1,154 2,102 422 1,456 1,676 2,179 36,226
Total operating expenses (2,427) (3,142) (6,873) (618) (1,677) (236) (998) (950) 671 (16,250)
Impairment of goodwill and other intangible assets (7) (1) (24) - (2) - - (11) (1) (46)
Operating profit 3,734 1,416 9,613 536 423 186 458 715 2,849 19,930
Share of profit/(loss) in associates and joint ventures - 20 1,280 - - - 8 319 (1) 1,626
Profit before tax 3,734 1,436 10,893 536 423 186 466 1,034 2,848 21,556
% % % % % % % % % %
Share of HSBC's profit before tax 17.3 6.7 50.5 2.5 2.0 0.9 2.2 4.7 13.2 100.0
Cost efficiency ratio 39.1 70.0 40.7 49.2 78.6 51.1 54.2 55.4 (30.8) 43.7
Balance sheet data $m $m $m $m $m $m $m $m $m $m
Loans and advances to customers (net) 270,262 107,957 453,642 20,506 55,809 - 25,449 4,632 - 938,257
Total assets 416,096 902,722 1,353,949 57,320 267,310 - 47,289 31,385 (101,068) 2,975,003
Customer accounts 334,566 295,557 799,086 32,934 93,060 - 28,997 9,532 102 1,593,834
Risk-weighted assets(3,4,5) 131,472 137,075 401,244 26,082 76,755 - 31,286 54,982 4,866 835,118
HSBC reported profit/(loss) before tax and balance sheet data (continued)
Half-year to 30 Jun 2023
HSBC UK Bank plc HSBC Bank plc The Hongkong and HSBC Bank Middle East Limited HSBC North America Holdings Inc. HSBC Bank Canada Grupo Financiero HSBC, S.A. de C.V. Other trading entities Holding companies, shared service centres and intra Total
-Group eliminations
Shanghai Banking Corporation Limited
$m $m $m $m $m $m $m $m $m $m
Net interest income 4,779 1,407 8,398 764 933 663 998 1,424 (1,102) 18,264
Net fee income 801 832 2,555 243 624 284 274 565 (93) 6,085
Net income from financial instruments held for trading 235 2,053 4,740 212 380 50 226 494 (278) 8,112
or managed on a fair
value basis
Net income/(expense) from assets and liabilities of - 782 3,446 - - - 3 83 (10) 4,304
insurance businesses,
including related derivatives, measured at fair value
through profit and loss
Insurance finance income - (780) (3,402) - - - - (64) 12 (4,234)
Insurance service result - 91 399 - - - 41 4 (11) 524
Other income/(expense)(1) 1,574 2,318 397 (21) 205 11 32 (289) (406) 3,821
Net operating income before change in expected credit 7,389 6,703 16,533 1,198 2,142 1,008 1,574 2,217 (1,888) 36,876
losses and other credit
impairment charges(2)
Change in expected credit losses and other credit (418) (73) (456) - (62) (11) (264) (71) 10 (1,345)
impairment charges
Net operating income 6,971 6,630 16,077 1,198 2,080 997 1,310 2,146 (1,878) 35,531
Total operating expenses (2,171) (3,189) (6,495) (524) (1,603) (522) (877) (1,136) 764 (15,753)
Impairment of goodwill and other intangible assets (9) 100 (12) (1) 224 - (3) (3) - 296
Operating profit 4,791 3,541 9,570 673 701 475 430 1,007 (1,114) 20,074
Share of profit in associates and joint ventures - (43) 1,347 - - - 6 275 (2) 1,583
Profit before tax 4,791 3,498 10,917 673 701 475 436 1,282 (1,116) 21,657
% % % % % % % % % %
Share of HSBC's profit before tax 22.1 16.2 50.4 3.1 3.2 2.2 2.0 6.0 (5.2) 100.0
Cost efficiency ratio 29.5 46.1 39.4 43.8 64.4 51.8 55.9 51.4 40.6 41.9
Balance sheet data $m $m $m $m $m $m $m $m $m $m
Loans and advances to customers (net) 266,694 112,408 464,546 18,804 53,410 - 24,507 19,189 - 959,558
Total assets 425,833 920,578 1,318,640 51,664 251,755 91,646 46,382 66,548 (131,570)
3,041,476
Customer accounts 345,835 282,041 775,430 31,262 99,303 - 28,402 33,313 183
1,595,769
Risk-weighted assets(3,4) 125,782 127,402 391,470 24,187 73,140 31,382 30,657 66,317 11,285 859,545
1 Other income/(expense) in this context comprises gain on
acquisitions, impairment gain/(loss) relating to the sale of our retail
banking operations in France, and other operating income/(expense).
2 Net operating income before change in expected credit losses and
other credit impairment charges, also referred to as revenue.
3 Risk-weighted assets are non-additive across the principal entities
due to market risk diversification effects within the Group.
4 Balances are on a third-party Group consolidated basis.
5 Holding companies, shared service centres and intra-Group
eliminations' balance includes HSBC Bank Canada operational risk RWAs, due to
the averaging calculation and will roll off over future reporting cycles.
Summary information - legal entities and selected countries
Legal entity reported and constant currency results¹
Half-year to 30 Jun 2024
HSBC UK Bank plc HSBC Bank plc The Hongkong and Shanghai Banking Corporation Limited HSBC Bank Middle East Limited HSBC North America Holdings Inc. HSBC Bank Canada Grupo Other trading entities(2) Holding Total
Financiero companies,
HSBC, S.A. shared
de C.V. service
centres and
intra-Group
eliminations
$m $m $m $m $m $m $m $m $m $m
Revenue(3) 6,230 4,493 16,965 1,256 2,135 462 1,842 1,735 2,174 37,292
ECL (62) 66 (455) (102) (33) (40) (386) (59) 5 (1,066)
Operating expenses (2,434) (3,143) (6,897) (618) (1,679) (236) (998) (961) 670 (16,296)
Share of profit in associates and joint ventures - 20 1,280 - - - 8 319 (1) 1,626
Profit/(loss) before tax 3,734 1,436 10,893 536 423 186 466 1,034 2,848 21,556
Loans and advances to customers (net) 270,262 107,957 453,642 20,506 55,809 - 25,449 4,632 - 938,257
Customer accounts 334,566 295,557 799,086 32,934 93,060 - 28,997 9,532 102
1,593,834
1 In the current period, constant currency results are equal to
reported, as there is no currency translation.
2 Other trading entities includes the results of entities located in
Türkiye, Egypt and Saudi Arabia (including our share of the results of Saudi
Awwal Bank) which do not consolidate into HSBC Bank Middle East Limited. These
entities had an aggregated impact on the Group's reported profit before tax of
$728m. Supplementary analysis is provided on page 56 to provide a fuller
picture of the MENAT regional performance.
3 Net operating income before change in expected credit losses and
other credit impairment charges, also referred to as revenue.
Legal entity results: notable items
Half-year to 30 Jun 2024
HSBC UK Bank plc HSBC Bank plc The Hongkong and Shanghai Banking Corporation Limited HSBC Bank Middle East Limited HSBC North America Holdings Inc. HSBC Bank Canada Grupo Other trading entities Holding Total
Financiero companies,
HSBC, S.A. shared
de C.V. service
centres and
intra-Group
eliminations
$m $m $m $m $m $m $m $m $m $m
Revenue
Disposals, acquisitions and related costs(1) - (131) - - - - - - 3,702 3,571
Operating expenses
Disposals, acquisitions and related costs 3 (5) - - (15) (36) - (1) (47) (101)
Restructuring and other related costs(2) 4 11 - - - - - - 4 19
1 Includes a $4.8bn gain on disposal of our banking business in
Canada, inclusive of a $0.3bn gain on the foreign exchange hedging of the sale
proceeds, the recycling of $0.6bn in foreign currency translation reserve
losses and $0.4bn of other reserves recycling losses. This is partly offset by
a $1.2bn impairment recognised in relation to the planned sale of our business
in Argentina.
2 Relate to reversals of restructuring provisions recognised during
2022.
Country results(1)
Half-year to 30 Jun 2024
UK(2) Hong Mainland US Mexico
Kong China
$m $m $m $m $m
Revenue(3) 10,570 10,898 2,060 2,122 1,842
ECL 15 (386) (30) (33) (386)
Operating expenses (6,499) (4,305) (1,376) (1,679) (998)
Share of profit/(loss) in associates and joint ventures 22 9 1,256 - 8
Profit before tax 4,108 6,216 1,910 410 466
Loans and advances to customers (net) 311,486 274,806 44,821 55,809 25,449
Customer accounts 505,118 543,776 57,452 93,060 28,997
1 In the current period, constant currency results are equal to
reported, as there is no currency translation.
2 UK includes HSBC UK Bank plc (ring-fenced bank) and HSBC Bank plc
(non-ring-fenced bank).
3 Net operating income before change in expected credit losses and
other credit impairment charges, also referred to as revenue.
Country results: notable items
Half-year to 30 Jun 2024
UK(1) Hong Mainland US Mexico
Kong China
$m $m $m $m $m
Revenue
Disposals, acquisitions and related costs 205 - - - -
Operating expenses
Disposals, acquisitions and related costs (28) (1) (5) (15) -
Restructuring and other related costs 9 - - - -
1 UK includes HSBC UK Bank plc (ring-fenced bank) and HSBC Bank plc
(non-ring-fenced bank).
Legal entity reported and constant currency results (continued)
Half-year to 30 Jun 2023
HSBC UK Bank plc HSBC Bank plc The Hongkong and Shanghai Banking Corporation Limited HSBC Bank Middle East Limited HSBC North America Holdings Inc. HSBC Bank Canada Grupo Other trading entities(1) Holding Total
Financiero companies,
HSBC, S.A. shared
de C.V. service
centres and
intra-Group
eliminations
$m $m $m $m $m $m $m $m $m $m
Revenue(2)
Reported 7,389 6,703 16,533 1,198 2,142 1,008 1,574 2,217 (1,888) 36,876
Currency translation 208 82 (147) 1 - (9) 92 (633) 32 (374)
Constant currency 7,597 6,785 16,386 1,199 2,142 999 1,666 1,584 (1,856) 36,502
ECL
Reported (418) (73) (456) - (62) (11) (264) (71) 10 (1,345)
Currency translation (9) (1) 2 - - - (16) 53 (1) 28
Constant currency (427) (74) (454) - (62) (11) (280) (18) 9 (1,317)
Operating expenses
Reported (2,180) (3,089) (6,507) (525) (1,379) (522) (880) (1,139) 764 (15,457)
Currency translation (51) (40) 62 - - 4 (50) 322 (34) 213
Constant currency (2,231) (3,129) (6,445) (525) (1,379) (518) (930) (817) 730 (15,244)
Share of profit/(loss) in associates and joint ventures
Reported - (43) 1,347 - - - 6 275 (2) 1,583
Currency translation - (1) (51) - - - - - - (52)
Constant currency - (44) 1,296 - - - 6 275 (2) 1,531
Profit/(loss) before tax
Reported 4,791 3,498 10,917 673 701 475 436 1,282 (1,116) 21,657
Currency translation 148 40 (134) 1 - (5) 26 (258) (3) (185)
Constant currency 4,939 3,538 10,783 674 701 470 462 1,024 (1,119) 21,472
Loans and advances to customers (net)
Reported 266,694 112,408 464,546 18,804 53,410 - 24,507 19,189 - 959,558
Currency translation (1,907) (1,714) (991) 1 - - (1,611) (2,322) - (8,544)
Constant currency 264,787 110,694 463,555 18,805 53,410 - 22,896 16,867 - 951,014
Customer accounts
Reported 345,835 282,041 775,430 31,262 99,303 - 28,402 33,313 183 1,595,769
Currency translation (2,473) (3,433) (1,517) 7 - - (1,867) (6,068) - (15,351)
Constant currency 343,362 278,608 773,913 31,269 99,303 - 26,535 27,245 183 1,580,418
1 Other trading entities includes the results of entities located in
Oman, Türkiye, Egypt and Saudi Arabia (including our share of the results of
Saudi Awwal Bank) which do not consolidate into HSBC Bank Middle East Limited.
These entities had an aggregated impact on the Group's reported profit before
tax of $692m and constant currency profit before tax of $605m. Supplementary
analysis is provided on page 56 to provide a fuller picture of the MENAT
regional performance.
2 Net operating income before change in expected credit losses and
other credit impairment charges, also referred to as revenue.
Legal entity results: notable items (continued)
Half-year to 30 Jun 2023
HSBC UK Bank plc HSBC Bank plc The Hongkong and HSBC Bank Middle East Limited HSBC North America Holdings Inc. HSBC Bank Canada Grupo Other trading entities Holding Total
Shanghai Financiero companies,
Banking HSBC, S.A. shared
Corporation de C.V. service
Limited centres and
intra-Group
eliminations
$m $m $m $m $m $m $m $m $m $m
Revenue
Disposals, acquisitions and related costs(1,2) 1,507 2,101 - - - - - - (287) 3,321
Fair value movements on financial instruments(3) - - - - - - - - 15 15
Operating expenses
Disposals, acquisitions and related costs (15) (45) - - (2) (54) - - (2) (118)
Restructuring and other related costs(4) - - - - - - - - 47 47
1 Includes the reversal of a $2.1bn impairment loss relating to the
sale of our retail banking operations in France.
2 Includes the gain of $1.5bn recognised in respect of the acquisition
of SVB UK.
3 Fair value movements on non-qualifying hedges in HSBC Holdings.
4 Relates to reversals of restructuring provisions recognised during
2022.
Country results (continued)
Half-year to 30 Jun 2023
UK(1) Hong Mainland US Mexico
Kong China
$m $m $m $m $m
Revenue(2)
Reported 10,478 10,574 2,030 2,090 1,574
Currency translation 320 26 (79) - 92
Constant currency 10,798 10,600 1,951 2,090 1,666
ECL
Reported (484) (489) 24 (62) (264)
Currency translation (10) (1) (1) - (16)
Constant currency (494) (490) 23 (62) (280)
Operating expenses
Reported (5,851) (3,964) (1,314) (1,379) (880)
Currency translation (141) (9) 52 - (50)
Constant currency (5,992) (3,973) (1,262) (1,379) (930)
Share of profit/(loss) in associates and joint ventures
Reported (44) 16 1,318 - 6
Currency translation (1) - (51) - -
Constant currency (45) 16 1,267 - 6
Profit before tax
Reported 4,099 6,137 2,058 649 436
Currency translation 168 16 (79) - 26
Constant currency 4,267 6,153 1,979 649 462
Loans and advances to customers (net)
Reported 305,923 288,917 45,694 53,410 24,507
Currency translation (2,188) 977 (36) - (1,611)
Constant currency 303,735 289,894 45,658 53,410 22,896
Customer accounts
Reported 508,052 529,574 53,835 99,303 28,402
Currency translation (3,633) 1,790 (43) - (1,867)
Constant currency 504,419 531,364 53,792 99,303 26,535
1 UK includes HSBC UK Bank plc (ring-fenced bank) and HSBC Bank plc
(non-ring-fenced bank).
2 Net operating income before change in expected credit losses and
other credit impairment charges, also referred to as revenue.
Country results: notable items (continued)
Half-year to 30 Jun 2023
UK(1) Hong Mainland US Mexico
Kong China
$m $m $m $m $m
Revenue
Disposals, acquisitions and related costs(2) 1,220 - - - -
Fair value movements on financial instruments(3) 15 - - - -
Operating expenses
Disposals, acquisitions and related costs (12) - - (2) -
1 UK includes HSBC UK Bank plc (ring-fenced bank) and HSBC Bank plc
(non-ring-fenced bank).
2 Includes the gain of $1.5bn recognised in respect of the acquisition
of SVB UK.
3 Fair value movements on non-qualifying hedges in HSBC Holdings.
Analysis by country/territory
Profit/(loss) before tax by country/territory within global businesses
Wealth and Commercial Global Banking Corporate Total
Personal Banking Banking and Markets Centre
$m $m $m $m $m
UK(1) 1,284 1,843 158 823 4,108
- of which: HSBC UK Bank plc (ring-fenced bank) 1,391 2,237 72 34 3,734
- of which: HSBC Bank plc (non-ring-fenced bank) 219 129 479 (131) 696
- of which: Holdings and other (326) (523) (393) 920 (322)
France 28 92 40 (171) (11)
Germany 19 77 92 3 191
Switzerland 16 15 - 10 41
Hong Kong 3,708 1,799 912 (203) 6,216
Australia 88 184 45 (8) 309
India 47 224 436 91 798
Indonesia 13 77 28 - 118
Mainland China (46) 171 387 1,398 1,910
Malaysia 77 78 104 (5) 254
Singapore 328 190 225 (11) 732
Taiwan 65 37 113 (4) 211
Egypt 63 73 196 (15) 317
UAE 208 58 158 (34) 390
Saudi Arabia(2) - - 63 317 380
US 74 299 148 (111) 410
Canada(3) 71 126 26 4,491 4,714
Mexico 149 309 3 5 466
Other(4) 266 811 679 (1,754) 2
Half-year to 30 Jun 2024 6,458 6,463 3,813 4,822 21,556
UK(1) 1,341 2,789 84 4,099
(115)
France(5) 2,019 192 41 51 2,303
Germany 20 77 65 160
(2)
Switzerland 28 15 - 8 51
Hong Kong 3,567 1,816 881 6,137
(127)
Australia 102 157 40 281
(18)
India 35 209 408 114 766
Indonesia 16 57 39 110
(2)
Mainland China 245 374 1,451 2,058
(12)
Malaysia 55 74 109 232
(6)
Singapore 255 233 248 719
(17)
Taiwan 61 39 98 193
(5)
Egypt 65 44 121 214
(16)
UAE 175 135 208 469
(49)
Saudi Arabia(2) - - 53 273 326
US 259 347 153 649
(110)
Canada 167 299 68 480
(54)
Mexico 196 263 11 436
(34)
Other 243 948 778 5 1,974
Half-year to 30 Jun 2023 8,592 7,939 3,580 1,546 21,657
1 UK includes results from the ultimate holding company, HSBC Holdings
plc, and the separately incorporated group of service companies
('ServCo Group').
2 Includes the results of HSBC Saudi Arabia and our share of the
profits of our associate, Saudi Awwal Bank.
3 Corporate Centre includes a gain of $4.8bn on the sale of our
banking business in Canada.
4 Corporate Centre includes the profit and loss impact of
inter-company debt eliminations of $(450)m and an impairment loss of $1.2bn
relating to the planned sale of our business in Argentina.
5 Wealth and Personal Banking includes $2.1bn reversal of the held for
sale classification that was recognised relating to the sale of our retail
banking operations in France.
Middle East, North Africa and Türkiye supplementary information
The following tables show the results of our Middle East, North Africa and
Türkiye business operations on a regional basis (including results of all the
legal entities operating in the region and our share of the results of Saudi
Awwal Bank). They also show the profit before tax of each of the global
businesses.
Middle East, North Africa and Türkiye regional performance
Half year to
30 Jun 2024 30 Jun 2023
$m $m
Revenue(1) 1,931 1,854
Change in expected credit losses and other credit impairment charges (121) (4)
Operating expenses (866) (773)
Share of profit in associates and joint ventures 316 272
Profit before tax 1,260 1,349
Loans and advances to customers (net) 23,237 21,901
Customer accounts 40,138 40,480
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as revenue.
Profit before tax by global business
Half year to
30 Jun 2024 30 Jun 2023
$m $m
Wealth and Personal Banking 324 301
Commercial Banking 121 276
Global Banking and Markets 552 571
Corporate Centre 263 201
Total 1,260 1,349
Reconciliation of alternative performance measures
Contents
56 Use of alternative performance measures
57 Alternative performance measure definitions
58 Constant currency revenue and profit before tax excluding notable items and
strategic transactions
58 Return on average ordinary shareholders' equity and return on average tangible
equity
59 Return on average tangible equity by global business
59 Net asset value and tangible net asset value per ordinary share
59 Post-tax return and average total shareholders' equity on average total assets
60 Expected credit losses and other credit impairment charges as % of average
gross loans and advances to customers
60 Target basis operating expenses
60 Earnings per share excluding material notable items
61 Multi-jurisdictional revenue
Use of alternative performance measures
Our reported results are prepared in accordance with IFRS Accounting Standards
as detailed in our interim condensed consolidated financial statements
starting on page 113.
As described on page 29, we use a combination of reported and alternative
performance measures, including those derived from our reported results that
eliminate factors that distort period-on-period comparisons. These are
considered alternative performance measures (non-GAAP financial measures).
The following information details the adjustments made to the reported results
and the calculation of other alternative performance measures. All alternative
performance measures are reconciled to the closest reported performance
measure.
In addition to the alternative performance measures set out in this section,
further alternative performance measures in relation to the Group's insurance
manufacturing operations are set out on pages 46 to 47.
Alternative performance measure definitions
Alternative performance measure Definition
Constant currency revenue excluding notable items(1,) Reported revenue excluding notable items and the impact of foreign exchange
translation(2)
Constant currency profit before tax excluding notable items(1) Reported profit before tax excluding notable items and the impact of foreign
exchange translation(2)
Constant currency revenue excluding notable items and strategic Reported revenue excluding notable items, strategic transactions and the
transactions(1) impact of foreign exchange translation(3)
Constant currency profit before tax excluding notable items and strategic Reported profit before tax excluding notable items, strategic transactions and
transactions(1) the impact of foreign exchange translation(3)
Return on average ordinary shareholders' equity ('RoE') Profit attributable to the ordinary shareholders
Average ordinary shareholders' equity
Return on average tangible equity ('RoTE') Profit attributable to the ordinary shareholders, excluding impairment of
goodwill and other intangible assets
Average ordinary shareholders' equity adjusted for goodwill and intangibles
Return on average tangible equity ('RoTE') excluding notable items Profit attributable to the ordinary shareholders, excluding impairment of
goodwill and other intangible assets and notable items(2)
Average ordinary shareholders' equity adjusted for goodwill and intangibles
and notable items(2)
Net asset value per ordinary share Total ordinary shareholders' equity(4)
Basic number of ordinary shares in issue excluding treasury shares
Tangible net asset value per ordinary share Tangible ordinary shareholders' equity(5)
Basic number of ordinary shares in issue excluding treasury shares
Post-tax return on average total assets Profit after tax
Average total assets
Average total shareholders' equity on average total assets Average total shareholders' equity
Average total assets
Expected credit losses and other credit impairment charges ('ECL') as % of Annualised constant currency ECL(6)
average gross loans and advances to customers
Constant currency average gross loans and advances to customers(6)
Expected credit losses and other credit impairment charges ('ECL') as % of Annualised constant currency ECL(6)
average gross loans and advances to customers, including held for sale
Constant currency average gross loans and advances to customers, including
held for sale(6)
Target basis operating expenses Reported operating expenses excluding notable items, foreign
exchange translation and other excluded items(7)
Basic earnings per share excluding material notable items and related impacts Profit attributable to ordinary shareholders excluding material
notable items and related impacts(8)
Weighted average number of ordinary shares outstanding, excluding own shares
held
Multi-jurisdictional client revenue Total client revenue we generate from clients that hold a relationship with us
that generates revenue in more than one market
1 Constant currency performance is computed by adjusting reported
results for the effects of foreign currency translation differences, which
distort period-on-period comparisons.
2 For details of notable items, please refer to Supplementary financial
information on page 40.
3 For details of strategic transactions, please refer to page 42.
4 Total ordinary shareholders' equity is total shareholders' equity
less non-cumulative preference shares and capital securities.
5 Tangible ordinary shareholders' equity is total ordinary
shareholders' equity excluding goodwill and other intangible assets (net of
deferred tax).
6 The constant currency numbers are derived by adjusting reported ECL
and average loans and advances to customers for the effects of foreign
currency translation differences.
7 Other excluded items includes the impact of re-translating
comparative period financial information at the latest rates of foreign
exchange in hyperinflationary economies, which we consider to be outside of
our control, and the impact of the sale of our retail banking operations in
France and banking business in Canada.
8 For details of material notable items and related impacts, please
refer to page 60.
Constant currency revenue and profit before tax excluding notable items and
strategic transactions
Half-year to
30 Jun 2024 30 Jun 2023
$m $m
Revenue
Reported 37,292 36,876
Notable items 3,571 3,336
Reported revenue excluding notable items 33,721 33,540
Currency translation(1) (465)
Constant currency revenue excluding notable items 33,721 33,075
Constant currency impact of strategic transactions (distorting impact of 178 613
operating results between periods)(2)
Constant currency revenue excluding notable items and strategic transactions 33,543 32,462
Profit before tax
Reported 21,556 21,657
Notable items 3,489 3,265
Reported profit before tax excluding notable items 18,067 18,392
Currency translation(1) (275)
Constant currency profit before tax excluding notable items 18,067 18,117
Constant currency impact of strategic transactions (distorting impact of 92 147
operating results between periods)(2)
Constant currency profit before tax excluding notable items and strategic 17,975 17,969
transactions
1 Currency translation on the reported balance excluding currency
translation on notable items.
2 For more details of strategic transactions, please refer to page 42.
To aid the understanding of our results, we disclose constant currency revenue
and profit before tax excluding notable items and the impact of strategic
transactions. The impacts of strategic transactions quoted include the
distorting impact between the periods of the operating income statement
results related to acquisitions and disposals that affect period-on-period
comparisons. It is computed by including the operating income statement
results of each business in any period for which there are no results in the
comparative period. We consider the monthly impacts of distorting income
statement results when calculating the impact of strategic transactions.
Return on average ordinary shareholders' equity, return on average tangible
equity and return on average tangible equity excluding notable items
Half-year ended
30 Jun 2024 30 Jun 2023
$m $m
Profit after tax
Profit attributable to the ordinary shareholders of the parent company 16,586 16,966
Impairment of goodwill and other intangible assets (net of tax) 123 29
Profit attributable to ordinary shareholders, excluding goodwill and other 16,709 16,995
intangible assets impairment
Impact of notable items(1) (3,625) (3,220)
Profit attributable to the ordinary shareholders, excluding goodwill, other 13,084 13,775
intangible assets impairment and notable items
Equity
Average total shareholders' equity 186,603 184,033
Effect of average preference shares and other equity instruments (18,088) (19,510)
Average ordinary shareholders' equity 168,515 164,523
Effect of goodwill and other intangibles (net of deferred tax) (11,573) (11,316)
Average tangible equity 156,942 153,207
Average impact of notable items (2,605) (3,309)
Average tangible equity excluding notable items 154,337 149,898
Ratio % %
Return on average ordinary shareholders' equity (annualised) 19.8 20.8
Return on average tangible equity (annualised) 21.4 22.4
Return on average tangible equity excluding notable items (annualised) 17.0 18.5
1 For details of notable items please refer to Supplementary financial
information on page 40.
From 1 January 2024, we have revised the adjustments made to return on average
tangible equity ('RoTE'). Prior to this, we adjusted RoTE for the impact of
strategic transactions and the impairment of our investment in Bank of
Communications Co., Limited ('BoCom'), whereas from 1 January 2024 we have
excluded all notable items. This was intended to improve alignment with the
treatment of notable items in our other income statement disclosures.
Comparatives have been re-presented on the revised basis and we no longer
disclose RoTE excluding strategic transactions and the impairment of BoCom. On
this basis, we will now target a RoTE in the mid-teens for both 2024 and 2025.
Return on average tangible equity by global business
Half-year ended 30 Jun 2024
Wealth and Commercial Global Corporate Total
Personal Banking Banking and Centre
Banking Markets
$m $m $m $m $m
Profit before tax 6,458 6,463 3,813 4,822 21,556
Tax expense (1,277) (1,552) (908) (154) (3,891)
Profit after tax 5,181 4,911 2,905 4,668 17,665
Less attributable to: preference shareholders, other equity holders, (392) (276) (248) (163) (1,079)
non-controlling interests
Profit attributable to ordinary shareholders of the parent company 4,789 4,635 2,657 4,505 16,586
Other adjustments (85) 138 (104) 174 123
Profit attributable to ordinary shareholders 4,704 4,773 2,553 4,679 16,709
Average tangible shareholders' equity 30,890 43,982 36,557 45,512 156,942
RoTE (%) (annualised) 30.6 21.8 14.0 20.7 21.4
Half-year ended 30 Jun 2023
Profit before tax 8,592 7,939 3,580 1,546 21,657
Tax expense (1,740) (1,532) 369 (3,586)
(683)
Profit after tax 6,852 6,407 2,897 1,915 18,071
Less attributable to: preference shareholders, other equity holders, (428) (293) (275) (109) (1,105)
non-controlling interests
Profit attributable to ordinary shareholders of the parent company 6,424 6,114 2,622 1,806 16,966
Other adjustments (91) 206 112 (198) 29
Profit attributable to ordinary shareholders 6,333 6,320 2,734 1,608 16,995
Average tangible shareholders' equity 29,646 44,224 38,824 40,513 153,207
RoTE (%) (annualised) 43.1 28.8 14.2 8.0 22.4
Net asset value and tangible net asset value per ordinary share
At
30 Jun 2024 31 Dec 2023
$m $m
Total shareholders' equity 183,293 185,329
Preference shares and other equity instruments (18,825) (17,719)
Total ordinary shareholders' equity 164,468 167,610
Goodwill and intangible assets (net of deferred tax) (11,359) (11,900)
Tangible ordinary shareholders' equity 153,109 155,710
Basic number of $0.50 ordinary shares outstanding 18,330 19,006
Value per share $ $
Net asset value per ordinary share 8.97 8.82
Tangible net asset value per ordinary share 8.35 8.19
Post-tax return and average total shareholders' equity on average total assets
Half-year ended
30 Jun 2024 30 Jun 2023
$m $m
Profit after tax 17,665 18,071
Average total shareholders' equity 186,603 184,033
Average total assets 3,031,753 3,116,401
Ratio % %
Post-tax return on average total assets (annualised) 1.2 1.2
Average total shareholders' equity to average total assets 6.2 5.9
ECL and other credit impairment charges as % of average gross loans and
advances to customers, and other credit impairment charges as % of average
gross loans and advances to customers, including held for sale
Half-year ended
30 Jun 2024 30 Jun 2023
$m $m
Expected credit losses and other credit impairment charges ('ECL') (1,066) (1,345)
Currency translation 28
Constant currency (1,066) (1,317)
Average gross loans and advances to customers 947,479 960,452
Currency translation (5,283) (2,037)
Constant currency 942,196 958,415
Average gross loans and advances to customers, including held for sale 973,409 1,026,201
Currency translation (6,199) (3,105)
Constant currency 967,210 1,023,096
Ratios % %
Expected credit losses and other credit impairment charges (annualised) as % 0.23 0.28
of average gross loans and advances to customers
Expected credit losses and other credit impairment charges (annualised) as % 0.22 0.26
of average gross loans and advances to customers, including held for sale
Target basis operating expenses
Half-year to
30 Jun 2024 30 Jun 2023
$m $m
Reported operating expenses 16,296 15,457
Notable items (82) (71)
- disposals, acquisitions and related costs (101) (118)
- restructuring and other related costs(1) 19 47
Excluding the impact of the sale of our retail banking operations in France (162) (494)
and banking business in Canada(2)
Currency translation(3) (211)
Excluding the impact of retranslating prior year costs of hyperinflationary 302
economies at a constant currency foreign exchange rate
Target basis operating expenses 16,052 14,983
1 Relate to reversals of restructuring provisions recognised during
2022.
2 This represents the business as usual costs which are not classified
as notable items relating to our retail banking operations in France and
banking business in Canada. This does not include the disposal costs which
relate to these transactions.
3 Currency translation on reported operating expenses, excluding
currency translation on notable items.
Target basis operating expenses for 2024 and for the 2023 comparative periods
differ from what we disclosed in our 2023 results, when we were comparing
against 2022 operating expenses. The 2023 target basis excluded the impact of
incremental costs associated with the acquisition of SVB UK, and the related
investments, whereas the 2024 target basis excludes the costs associated with
our retail banking operations in France and our
banking business in Canada. The exclusion of notable items and the impact of
retranslating prior year results of hyperinflationary economies at constant
currency are excluded in 2024, which is consistent with the 2023 basis of
preparation. We consider target basis operating expenses to provide useful
information to investors by quantifying and excluding the notable items that
management considered when setting and assessing cost-related targets.
Basic earnings per share excluding material notable items and related impacts
Half-year to
30 Jun 2024 30 Jun 2023
$m $m
Profit attributable to shareholders of company 17,112 17,508
Coupon payable on capital securities classified as equity (526) (542)
Profit attributable to ordinary shareholders of company 16,586 16,966
Impact of acquisition of SVB UK (2) (1,507)
Impact of the sale of our retail banking operations in France (net of tax) (53) (1,629)
Impact of the sale of our banking business in Canada(1) (4,949) (54)
Impairment loss relating to the planned sale of our business in Argentina 1,192 -
Profit attributable to ordinary shareholders of company excluding material 12,774 13,776
notable items and related impacts
Number of shares
Weighted average basic number of ordinary shares (millions) 18,666 19,693
Basic earnings per share ($) 0.89 0.86
Basic earnings per share excluding material notable items and related impacts 0.68 0.70
($)
1 Represents gain on sale of business in Canada recognised on
completion, inclusive of the earnings recognised by the banking business from
30 June 2022, the recycling of losses in foreign currency translation reserves
and other reserves, and gain on the foreign exchange hedging of the sale
proceeds.
Material notable items are a subset of notable items. Material notable items
are components of our income statement that management would consider as
outside the normal course of business and generally non-recurring in nature,
which are excluded from our dividend payout ratio calculation and our earnings
per share measure, along with related impacts. Categorisation as a material
notable item is dependent on the nature of each item in conjunction with the
financial impact on the Group's income statement.
Related impacts include those items that do not qualify for designation as
notable items but whose adjustment is considered by management to be
appropriate for the purposes of determining the basis for our dividend payout
ratio calculation.
Material notable items in 2Q24 and in 2023 included the planned sale of our
business in Argentina, the sale of our retail banking operations in France,
the sale of our banking business in Canada, the gain following the acquisition
of SVB UK and the impairment of our investment in BoCom. In determining this
measure, we also excluded HSBC Bank Canada's financial results from the 30
June 2022 net asset reference date until completion of the sale, as the gain
on sale was recognised through a combination of the consolidation of HSBC Bank
Canada's results in the Group's results since this date, and the remaining
gain on sale was recognised at completion. For the planned sale of our
business in Argentina, between signing and closing, the loss on sale will vary
by changes in the net asset value of the disposed business and associated
hyperinflation and foreign currency translation, and the fair value of
consideration including price adjustments and migration costs.
There were no additional related impacts, and the ongoing profits from HSBC
Argentina will not be excluded from our basic earnings per share excluding
material notable items and related impacts.
Multi-jurisdictional revenue
Multi-jurisdictional revenue is a financial metric we use to assess our
ability to drive value from our international network.
In our wholesale businesses, we identify a client as multi-jurisdictional if
they hold a relationship with us that generates revenue in any market outside
of where the primary relationship is managed. A client is defined as a
mastergroup (HSBC's own client groupings) that includes both the parent and,
where relevant, any subsidiaries.
Multi-jurisdictional client revenue is a component of wholesale client revenue
and represents the total client revenue we generate from multi-jurisdictional
clients. Wholesale client revenue is derived by excluding from CMB and GBM
reported revenue the revenue we generate from client facilitation in fixed
income and equities, as well as other non-client revenue.
In WPB, we identify a customer as multi-jurisdictional if they bank with us in
more than one of our 11 key markets. It is derived by excluding from WPB
reported revenue the revenue from Canada and our retail business in France, as
well as other non-customer income.
Wholesale multi-jurisdictional client revenue
Half-year to
30 Jun 2024
$bn
CMB and GBM revenue 19.6
Allocated revenue and other(1) (1.1)
Client facilitation in Fixed Income and Equities (2.7)
Wholesale client revenue 15.8
- clients banked in multiple jurisdictions ('multi-jurisdictional') 9.7
- domestic only clients 6.1
WPB multi-jurisdictional customer revenue
Half-year to
30 Jun 2024
$bn
WPB revenue 14.3
Allocated revenue and other(1) (0.7)
France retail and Canada (0.2)
WPB customer revenue 13.5
- international customer revenue 5.4
of which: customers banked in multiple jurisdictions ('multi-jurisdictional') 2.7
of which: non-resident and resident foreigner 2.7
- domestic only customers 8.1
1 Including allocations of Market Treasury revenue, HSBC Holdings
interest expense and hyperinflationary accounting adjustments, and interest
earned on capital held in the global businesses.
Risk
Contents
62 Key developments in the first half of 2024
62 Geopolitical and macroeconomic risk
64 Credit risk
97 Treasury risk
107 Market risk
108 Insurance manufacturing operations risk
We recognise that the primary role of risk management is to help protect our
customers, business, colleagues, shareholders and the communities that we
serve, while ensuring we are able to support our strategy and provide
sustainable growth.
All our people are responsible for the management of risk, with the ultimate
accountability residing with the Board. Our Group Risk and Compliance
function, led by the Group Chief Risk and Compliance Officer, plays an
important role in reinforcing our culture and values. We are focused on
creating an environment that encourages our people to speak up and do the
right thing.
Group Risk and Compliance is independent from the global businesses, including
our sales and trading functions, to provide challenge, oversight and
appropriate balance in risk/reward decisions.
We aim to use a comprehensive risk management approach across the organisation
and across all risk types, underpinned by our culture and values. This is
outlined in our risk management framework, including the key principles and
practices that we employ in managing material risks, both financial and
non-financial. The framework fosters continuous monitoring, promotes risk
awareness, and encourages sound operational and strategic decision making. It
also supports a consistent approach to identifying, assessing, managing and
reporting the risks we accept and incur in our activities. We continue to
actively review and develop our risk management framework and enhance our
approach to managing risk through our activities with regard to: people and
capabilities; governance; reporting and management information; credit risk
management models; and data.
· A summary of our current policies and practices regarding the
management of risk is set out in the 'Risk management' section on pages 136 to
139 of the Annual Report and Accounts 2023.
Key developments in the first half of 2024
In 2024, we have continued to manage risks related to macroeconomic and
geopolitical uncertainties and develop risk management capabilities through
the continued enhancement of the risk management framework. We also retained
our focus on risk transformation and financial crime and continued to assess
the Group's operational resilience capability whilst prioritising the most
significant enterprise risks. We made progress with and continue to develop
capabilities to address key risks described in our Annual Report and Accounts
2023. More specifically, we sought to enhance our risk management in the
following areas:
- We made progress on our comprehensive regulatory reporting programme,
which seeks to strengthen our global processes, enhance consistency and
improve controls across regulatory reports. This programme remains a top
priority and continues to enhance data, transform the reporting systems and
uplift the control environment over the report production process.
- We continue to maintain a focus on our technology and cybersecurity
controls to improve the resilience and security of our technology services in
response to the heightened external threat environment.
- We have improved the quality of our strategic change investment cases
and control monitoring, and are transitioning to value streams and an
integrated future state architecture to enhance our delivery of complex
transformation portfolios and initiatives.
- We continue to enhance our model risk framework in response to changes
in regulation and external factors. AI and machine learning models remain a
key focus. Progress has been made in enhancing governance activity in this
area with particular focus on generative AI due to the pace of technological
change and regulatory and wider interest in adoption and usage.
- We enhanced our processes, framework and capabilities to seek to improve
the control and oversight of our material third parties to manage our
operational resilience and meet new and evolving regulatory requirements. We
will continue to actively assess and manage our operational resilience.
- Through our climate risk programme, we made progress on embedding
climate considerations throughout the organisation, including through risk
policy updates. We also developed risk metrics to monitor and manage
exposures, and further enhanced our internal climate scenario analysis. We
will continue with our climate risk programme to complete our annual
materiality assessment and make changes to our policies, processes and
capabilities to better embed climate considerations throughout the
organisation.
- We deployed industry-leading technology and advanced analytics
capabilities into new markets to improve our ability to identify suspicious
activities and prevent financial crime. We will continue to evaluate
technological solutions to improve our capabilities in the detection and
prevention of financial crime.
Geopolitical and macroeconomic risk
A busy election year in 2024 could imply uncertainty in some markets in
response to shifting domestic and foreign policy priorities. Of our main
markets, the United Kingdom, France and Mexico have already gone to the polls
in 2024, with the United States set to follow in the second half of the year.
The outcome of the United States elections in particular will be monitored
closely given the potential for changes to economic and foreign policy that
may have broader geographical implications.
The Israel-Hamas war continues but regional economic consequences have
remained limited throughout the first half of 2024. Ceasefire negotiations
have yet to achieve a resolution and conflict escalation remains a risk,
illustrated by the strikes exchanged by Iran and Israel during the second
quarter of 2024 and the increasing hostilities between Israel and Hezbollah.
The US and UK announced additional sanctions against Iran in the first half of
2024 in response to attacks against Israel, and there remains a possibility
that additional sanctions may be imposed on Iran for its reported role during
the conflict, which could increase the risk within our operations. The US has
also enacted legislation that, in part, provides authority to impose sanctions
on persons owning ports, vessels, or refineries identified as engaging in
certain transactions involving Iranian petroleum products.
The Russia-Ukraine war continues, but the economic effects have reduced as
supply chains and economies have adjusted. Changes to the balance of the
conflict remained limited during the first half of 2024, despite the approval
of a new funding round for Ukrainian armaments by the US Congress. Escalation
of the conflict and ongoing geopolitical instability could have implications
for the Group and its customers. HSBC actively monitors and responds to
financial sanctions and trade restrictions that have been adopted in response
to the conflict. These sanctions and trade restrictions are complex and
evolving. In particular, the US, the UK and the EU, as well as other
countries, have imposed significant sanctions and trade restrictions against
Russia, including further sanctions during 2024. Such sanctions and
restrictions target certain Russian government officials, politically exposed
persons, business people, Russian oil imports, energy products, financial
institutions and other major Russian companies and sanctions evasion networks.
These countries have also enacted more generally applicable investment, export
and import bans and restrictions.
The secondary sanctions regime introduced by the US in December 2023 gives the
US broad discretion to impose severe sanctions on non-US banks that are
knowingly, or even unknowingly, engaged in certain transactions or services
involving Russia's military-industrial base. The US expanded the scope of
these secondary sanctions in June 2024 to apply to Russian and non-Russian
persons designated under the primary legal authority for Russian sanctions.
The broad scope of the discretionary powers embedded in the regime creates
challenges associated with the detection or prevention of third-party
activities beyond our control. The imposition of such sanctions against any
non-US HSBC entity could result in significant adverse commercial, operational
and reputational consequences for HSBC, including the restriction or
termination of the non-US HSBC entity's ability to access the US financial
system and the freezing of the entity's assets that are subject to US
jurisdiction. In response to such sanctions and trade restrictions, as well as
asset flight, Russia has implemented certain countermeasures, including the
expropriation of foreign assets.
Following a strategic review in 2022, HSBC Europe BV (a wholly-owned
subsidiary of HSBC Bank plc) entered into an agreement to sell its
wholly-owned subsidiary HSBC Bank Russia (RR) (Limited Liability Company),
which was completed in May 2024. The name of the entity changed to Khvoya Bank
in July 2024.
Key economic risks are monitored closely. During the second quarter,
expectations for GDP growth improved across most of our major markets.
Performance in the first half of 2024 was characterised by
better-than-expected economic performance in the first quarter, and activity
and survey indicators through the second quarter remain consistent with those
updated forecasts. The strength of growth is reflected in the persistence of
wage growth and inflationary pressure in the services sector in Europe and the
US. This has prompted markets to reduce the amount by which they expect major
central banks to ease monetary policy this year.
The European Central Bank ('ECB') was the first major central bank to cut
interest rates, by 25bps in June 2024. The Bank of England and the Federal
Reserve are expected to follow in the second half of 2024, but these
expectations remain subject to a further weakening of service sector price
pressures. Over the next 12 months, interest rate futures suggest that major
central banks will cut interest rates by around 75bps. In mainland China, the
People's Bank of China has kept its policy on hold through the second quarter
of 2024 after enacting a rate cut and changes to required reserves during the
first quarter of 2024.
China's economic performance was supported by a resilient state sector,
although weak private sector confidence and persistent falls in commercial and
residential real estate prices and transactions remain significant risk
factors. Central government support measures will be key to a recovery in
impacted sectors but there remains a risk that the scale and breadth of the
support may be insufficient to correct structural imbalances in the economy.
Real estate companies are expected to face challenges in the near future,
including funding pressures. We closely monitor the sector, notably the risk
of further credit migration and idiosyncratic defaults.
Hong Kong's economic growth remains steady, however high vacancy rates in the
commercial real estate sector and the prolonged higher interest rate
environment have added pressure to the commercial real estate market. This has
prompted a halt in commercial land sales. Whilst some defaults have been
observed we continue to closely monitor the risk of credit deterioration and
defaults.
Global tensions over trade and technology are manifesting themselves in
divergent regulatory standards and compliance regimes, presenting long-term
strategic challenges for multinational businesses. The relationships between
China and several other countries, including the US and the UK, remain
complex. During the first half of 2024, both the US and EU raised the rate at
which they level tariffs on a range of Chinese imports, including electric
vehicles. These have been imposed on the basis of unfair competition, where
the Chinese government is accused of providing unfair subsidies to industry.
These tariff actions risk reciprocation by China.
There is a continued risk of additional sanctions and trade restrictions being
imposed by the US and other governments in relation to human rights, advanced
technology, and other issues with China, and this could create a more complex
operating environment for the Group and its customers.
In response to earlier measures, China has in turn imposed its own sanctions,
trade restrictions and law enforcement measures on persons and entities in
other countries.
These and any future measures and countermeasures that may be taken by the US,
China and other countries may affect the Group, its customers and the markets
in which the Group operates.
As the geopolitical landscape evolves, compliance by multinational
corporations with their legal or regulatory obligations in one jurisdiction
may be seen as supporting the law or policy objectives of that jurisdiction
over another, creating additional compliance, reputational and political risks
for the Group. We maintain dialogue with our regulators in various
jurisdictions on the impact of legal and regulatory obligations on our
business and customers.
The financial impact on the Group of geopolitical risks in Asia is heightened
due to the region's relatively high contribution to the Group's profitability,
particularly in Hong Kong.
The Group's policy is to comply with all applicable laws and regulations in
all jurisdictions in which it operates. Geopolitical tensions and potential
ambiguities in the Group's compliance obligations will continue to present
challenges and risks for the Group. These could have a material adverse impact
on the Group's business, financial condition, results of operations, prospects
and strategy, as well as on the Group's customers.
More stringent data privacy, national security and cybersecurity laws in a
number of markets could pose potential challenges to intra-Group data sharing.
These developments may affect our ability to manage financial crime risks
across markets due to limitations on cross-border transfers of personal
information.
Fiscal risks are also monitored closely, given the high levels of indebtedness
and demands on government budgets from rising social welfare costs, defence
and climate transition. Against a backdrop of slower growth and expectations
for a high interest rate environment continuing for longer than previously
anticipated, debt sustainability remains a concern, as does the capacity and
willingness of markets to continue financing high deficits. The outcome of
elections this year and the policy changes that may follow from that remain an
area of current focus. We are monitoring the economic policy implications from
elections in France, the upcoming budget and spending review being undertaken
by the incoming government in the UK and uncertainty relating to the outcome
of the US election in November.
The persistence of above-target inflation and high interest rates has had an
impact on ECL during the first half of 2024. The combined pressure of higher
inflation and interest rates may impact the ability of our customers to repay
their debt in certain markets. For retail portfolios where models do not
sufficiently capture the interest rate and inflation risks, affordability
pressure as a result of interest rate and inflation risks continues to be
assessed through both models and management judgemental adjustments.
ECL calculations are made with reference to forward economic guidance, using
multiple economic scenarios. The Central scenario, which has the highest
probability weighting in our IFRS 9 'Financial Instruments' calculations of
ECL, assumes low growth, a gradual increase in unemployment and persistently
higher interest rates across many of our key markets.
The Central scenario has been assigned a standard weighting that is aligned to
its calibrated probability across all of our major markets. The standard
weighting reflects the further narrowing of forecast dispersion, reduced
market volatility, and the view that forecasts sufficiently capture the
current conjuncture and outlook.
There remains uncertainty with respect to the relationship between the
economic drivers and the historical loss experience, which has required
adjustments to modelled allowance for ECL in cases where we determined that
our models were unable to capture the material underlying risks.
· For further details of our Central and other scenarios,
see 'Measurement uncertainty and sensitivity analysis of ECL estimates' on
page 69.
Credit risk
64 Overview
64 Credit risk in the first half of 2024
65 Summary of credit risk
67 Stage 2 decomposition
68 Assets held for sale
69 Measurement uncertainty and sensitivity analysis of ECL estimates
81 Reconciliation of changes in gross carrying/nominal amount and allowances for
loans and advances to banks and customers
84 Credit quality of financial instruments
85 Personal lending
87 Wholesale lending
90 Commercial real estate
94 Supplementary information
Overview
Credit risk is the risk of financial loss if a customer or counterparty fails
to meet an obligation under a contract. It arises principally from direct
lending, trade finance and leasing business, but also from other products,
such as guarantees and credit derivatives or from holding assets in the form
of debt securities.
Credit risk in the first half of 2024
There were no material changes to credit risk policy in the first half of
2024.
A summary of our current policies and practices for the
management of credit risk is set out in 'Credit risk management' on page 147
of the Annual Report and Accounts 2023.
At 30 June 2024, gross loans and advances to customers and banks of $1,051bn
decreased by $11.7bn on a reported basis, compared with 31 December 2023.
This included adverse foreign exchange movements of $16.4bn.
On a constant currency basis, the increase of $4.7bn was driven by a $7.6bn
rise in wholesale loans and advances to customers and a $4.5bn rise in
personal loans and advances to customers. These were partly offset by a $7.4bn
decrease in loans and advances to banks.
On a constant currency basis, the rise in wholesale loans and advances to
customers was driven by higher balances with non-bank financial institutions
(up $5.7bn), mainly in HSBC Bank plc (up $4.7bn) and HSBC Bank Middle East
Limited (up $0.8bn). It also comprised an increase in corporate and commercial
lending (up $1.9bn), mainly in Singapore (up $1.8bn). This was partly offset
by a decrease in Argentina (down $0.5bn) due to the reclassification of our
business in the country into 'assets held for sale'.
On a constant currency basis, the rise in personal loans and advances to
customers was mainly driven by increases in HSBC UK (up $2.6bn) and our main
entities in the US (up $1.1bn), Hong Kong (up $0.6bn) and Mexico (up $0.4bn)
mainly due to mortgage growth. This was partly offset by a decrease in
Argentina (down $0.3bn) due to the reclassification of our business in the
country into 'assets held for sale'.
The decrease in loans and advances to banks was driven by lower central bank
balances and money market lending balances in Singapore (down $4.8bn) and in
the UK (down $2.4bn).
At 30 June 2024, the allowance for ECL of $11.1bn decreased by $0.9bn compared
with 31 December 2023, including favourable foreign exchange movements of
$0.3bn. The $11.1bn allowance comprised $10.6bn in respect of assets held at
amortised cost, $0.4bn in respect of loan commitments and financial
guarantees, and $0.1bn in respect of debt instruments measured at fair value
through other comprehensive income ('FVOCI').
On a constant currency basis, the allowance for ECL in relation to loans and
advances to customers decreased by $0.3bn from 31 December 2023. This
comprised:
- a $0.3bn decrease in personal loans and advances to customers, observed
in stages 1 and 2; and
- broadly unchanged allowances for ECL in wholesale loans and advances to
customers, which included a $0.2bn increase driven by stage 3, offset by a
$0.2bn decrease driven by stages 1 and 2.
In personal lending, the decrease in the allowance for ECL was mainly driven
by lower allowances for unsecured lending portfolios in the UK, as performance
remained resilient.
The Group ECL charge for the first six months of 2024 was $1.1bn, inclusive of
recoveries. It comprised: $0.6bn in respect of wholesale lending, of which the
stage 3 charge was $0.3bn; and $0.4bn in respect of personal lending, of which
the stage 3 charge was $0.5bn.
Wholesale lending charges were recognised mainly in Hong Kong ($0.3bn). While
the mainland China commercial real estate sector remained subdued, without
signs of a sustained recovery, there has been limited new migration to the
credit impaired category. As a result the impact on the stage 3 ECL charge was
not significant during the period. Although the level of defaults increased in
other commercial real estate exposures booked in Hong Kong during the period,
there was no significant impact on ECL charges due to high collateralisation,
with room for depreciation.
Personal lending charges reflected releases of allowances for ECL, mainly in
the UK unsecured portfolio, partly offset by higher charges in Mexico
associated with the evolution of unemployment trends and portfolio volume
increases.
Summary of credit risk
The following disclosure presents the gross carrying/nominal amount of
financial instruments to which the impairment requirements in IFRS 9 are
applied and the associated allowance for ECL.
The following tables analyse loans by industry sector and represent the
concentration of exposures on which credit risk is managed. The allowance for
ECL decreased from $12.0bn at 31 December 2023 to $11.1bn at 30 June 2024.
Summary of financial instruments to which the impairment requirements in IFRS
9 are applied
At 30 Jun 2024 At 31 Dec 2023
Gross carrying/ Allowance for Gross Allowance for
nominal amount ECL(1) carrying/ ECL(1)
nominal amount
$m $m $m $m
Loans and advances to customers at amortised cost 948,767 (10,510) 949,609 (11,074)
Loans and advances to banks at amortised cost 102,070 (13) 112,917 (15)
Other financial assets measured at amortised cost 850,367 (158) 960,271 (422)
- cash and balances at central banks 277,112 - 285,868 -
- items in the course of collection from other banks 9,977 - 6,342 -
- Hong Kong Government certificates of indebtedness 43,026 - 42,024 -
- reverse repurchase agreements - non-trading 230,189 - 252,217 -
- financial investments 149,350 (12) 148,346 (20)
- assets held for sale(2) 3,907 (53) 103,186 (324)
- prepayments, accrued income and other assets(3) 136,806 (93) 122,288 (78)
Total gross carrying amount on-balance sheet 1,901,204 (10,681) 2,022,797 (11,511)
Loans and other credit-related commitments 638,635 (335) 661,015 (367)
Financial guarantees 16,343 (37) 17,009 (39)
Total nominal amount off-balance sheet(4) 654,978 (372) 678,024 (406)
2,556,182 (11,053) 2,700,821 (11,917)
Fair Memorandum Fair Memorandum
value allowance for value allowance for
ECL(5) ECL(5)
$m $m $m $m
Debt instruments measured at fair value through other comprehensive income 318,238 (96) 302,348 (97)
('FVOCI')
1 Total ECL is recognised in the loss allowance for the financial
asset unless total ECL exceeds the gross carrying amount of the financial
asset, in which case the ECL is recognised as a provision.
2 For further details on gross carrying amounts and allowances for ECL
related to assets held for sale, see 'Assets held for sale' on page 68. At 30
June 2024, the gross carrying amount comprised $2,932m of loans and advances
to customers and banks (31 December 2023: $84,075m) and $975m of other
financial assets at amortised cost (31 December 2023: $19,111m). The
corresponding allowance for ECL comprised $48m of loans and advances to
customers and banks (31 December 2023: $303m) and $5m of other financial
assets at amortised cost (31 December 2023: $21m). The significant reduction
is due to the completion of the sales of our banking business in Canada in
March 2024 and our retail banking operations in France in January 2024.
3 Includes only those financial instruments that are subject to the
impairment requirements of IFRS 9. 'Prepayments, accrued income and other
assets', as presented within the consolidated balance sheet on page 115,
includes both financial and non-financial
assets.
4 Represents the maximum amount at risk should the contracts be fully
drawn upon and clients default.
5 Debt instruments measured at FVOCI continue to be measured at fair
value with the allowance for ECL as a memorandum item. Change in ECL is
recognised in 'Change for expected credit losses and other credit impairment
charges' in the income statement.
The following table provides an overview of the Group's credit risk by stage
and industry, and the associated ECL coverage. The financial assets recorded
in each stage have the following characteristics:
- Stage 1: These financial assets are unimpaired and without a significant
increase in credit risk for which a 12-month allowance for ECL is recognised.
- Stage 2: A significant increase in credit risk has been experienced on
these financial assets since initial recognition for which a lifetime ECL is
recognised.
- Stage 3: There is objective evidence of impairment and the financial
assets are therefore considered to be in default or otherwise credit impaired
for which a lifetime ECL is recognised.
- Purchased or originated credit-impaired financial assets ('POCI'):
Financial assets that are purchased or originated at a deep discount are seen
to reflect the incurred credit losses on which a lifetime ECL is recognised.
Summary of credit risk (excluding debt instruments measured at FVOCI) by stage
distribution and ECL coverage by industry sector at 30 June 2024
Gross carrying/nominal amount(1) Allowance for ECL ECL coverage %
Stage 1 Stage 2 Stage 3 POCI(2) Total Stage 1 Stage 2 Stage 3 POCI(2) Total Stage 1 Stage 2 Stage 3 POCI(2) Total
$m $m $m $m $m $m $m $m $m $m % % % % %
Loans and advances to customers at amortised cost 817,943 108,080 22,662 82 948,767 (1,112) (2,399) (6,964) (35) (10,510) 0.1 2.2 30.7 42.7 1.1
- personal 395,653 47,199 3,602 - 446,454 (551) (1,119) (820) - (2,490) 0.1 2.4 22.8 - 0.6
- corporate and commer-cial 346,248 58,178 18,556 82 423,064 (509) (1,245) (5,968) (35) (7,757) 0.1 2.1 32.2 42.7 1.8
- non-bank financial institutions 76,042 2,703 504 - 79,249 (52) (35) (176) - (263) 0.1 1.3 34.9 - 0.3
Loans and advances to banks at amortised cost 101,231 837 2 - 102,070 (9) (2) (2) - (13) - 0.2 100.0 - -
Other financial assets measured at amortised cost 847,374 2,553 440 - 850,367 (96) (26) (36) - (158) - 1.0 8.2 - -
Loans and other credit-related commit-ments 612,493 25,181 958 3 638,635 (149) (123) (63) - (335) - 0.5 6.6 - 0.1
- personal 253,611 3,454 275 - 257,340 (33) - (2) - (35) - - 0.7 - -
- corporate and commer-cial 224,261 16,916 667 3 241,847 (106) (115) (59) - (280) - 0.7 8.8 - 0.1
- financial 134,621 4,811 16 - 139,448 (10) (8) (2) - (20) - 0.2 12.5 - -
Financial guarantees 14,523 1,526 294 - 16,343 (7) (12) (18) - (37) - 0.8 6.1 - 0.2
- personal 1,241 11 - - 1,252 - - - - - - - - - -
- corporate and commer-cial 9,509 1,215 241 - 10,965 (6) (12) (17) - (35) 0.1 1.0 7.1 - 0.3
- financial 3,773 300 53 - 4,126 (1) - (1) - (2) - - 1.9 - -
At 30 Jun 2024 138,177 24,356 85 (1,373) (2,562) (7,083) (35) (11,053) 0.1 1.9 29.1 41.2 0.4
2,393,564 2,556,182
1 Represents the maximum amount at risk should the contracts be fully
drawn upon and clients default.
2 Purchased or originated credit-impaired ('POCI').
Unless identified at an earlier stage, all financial assets are deemed to have
suffered a significant increase in credit risk when they are 30 days past due
('DPD') and are transferred from stage 1 to stage 2.
The following disclosure presents the ageing of stage 2 financial assets by
those less than 30 and greater than 30 DPD and therefore presents those
financial assets classified as stage 2 due to ageing (30 DPD) and those
identified at an earlier stage (less than 30 DPD).
Stage 2 days past due analysis at 30 June 2024
Gross carrying amount Allowance for ECL ECL coverage %
Stage 2 Up-to-date 1 to 29 30 and > Stage 2 Up-to-date 1 to 29 30 and > Stage 2 Up-to-date 1 to 29 30 and >
DPD(1) DPD(1) DPD(1) DPD(1) DPD(1) DPD(1)
$m $m $m $m $m $m $m $m % % % %
Loans and advances to customers at amortised cost 108,080 103,970 2,406 1,704 (2,399) (1,966) (189) (244) 2.2 1.9 7.9 14.3
- personal 47,199 44,543 1,682 974 (1,119) (741) (170) (208) 2.4 1.7 10.1 21.4
- corporate and commercial 58,178 56,783 701 694 (1,245) (1,191) (18) (36) 2.1 2.1 2.6 5.2
- non-bank financial institutions 2,703 2,644 23 36 (35) (34) (1) - 1.3 1.3 2.7 -
Loans and advances to banks at amortised cost 837 837 - - (2) (2) - - 0.2 0.2 - -
Other financial assets measured at amortised cost 2,553 2,377 25 151 (26) (17) (5) (4) 1.0 0.7 20.0 2.6
1 The days past due amounts presented above are on a contractual
basis.
Summary of credit risk (excluding debt instruments measured at FVOCI) by stage
distribution and ECL coverage by industry sector at
31 December 2023
Gross carrying/nominal amount(1) Allowance for ECL ECL coverage %
Stage 1 Stage 2 Stage 3 POCI(2) Total Stage 1 Stage 2 Stage 3 POCI(2) Total Stage 1 Stage 2 Stage 3 POCI(2) Total
$m $m $m $m $m $m $m $m $m $m % % % % %
Loans and advances to customers at amortised cost 809,384 120,871 19,273 81 949,609 (1,130) (2,964) (6,950) (30) (11,074) 0.1 2.5 36.1 37.0 1.2
- personal 396,534 47,483 3,505 - 447,522 (579) (1,434) (854) - (2,867) 0.1 3.0 24.4 - 0.6
- corporate and commercial 342,878 69,738 14,958 81 427,655 (499) (1,500) (5,774) (30) (7,803) 0.1 2.2 38.6 37.0 1.8
- non-bank financial institutions 69,972 3,650 810 - 74,432 (52) (30) (322) - (404) 0.1 0.8 39.8 - 0.5
Loans and advances to banks at amortised cost 111,479 1,436 2 - 112,917 (10) (3) (2) - (15) - 0.2 100.0 - -
Other financial assets 946,873 12,734 664 - 960,271 (109) (132) (181) - (422) - 1.0 27.3 - -
measured at amortised cost
Loans and other credit-related commitments 630,949 28,922 1,140 4 661,015 (153) (128) (86) - (367) - 0.4 7.5 - 0.1
- personal 253,183 3,459 355 - 256,997 (23) - (2) - (25) - - 0.6 - -
- corporate and commercial 246,210 20,928 736 4 267,878 (120) (119) (83) - (322) - 0.6 11.3 - 0.1
- financial 131,556 4,535 49 - 136,140 (10) (9) (1) - (20) - 0.2 2.0 - -
Financial guarantees 14,746 1,879 384 - 17,009 (7) (7) (25) - (39) - 0.4 6.5 - 0.2
- personal 1,106 13 - - 1,119 - - - - - - - - - -
- corporate and commercial 10,157 1,290 330 - 11,777 (6) (6) (24) - (36) 0.1 0.5 7.3 - 0.3
- financial 3,483 576 54 - 4,113 (1) (1) (1) - (3) - 0.2 1.9 - 0.1
At 31 Dec 2023 165,842 21,463 85 (1,409) (3,234) (7,244) (30) (11,917) 0.1 2.0 33.8 35.3 0.4
2,513,431 2,700,821
1 Represents the maximum amount at risk should the contracts be fully
drawn upon and clients default.
2 Purchased or originated credit impaired ('POCI').
Stage 2 days past due analysis at 31 December 2023
Gross carrying amount Allowance for ECL ECL coverage %
Stage 2 Up-to-date 1 to 29 30 and > DPD(1) Stage 2 Up-to-date 1 to 29 30 and > DPD(1) Stage 2 Up-to-date 1 to 29 30 and > DPD(1)
DPD(1) DPD(1) DPD(1)
$m $m $m $m $m $m $m $m % % % %
Loans and advances to customers at amortised cost 120,871 116,320 2,571 1,980 (2,964) (2,458) (245) (261) 2.5 2.1 9.5 13.2
- personal 47,483 44,634 1,785 1,064 (1,434) (974) (214) (246) 3.0 2.2 12.0 23.1
- corporate and commercial 69,738 68,446 697 595 (1,500) (1,454) (31) (15) 2.2 2.1 4.4 2.5
- non-bank financial institutions 3,650 3,240 89 321 (30) (30) - - 0.8 0.9 - -
Loans and advances to banks at amortised cost 1,436 1,424 - 12 (3) (3) - - 0.2 0.2 - -
Other financial assets measured at amortised cost 12,734 12,417 171 146 (132) (113) (9) (10) 1.0 0.9 5.3 6.8
1 The days past due amounts presented above are on a
contractual basis.
Stage 2 decomposition
The following table presents the stage 2 decomposition of gross carrying
amount and allowances for ECL for loans and advances to customers and banks.
It also sets out the reasons why an exposure is classified as stage 2 and
therefore presented as a significant increase in credit risk at 30 June 2024.
The quantitative classification shows gross carrying values and allowances for
ECL for which the applicable reporting date probability of default ('PD')
measure exceeds defined quantitative thresholds for
retail and wholesale exposures, as set out in Note 1.2 'Summary of material
accounting policies', on page 348 of the Annual Report and Accounts 2023.
The qualitative classification primarily accounts for customer risk rating
('CRR') deterioration, watch-and-worry and retail management judgemental
adjustments.
A summary of our current policies and practices for the
significant increase in credit risk is set out in 'Summary of material
accounting policies' on page 348 of the Annual Report and Accounts 2023.
Loans and advances to customers and banks(1)
At 30 Jun 2024
Loans and advances to customers Loans and advances to banks at amortised cost Total stage 2
Personal Corporate and commercial Non-bank financial institutions
$m $m $m $m $m
Quantitative 39,918 43,152 2,008 667 85,745
Qualitative 7,208 14,593 695 170 22,666
30 DPD backstop(2) 433 506
73 - -
Total gross carrying amount 47,199 58,178 2,703 837 108,917
Quantitative (982) (1,034) (31) (2,048)
(1)
Qualitative (131) (206) (342)
(4) (1)
30 DPD backstop(2) (11)
(6) (5) - -
Total allowance for ECL (1,119) (1,245) (35) (2,401)
(2)
ECL coverage % 2.4 2.1 1.3 0.2 2.2
At 31 Dec 2023
Quantitative 35,742 53,034 2,955 781 92,512
Qualitative 11,678 16,241 653 642 29,214
30 DPD backstop(2) 463 581
63 42 13
Total gross carrying amount 47,483 69,738 3,650 1,436 122,307
Quantitative (1,103) (1,225) (24) (2,353)
(1)
Qualitative (324) (270) (602)
(6) (2)
30 DPD backstop(2) (12)
(7) (5) - -
Total allowance for ECL (1,434) (1,500) (30) (2,967)
(3)
ECL coverage % 3.0 2.2 0.8 0.2 2.4
1 Where balances satisfy more than one of the above three criteria
for determining a significant increase in credit risk, the corresponding gross
exposure and ECL have been assigned in order of categories presented.
2 Days past due ('DPD').
Assets held for sale
During the first half of 2024, we completed the sales of our banking business
in Canada, our retail banking operations in France and our business in Russia.
At 30 June 2024, the most material balance held for sale came from our
business in Argentina. Although there was a reclassification on the balance
sheet, there was no separate income statement reclassification. As a result,
charges for changes in allowances for ECL shown in the credit risk disclosures
include charges relating to financial assets classified as 'assets held for
sale'.
'Loans and other credit-related commitments' and 'financial guarantees', as
reported in credit disclosures, also include exposures and allowances relating
to financial assets classified as 'assets held for sale'.
Loans and advances to customers and banks measured at amortised cost
At 30 Jun 2024 At 31 Dec 2023
Total gross loans and advances Allowance Total gross loans and advances Allowance
for ECL for ECL
$m $m $m $m
As reported 1,050,837 (10,523) 1,062,526 (11,089)
Reported in 'Assets held for sale' 2,932 84,075 (303)
(48)
Total 1,053,769 (10,571) 1,146,601 (11,392)
At 30 June 2024, gross loans and advances of our business in Argentina were
$2,214m, and the related allowances for ECL were $39m.
Lending balances held for sale continue to be measured at amortised cost less
allowances for impairment and, therefore, such carrying amounts may differ
from fair value.
These lending balances are part of associated disposal groups that are
measured in their entirety at the lower of carrying amount and fair value less
costs to sell. Any difference between the carrying amount
of these assets and their sales price is part of the overall gain or loss on
the associated disposal group sale as a whole.
For further details of the carrying amount and the fair value at 30 June 2024
of loans and advances to banks and customers classified as held for sale, see
Note 15 on the interim condensed consolidated financial statements.
Gross loans and allowance for ECL on loans and advances to customers and banks
reported in 'Assets held for sale'
Business in Argentina Banking business Retail banking operations in France Other Total
in Canada
Gross carrying amount Allowance for ECL Gross carrying amount Allowance for ECL Gross carrying amount Allowance for ECL Gross carrying amount Allowance for ECL Gross carrying amount Allowance for ECL
$m $m $m $m $m $m $m $m $m $m
Loans and advances to customers at amortised cost 1,598 (39) - - - - 703 (9) 2,301 (48)
- personal 558 (28) - - - - 304 (1) 862 (29)
- corporate and commercial 1,040 (11) - - - - 310 (8) 1,350 (19)
- non-bank financial institutions - - - - - - 89 - 89 -
Loans and advances to banks at amortised cost 616 - - - - - 15 - 631 -
At 30 Jun 2024 2,214 (39) - - - - 718 (9) 2,932 (48)
Loans and advances to customers at amortised cost - - 56,349 (220) 16,984 (82) 255 73,588 (303)
(1)
- personal - - 27,071 (95) 13,920 (79) 140 41,131 (175)
(1)
- corporate and commercial - - 27,789 (120) 3,012 - - 30,801 (123)
(3)
- non-bank financial institutions - - 1,489 52 - 115 - 1,656
(5) (5)
Loans and advances to banks at amortised cost - - 154 - 10,333 - - - 10,487 -
At 31 Dec 2023 - - 56,503 (220) 27,317 (82) 255 84,075 (303)
(1)
Measurement uncertainty and sensitivity analysis of ECL estimates
The recognition and measurement of ECL involves the use of significant
judgement and estimation. We form multiple economic scenarios based on
economic forecasts, apply these assumptions to credit risk models to estimate
future credit losses, and probability-weight the results to determine an
unbiased ECL estimate.
Management assessed the current economic environment, reviewed the latest
economic forecasts and discussed key risks before selecting the economic
scenarios and their weightings.
The Central scenario is constructed to reflect the latest macroeconomic
expectations. Outer scenarios incorporate the crystallisation of economic and
geopolitical risks, including those relating to the outcome of recent and
future elections, the Israel-Hamas war and disruptions in the Red Sea.
Management judgemental adjustments are used where modelled ECL does not fully
reflect the identified risks and related uncertainty or to capture significant
late-breaking events.
At 30 June 2024, there was an overall reduction in management judgemental
adjustments compared with 31 December 2023, as modelled outcomes better
reflected the key risks.
Methodology
At 30 June 2024, four economic scenarios were used to capture the latest
economic expectations and to articulate management's view of the range of
risks and potential outcomes. Each scenario is updated with the latest
economic forecasts and distributional estimates each quarter.
Three scenarios, the Upside, Central and Downside, are drawn from external
consensus forecasts, market data and distributional estimates of the entire
range of economic outcomes. The fourth scenario, the Downside 2, represents
management's view of severe downside risks.
The Central scenario is deemed the 'most likely' scenario, and usually
attracts the largest probability weighting. It is created using consensus
forecasts, which is the average of a panel of external forecasts.
The outer scenarios represent the tails of the distribution and are less
likely to occur. The consensus Upside and Downside scenarios are created with
reference to forecast probability distributions for select markets that
capture economists' views of the entire range of economic outcomes. In the
later years of those scenarios, projections revert to long-term consensus
trend expectations. Reversion to trend is done with reference to historically
observed quarterly changes in the values of macroeconomic variables.
The fourth scenario, the Downside 2, represents management's view of severe
downside risks. It is a globally consistent, narrative-driven scenario that
explores a more extreme economic outcome than those captured by the consensus
scenarios. In this scenario, variables do not, by design, revert to long-term
trend expectations and may instead explore alternative states of equilibrium,
where economic variables move permanently away from past trends.
The consensus Downside and the consensus Upside scenarios are each calibrated
to be consistent with a 10% probability. The Downside 2 is calibrated to a 5%
probability. The Central scenario is assigned the remaining 75%. This
weighting scheme is deemed appropriate for the unbiased estimation of ECL in
most circumstances. However, management may choose to depart from this
probability-based scenario weighting approach when the economic outlook and
forecasts are determined to be particularly uncertain and risks are elevated.
In the second quarter of 2024, the assigned scenario weights were consistent
with their calibrated probabilities, the same as in the fourth quarter of
2023. Economic forecasts for the Central scenario improved modestly, and the
dispersion within consensus forecast panels remained low. Risks, including the
increased policy uncertainty relating to the outcome of elections across key
markets and elevated geopolitical tensions, were deemed to be reflected in the
Downside scenarios.
Scenarios produced to calculate ECL are aligned to HSBC's top and emerging
risks.
Description of economic scenarios
The economic assumptions presented in this section are formed by HSBC with
reference to external forecasts and estimates for the purpose of calculating
ECL.
Forecasts may change and remain subject to uncertainty. Outer scenarios are
designed to capture potential crystallisation of key economic and financial
risks and alternative paths for economic variables.
In our key markets, GDP forecasts in the Central scenario have improved in the
second quarter of 2024 compared with the fourth quarter of 2023, particularly
in the US. At the same time, expectations for interest rate cuts have been
scaled back. In the second quarter of 2024, risks to the economic outlook
included a number of significant geopolitical issues and uncertainty relating
to election outcomes.
Within our Downside scenarios, the economic consequences from the
crystallisation of those risks were captured by higher commodity and goods
prices, the re-acceleration of inflation, a rise in interest rates and global
recession.
The scenarios used to calculate ECL are described below.
The consensus Central scenario
GDP growth is expected to slow in 2024 relative to the previous year in the US
and Europe, as elevated interest rates continue to squeeze household finances
and corporate margins. Inflation is expected to continue to decline, as wage
growth and services inflation moderate. Lower inflation and looser labour
market conditions are expected to enable major central banks to embark on a
gradual reduction in policy rates. Growth only recovers to its long-term
expected trend in later years.
In mainland China and Hong Kong, GDP growth is also expected to be slower in
2024 relative to 2023 amid weaker private sector confidence, falling property
valuations and moderate global trade growth. Despite those headwinds, growth
in mainland China is still expected to remain close to the official target as
authorities have increased fiscal and monetary support to the economy. In Hong
Kong, the continued recovery in the tourism and related sectors is expected to
continue, while the recent suspension of property transaction taxes is
expected to bring about a gradual recovery in the market towards the end of
the year.
Global GDP is expected to grow by 2.5% in 2024 in the Central scenario and the
average rate of global GDP growth is forecast to be 2.6% over the entire
forecast period. This is below the average growth rate reported over the
five-year period prior to the onset of the pandemic of 2.9%.
The key features of our Central scenario are:
- GDP growth rates in our main markets are expected to slow in 2024
relative to 2023. Across most of our key markets weaker growth is caused by
high interest rates, which act to deter consumption and investment.
-
In most markets, unemployment is expected to remain flat or rise moderately
from current levels. The exceptions are Mexico, where unemployment is expected
to rise more quickly back towards its long-term average, and France where
structural reforms are expected to enable unemployment to fall from current
levels.
- Inflation is expected to fall as services inflation and wage growth
moderates. It is anticipated that inflation converges towards central banks'
target rates in 2025. In mainland China, weak consumption and excess supply
have caused inflation to drop sharply but further policy support lifts demand
and inflation rises over the scenario.
- Weak conditions in housing markets are expected to persist through 2024
and 2025 in many of our main markets, including the UK, Hong Kong and mainland
China. Higher interest rates and, in many cases, declining prices are expected
to depress activity. In the US, limited housing supply is expected to ensure
that house prices rise strongly.
- Challenging conditions are also forecast to continue in the commercial
property sector in a number of our key markets. Structural changes to demand
in the office segment in particular are driving lower valuations.
- Policy interest rates in key markets are forecast to have peaked and are
projected to decline in 2024. In the longer term, they are expected to remain
at a higher level than in the pre-pandemic period.
- The Brent crude oil price is forecast to average around $81 per barrel
over the forecast period.
The Central scenario was created from consensus forecasts available in late
May, and reviewed continually until the end of June 2024. In accordance with
HSBC's scenario framework, a probability weight of 75% has been assigned to
the Central scenario across all major markets.
The following table describes key macroeconomic variables in the consensus
Central scenario.
Consensus Central scenario 3Q24-2Q29 (as at 2Q24)
UK US Hong Kong Mainland China France UAE Mexico
GDP (annual average growth rate, %)
2024 0.5 2.4 2.9 4.9 0.8 3.8 2.3
2025 1.2 1.7 2.8 4.4 1.3 4.1 1.9
2026 1.6 2.0 2.5 4.2 1.5 3.7 2.2
2027 1.7 2.0 2.5 3.9 1.4 3.6 2.2
2028 1.6 1.9 2.4 3.7 1.3 3.0 2.2
5-year average(1) 1.4 1.9 2.6 4.1 1.3 3.6 2.2
Unemployment rate (%)
2024 4.5 4.0 3.0 5.2 7.6 2.6 2.7
2025 4.7 4.1 3.0 5.1 7.5 2.6 3.2
2026 4.5 3.9 3.0 5.1 7.0 2.6 3.3
2027 4.5 3.9 3.0 5.0 6.9 2.6 3.3
2028 4.5 3.9 3.0 5.0 6.6 2.6 3.4
5-year average(1) 4.6 4.0 3.0 5.1 7.0 2.6 3.2
House prices (annual average growth rate, %)
2024 0.0 5.8 (8.7) (5.7) (3.7) 16.1 7.8
2025 1.2 3.9 0.8 (1.0) 2.7 6.9 4.2
2026 3.2 3.3 4.3 0.6 4.1 4.2 3.8
2027 3.4 3.7 2.4 1.9 4.3 2.8 3.8
2028 2.4 3.0 2.6 2.3 3.8 1.6 3.8
5-year average(1) 2.3 3.5 1.7 0.4 3.1 4.6 4.2
Inflation (annual average growth rate, %)
2024 2.6 3.2 2.1 0.8 2.5 2.5 4.3
2025 2.2 2.4 2.1 1.6 1.9 2.1 3.7
2026 2.1 2.3 2.2 1.9 1.8 2.2 3.5
2027 2.2 2.3 2.3 1.9 1.9 2.0 3.4
2028 2.1 2.2 2.3 1.9 1.9 1.9 3.4
5-year average(1) 2.2 2.4 2.2 1.8 1.9 2.1 3.5
Consensus Central scenario 3Q24-2Q29 (as at 2Q24) (continued)
UK US Hong Kong Mainland China France UAE Mexico
Central bank policy rate (annual average, %)(2)
2024 5.2 5.3 5.7 3.4 3.8 5.3 10.8
2025 4.6 4.6 5.0 3.4 3.1 4.7 9.6
2026 4.0 4.1 4.4 3.6 2.7 4.1 8.7
2027 3.8 3.9 4.2 3.7 2.5 3.9 8.4
2028 3.6 3.8 4.1 3.9 2.5 3.8 8.3
5-year average(1) 4.0 4.2 4.5 3.7 2.8 4.2 8.9
1 The five-year average is
calculated over a projected period of 20 quarters from 3Q24 to 2Q29.
2 For China, rate shown is the Loan
Prime Rate.
Consensus Central scenario 2024-2028 (as at 4Q23)
UK US Hong Kong Mainland China France UAE Mexico
GDP (annual average growth rate, %)
2024 0.3 1.0 2.6 4.5 0.8 3.7 1.9
2025 1.2 1.8 2.7 4.4 1.5 4.0 2.2
2026 1.7 2.1 2.6 4.3 1.6 3.8 2.3
2027 1.6 2.0 2.6 3.8 1.5 3.4 2.4
2028 1.6 2.0 2.6 3.9 1.5 3.4 2.4
5-year average(1) 1.3 1.8 2.6 4.2 1.4 3.6 2.2
Unemployment rate (%)
2024 4.7 4.3 3.0 5.2 7.5 2.6 2.9
2025 4.6 4.2 3.0 5.1 7.3 2.6 2.9
2026 4.3 4.0 3.2 5.1 7.0 2.6 2.9
2027 4.2 4.0 3.2 5.1 6.8 2.6 2.9
2028 4.2 4.0 3.2 5.1 6.8 2.6 2.9
5-year average(1) 4.4 4.1 3.1 5.1 7.1 2.6 2.9
House prices (annual average growth rate, %)
2024 (5.5) 2.9 (6.6) (0.6) (1.0) 12.6 6.5
2025 0.1 2.7 (0.7) 1.1 2.4 7.7 4.2
2026 3.5 3.1 2.6 2.6 4.0 4.4 4.2
2027 3.0 2.7 2.8 4.0 4.4 2.6 4.0
2028 3.0 2.1 3.0 4.5 4.0 2.3 4.0
5-year average(1) 0.8 2.7 0.2 2.3 2.8 5.9 4.6
Inflation (annual average growth rate, %)
2024 3.2 2.7 2.1 1.8 2.7 2.3 4.2
2025 2.2 2.2 2.1 2.0 1.8 2.2 3.6
2026 2.2 2.3 2.2 2.1 1.7 2.1 3.5
2027 2.3 2.2 2.4 2.0 1.9 2.1 3.5
2028 2.3 2.2 2.4 2.0 2.1 2.1 3.5
5-year average 2.4 2.3 2.2 2.0 2.0 2.1 3.7
Central bank policy rate (annual average, %)(2)
2024 5.0 5.0 5.4 3.2 3.6 5.1 10.4
2025 4.3 4.0 4.4 3.3 2.8 4.1 8.6
2026 3.9 3.7 4.1 3.5 2.6 3.7 7.9
2027 3.8 3.7 4.1 3.7 2.6 3.7 7.9
2028 3.7 3.8 4.1 3.9 2.7 3.8 8.1
5-year average(1) 4.1 4.1 4.4 3.5 2.9 4.1 8.6
1 The five-year average is calculated over a projected period of
20 quarters from 1Q24 to 4Q28.
2 For China, rate shown is the Loan Prime Rate.
The graphs compare the respective Central scenario with current economic
expectations beginning in the second quarter of 2024.
GDP growth: Comparison of Central scenarios
Hong Kong
Note: Real GDP shown as year-on-year percentage change.
UK
Note: Real GDP shown as year-on-year percentage change.
Mainland China
Note: Real GDP shown as year-on-year percentage change.
US
Note: Real GDP shown as year-on-year percentage change.
The consensus Upside scenario
Compared to the Central scenario, the consensus Upside scenario features
stronger economic activity in the near term, before converging to the long-run
trend expectations. It also incorporates a faster fall in the rate of
inflation than incorporated in the Central scenario.
The scenario is consistent with a number of key upside risk themes. These
include a faster reduction in central bank policy interest rates, a
de-escalation in geopolitical tensions as the Israel-Hamas and Russia-Ukraine
wars move towards conclusions, and an improvement in the US-China
relationship.
The following table describes key macroeconomic variables in the consensus
Upside scenario.
Consensus Upside scenario (3Q24-2Q29)
UK US Hong Kong Mainland China France UAE Mexico
GDP level (%, start-to-peak)(1) 11.5 (2Q29) 14.9 (2Q29) 20.8 (2Q29) 28.7 (2Q29) 9.2 (2Q29) 27.4 (2Q29) 17.3 (2Q29)
Unemployment rate (%, min)(2) 2.9 (2Q26) 3.1 (2Q26) 2.5 (1Q25) 4.8 (2Q26) 6.1 (2Q26) 2.1 (2Q26) 2.6 (1Q25)
House price index (%, start-to-peak)(1) 19.1 (2Q29) 27.7 (2Q29) 22.9 (2Q29) 8.1 (2Q29) 22.4 (2Q29) 26.8 (2Q29) 28.0 (2Q29)
Inflation rate (YoY % change, min)(3) 0.8 (2Q25) 1.1 (2Q25) 0.8 (2Q25) 0.2 (2Q25) 1.1 (2Q25) 1.4 (2Q25) 2.5 (2Q25)
Central bank policy rate (%, min)(2) 3.6 (4Q28) 3.8 (4Q28) 4.1 (4Q28) 3.3 (2Q25) 2.5 (3Q28) 3.8 (4Q28) 8.2 (3Q25)
1 Cumulative change to the highest level of the series during the
20-quarter projection.
2 Lowest projected unemployment or policy rate in the scenario. For
China, the rate shown is the Loan Prime rate.
3 Lowest projected year-on-year percentage change in inflation in the
scenario.
Consensus Upside scenario 2024-2028 (as at 4Q23)
UK US Hong Kong Mainland China France UAE Mexico
GDP level (%, start-to-peak)(1) 10.8 (4Q28) 14.3 (4Q28) 21.8 (4Q28) 30.4 (4Q28) 10.4 (4Q28) 30.7 (4Q28) 17.8 (4Q28)
Unemployment rate (%, min)(2) 3.1 (4Q24) 3.1 (2Q25) 2.4 (3Q24) 4.8 (4Q25) 6.2 (4Q25) 2.0 (4Q25) 2.4 (3Q24)
House price index (%, start-to-peak)(1) 13.0 (4Q28) 21.9 (4Q28) 17.9 (4Q28) 19.7 (4Q28) 19.6 (4Q28) 34.2 (4Q28) 30.6 (4Q28)
Inflation rate (YoY % change, min)(3) 1.3 (2Q25) 1.4 (1Q25) 0.3 (4Q24) 0.6 (3Q24) 1.5 (3Q24) 1.4 (1Q25) 2.7 (1Q25)
Central bank policy rate (%, min)(2) 3.7 (3Q28) 3.7 (2Q27) 4.1 (1Q27) 3.1 (3Q24) 2.6 (2Q26) 3.7 (1Q27) 7.8 (2Q25)
1 Cumulative change to the highest level of the series during the
20-quarter projection.
2 Lowest projected unemployment or policy rate in the scenario. For
China, the rate shown is the Loan Prime rate.
3 Lowest projected year-on-year percentage change in inflation in the
scenario.
Downside scenarios
Downside scenarios explore the intensification and crystallisation of a number
of key economic and financial risks. These include an escalation of
geopolitical tensions, which disrupt key commodity and goods markets, causing
inflation and interest rates to rise, and creating a global recession.
As the geopolitical environment remains volatile and complex, risks include:
- a broader and more prolonged conflict in the Middle East that undermines
confidence, drives an increase in global energy costs and reduces trade and
investment;
- continued differences between the US and China, which lead to increased
trade frictions and higher inflation, due to an escalation in tariff actions
and rising costs;
- a potential escalation in the Russia-Ukraine war, which expands beyond
Ukraine's borders, and further disrupts energy, fertiliser and food supplies;
and
- election outcomes that deliver adverse policies that work to undermine
global trade growth and international supply chains.
High inflation and higher interest rates also remain key risks given the
pressure on household budgets and firms' costs. A wage-price spiral, triggered
by higher inflation and labour supply shortages, could put sustained upward
pressure on wages and services prices, aggravating cost pressures and
increasing the squeeze on household real incomes and corporate margins. In
turn, it raises the risk of a more forceful policy response from central
banks, a steeper trajectory for interest rates, significantly higher defaults
and, ultimately, a deep economic recession.
The consensus Downside scenario
In the consensus Downside scenario, economic activity is weaker compared with
the Central scenario. In this scenario, GDP declines, unemployment rates rise,
and asset prices fall. The scenario features an escalation of geopolitical
tensions, which causes a rise in inflation, as supply chain constraints
intensify and energy prices rise. The scenario also features a temporary
increase in interest rates above the Central scenario, before the effects of
weaker consumption demand begin to dominate, and commodity prices and
inflation fall again.
The following table describes key macroeconomic variables in the consensus
Downside scenario.
Consensus Downside scenario (3Q24-2Q29)
UK US Hong Kong Mainland China France UAE Mexico
GDP level (%, start-to-trough)(1) (0.7) (3Q26) (1.2) (1Q25) (2.3) (4Q24) (2.3) (4Q24) (0.3) (1Q25) 0.3 (3Q24) (0.9) (3Q25)
Unemployment rate (%, max)(2) 6.3 (3Q25) 5.1 (1Q25) 4.4 (2Q26) 6.6 (2Q26) 8.5 (1Q25) 3.4 (3Q25) 3.7 (4Q25)
House price index (%, start-to-trough)(1) (5.9) (4Q25) (0.2) (3Q24) (5.2) (2Q25) (9.8) (1Q26) (0.5) (4Q24) (0.2) (3Q24) 0.7 (3Q24)
Inflation rate (YoY % change, max)(3) 3.4 (2Q25) 3.8 (4Q24) 3.8 (2Q25) 3.1 (1Q25) 3.5 (1Q25) 2.6 (2Q25) 6.1 (2Q25)
Central bank policy rate (%, max)(2) 5.6 (3Q24) 5.8 (3Q24) 6.2 (3Q24) 3.5 (4Q24) 4.1 (1Q25) 5.9 (3Q24) 12.0 (1Q25)
1 Cumulative change to the lowest level of the series during the
20-quarter projection.
2 The highest projected unemployment or policy rate in the scenario.
For China, the rate shown is the Loan Prime rate.
3 The highest projected year-on-year percentage change in inflation in
the scenario.
Consensus Downside scenario 2024-2028 (as at 4Q23)
UK US Hong Kong Mainland China France UAE Mexico
GDP level (%, start-to-trough)(1) (1.0) (2Q25) (1.4) (3Q24) (1.6) (3Q25) (1.5) (1Q24) (0.3) (2Q24) 1.4 (1Q24) (0.3) (4Q24)
Unemployment rate (%, max)(2) 6.4 (1Q25) 5.6 (4Q24) 4.7 (4Q25) 6.9 (4Q25) 8.5 (4Q24) 3.7 (4Q25) 3.5 (4Q25)
House price index (%, start-to-trough)(1) (12.0) (2Q25) (1.3) (3Q24) (9.6) (4Q24) (7.1) (3Q25) (1.2) (3Q24) 0.3 (1Q24) 1.2 (1Q24)
Inflation rate (YoY % change, max)(3) 4.1 (1Q24) 3.5 (4Q24) 3.8 (3Q24) 3.5 (4Q24) 3.8 (2Q24) 3.0 (1Q24) 6.5 (4Q24)
Central bank policy rate (%, max)(2) 5.7 (1Q24) 5.6 (1Q24) 6.0 (1Q24) 3.2 (3Q24) 4.2 (1Q24) 5.7 (1Q24) 12.0 (3Q24)
1 Cumulative change to the lowest level of the series during the
20-quarter projection.
2 The highest projected unemployment or policy rate in the scenario.
For China, the rate shown is the Loan Prime rate.
3 The highest projected year-on-year percentage change in inflation in
the scenario.
Downside 2 scenario
The Downside 2 scenario features a deep global recession and reflects
management's view of the tail of the economic distribution. It incorporates
the crystallisation of a number of risks simultaneously, including a further
escalation of geopolitical crises globally, which creates severe supply
disruptions to goods and energy markets.
In the scenario, as inflation surges and central banks tighten monetary policy
further, confidence evaporates. However, this impulse is assumed to prove
short-lived, as recession takes hold, causing a sharp fall in demand, leading
commodity prices to correct sharply and global price inflation to fall.
The following table describes key macroeconomic variables in the Downside 2
scenario.
Downside 2 scenario (3Q24-2Q29)
UK US Hong Kong Mainland China France UAE Mexico
GDP level (%, start-to-trough)(1) (8.8) (4Q25) (4.1) (3Q25) (8.0) (3Q25) (7.7) (2Q25) (7.4) (3Q25) (7.0) (4Q25) (8.7) (1Q26)
Unemployment rate (%, max)(2) 8.4 (4Q25) 8.9 (1Q26) 6.4 (2Q25) 6.6 (4Q26) 10.2 (2Q26) 4.9 (1Q25) 5.4 (4Q25)
House price index (%, start-to-trough)(1) (29.7) (2Q26) (15.6) (2Q25) (35.8) (2Q27) (28.1) (3Q26) (15.0) (4Q26) (14.0) (4Q26) 0.7 (3Q24)
Inflation rate (YoY % change, max)(3) 10.2 (4Q24) 5.0 (4Q24) 4.3 (2Q25) 5.4 (1Q25) 8.6 (4Q24) 3.5 (2Q25) 6.5 (2Q25)
Central bank policy rate (%, max)(2) 5.9 (3Q24) 6.0 (3Q24) 6.4 (3Q24) 4.0 (1Q25) 5.0 (3Q24) 6.1 (3Q24) 12.4 (1Q25)
1 Cumulative change to the lowest level of the series during the
20-quarter projection.
2 The highest projected unemployment or policy rate in the scenario.
For China, the rate shown is the Loan Prime rate.
3 The highest projected year-on-year percentage change in inflation in
the scenario.
Downside 2 scenario 2024-2028 (as at 4Q23)
UK US Hong Kong Mainland China France UAE Mexico
GDP level (%, start-to-trough)(1) (8.8) (2Q25) (4.6) (1Q25) (8.2) (1Q25) (6.4) (1Q25) (6.6) (1Q25) (4.9) (2Q25) (8.1) (2Q25)
Unemployment rate (%, max)(2) 8.4 (2Q25) 9.3 (2Q25) 6.4 (4Q24) 7.0 (4Q25) 10.2 (4Q25) 4.3 (3Q24) 4.9 (2Q25)
House price index (%, start-to-trough)(1) (30.2) (4Q25) (14.7) (4Q24) (32.8) (3Q26) (25.5) (4Q25) (14.5) (2Q26) (2.9) (4Q25) 1.2 (1Q24)
Inflation rate (YoY % change, max)(3) 10.1 (2Q24) 4.8 (2Q24) 4.1 (3Q24) 4.1 (4Q24) 8.6 (2Q24) 3.5 (2Q24) 7.0 (4Q24)
Central bank policy rate (%, max)(2) 6.0 (1Q24) 6.1 (1Q24) 6.4 (1Q24) 4.1 (3Q24) 5.2 (1Q24) 6.1 (1Q24) 12.7 (3Q24)
1 Cumulative change to the lowest level of the series during the
20-quarter projection.
2 The highest projected unemployment or policy rate in the scenario.
For China, the rate shown is the Loan Prime rate.
3 The highest projected year-on-year percentage change in inflation
in the scenario.
Scenario weightings
In reviewing the economic environment, the level of risk and uncertainty,
management has considered both global and country-specific factors.
In the second quarter of 2024, key considerations around uncertainty attached
to the Central scenario projections focused on:
- the announcements of elections in the UK and France, as well as the
forthcoming election in the US. Potential policy uncertainty arising from
these elections was a major discussion point;
- the lagged impact of elevated interest rates on household finances and
businesses, and the implications of volatility in monetary policy expectations
on growth and employment;
- estimation and forecast uncertainty for UK unemployment given ongoing
methodology updates at the UK Office for National Statistics;
- the outlook for real estate in our key markets, particularly in the US,
UK, Hong Kong and mainland China; and
- geopolitical risks, including tensions in the Middle East and the
Russia-Ukraine war.
Although these risk factors remain significant, management assessed that they
were adequately reflected in the scenarios at their calibrated probabilities.
It was noted that economic forecasts had improved modestly and dispersion of
forecasts around the consensus have either remained stable, or have moved
lower. Similarly, financial market measures of volatility also remained very
low through the second quarter of 2024.
This has led management to assign scenario probabilities that are aligned to
the standard scenario probability calibration framework. This entailed
assigning a 75% probability weighting to the Central scenario in our major
markets. The consensus Upside scenario was assigned a 10% weighting, and the
consensus Downside scenario was given 10%. The Downside 2 was assigned a 5%
weighting.
In support of the decision, it was noted that policymakers in mainland China
are expected to implement additional stimulus measures to support the economy,
which would reduce the uncertainty attached to current forecasts. Hong Kong
faces a similar backdrop, where targeted policy support is expected to ensure
a steady pace of economic growth.
In respect of the discussion around elections, management concluded that the
UK Central scenario already incorporated information around the future
government and its policies. The subsequent election outcome result has not
changed any scenario assumptions. By contrast, election outcomes in France and
the US were considered less certain and forecasts assume policy continuity in
the respective Central scenarios as a result. Outer scenarios were assessed to
adequately reflect the current downside risks.
For the UAE, it was observed that geopolitical risks have remained high since
the outbreak of the Israel-Hamas war; that economic and market impacts have
been limited; that oil production remains unaffected; and that escalation
risks appear contained.
Management concluded that consensus expectations for Mexico were consistent
with its view of the economic outlook, while assessments of uncertainty were
also aligned to historical averages.
The following table describes the probabilities assigned in each scenario.
Scenario weightings, %
Standard weights UK US Hong Mainland China France UAE Mexico
Kong
2Q24
Upside 10 10 10 10 10 10 10 10
Central 75 75 75 75 75 75 75 75
Downside 10 10 10 10 10 10 10 10
Downside 2 5 5 5 5 5 5 5 5
4Q23
Upside 10 10 10 10 10 10 10 10
Central 75 75 75 75 75 75 75 75
Downside 10 10 10 10 10 10 10 10
Downside 2 5 5 5 5 5 5 5 5
At 30 June 2024, the consensus Upside and Central scenarios for our main
markets had a combined weighting of 85%, the same as at 31 December 2023.
The following graphs show the historical and forecasted GDP growth rate for
the various economic scenarios in our four largest markets.
Hong Kong
Note: Real GDP shown as year-on-year percentage change.
UK
Note: Real GDP shown as year-on-year percentage change.
Mainland China
Note: Real GDP shown as year-on-year percentage change.
US
Note: Real GDP shown as year-on-year percentage change.
Critical estimates and judgements
The calculation of ECL under IFRS 9 involved significant judgements,
assumptions and estimates at 30 June 2024. These included:
- the selection and configuration of economic scenarios, given the
constant change in economic conditions and distribution of economic risks; and
- estimating the economic effects of those scenarios on ECL, where similar
observable historical conditions cannot be captured by the credit risk models.
How economic scenarios are reflected in ECL calculations
The methodologies for the application of forward economic guidance into the
calculation of ECL for wholesale and retail portfolios are set out on page 162
of the Annual Report and Accounts 2023. Models are used to reflect economic
scenarios in ECL estimates. These models are based largely on historical
observations and correlations with default.
Economic forecasts and ECL model responses to these forecasts are subject to a
degree of uncertainty. The models continue to be supplemented by management
judgemental adjustments where required.
Management judgemental adjustments
In the context of IFRS 9, management judgemental adjustments are typically
short-term increases or decreases to the modelled allowance for ECL at either
a customer, segment or portfolio level where management believes allowances do
not sufficiently reflect the credit risk/expected credit losses at the
reporting date. These can relate to risks or uncertainties that are not
reflected in the models and/or to any late-breaking events with significant
uncertainty, subject to management review and challenge.
This includes refining model inputs/outputs using adjustments to ECL based on
management judgement and quantitative analysis for impacts that are difficult
to model.
The effects of management judgemental adjustments are considered for both
balances and allowance for ECL when determining whether or not a significant
increase in credit risk has occurred and is allocated to a stage where
appropriate. This is in accordance with the internal adjustments framework.
Management judgemental adjustments are reviewed under the governance process
for IFRS 9 (as detailed in the section 'Credit risk management' on page 147 of
the Annual Report and Accounts 2023).
Review and challenge focuses on the rationale and quantum of the adjustments
with a further review carried out by the second line of defence where
significant. For some management judgemental adjustments, internal frameworks
establish the conditions under which these adjustments should no longer be
required and as such are considered as part of the governance process. This
internal governance process allows management judgemental adjustments to be
reviewed regularly and, where possible, to reduce the reliance on these
through model recalibration or redevelopment, as appropriate.
The drivers of management judgemental adjustments continue to evolve with the
economic environment and as new risks emerge.
In addition to management judgemental adjustments there are also 'Other
adjustments', which are made to address process limitations, data/model
deficiencies and can also include where appropriate, the impact of new models
where governance has sufficiently progressed to allow an accurate estimate of
ECL allowance to be incorporated into the total reported ECL.
'Management judgemental adjustments' and 'Other adjustments' constitute the
total value of adjustments to modelled allowance for ECL. For the wholesale
portfolio, defaulted exposures are assessed individually and management
judgemental adjustments are made only to the performing portfolio.
At 30 June 2024, there was a $0.4bn reduction in management judgemental
adjustments compared with 31 December 2023.
Management judgemental adjustments made in estimating the reported ECL at 30
June 2024 are set out in the following table.
Management judgemental adjustments to ECL at 30 June 2024(1)
Retail Wholesale(3) Total
$bn $bn $bn
Modelled ECL (A)(4) 2.7 2.1 4.8
Banks, sovereigns, government entities and low-risk counterparties 0.0 0.0
Corporate lending adjustments 0.2 0.2
Other credit judgements 0.1 0.1
Total management judgemental adjustments (B)(5) 0.1 0.2 0.3
Other adjustments (C)(6) (0.2) (0.1) (0.3)
Final ECL (A + B + C)(7) 2.6 2.2 4.8
Management judgemental adjustments to ECL at 31 December 2023(1,2)
Retail Wholesale(3) Total
$bn $bn $bn
Modelled ECL (A)(4) 2.6 2.4 5.0
Banks, sovereigns, government entities and low-risk counterparties 0.0 0.0
Corporate lending adjustments 0.1 0.1
Inflation-related adjustments 0.1 0.1
Other credit judgements 0.5 0.5
Total management judgemental adjustments (B)(5) 0.6 0.1 0.7
Other adjustments (C)(6) 0.0 0.0 0.0
Final ECL (A + B + C)(7) 3.2 2.5 5.7
1 Management judgemental adjustments presented in the table reflect
increases or (decreases) in allowance for ECL, respectively.
2 31 December 2023 includes the Canada banking business and retail
banking operations in France.
3 The wholesale portfolio corresponds to adjustments to the
performing portfolio (stage 1 and stage 2).
4 (A) refers to probability-weighted allowance for ECL before any
adjustments are applied.
5 (B) refers to adjustments that are applied where management
believes allowance for ECL does not sufficiently reflect the credit
risk/expected credit losses of any given portfolio at the reporting date.
These can relate to risks or uncertainties that are not reflected in the model
and/or to any late-breaking events.
6 (C) refers to adjustments to allowance for ECL made to address
process limitations, data/model deficiencies, can also include where
appropriate, the impact of new models where governance has sufficiently
progressed to allow an accurate estimate of ECL allowance to be incorporated
into the total reported ECL.
7 As presented within our internal credit risk governance (see page
147 of the Annual Report and Accounts 2023
In the wholesale portfolio, management judgemental adjustments were an
increase to modelled allowance for ECL of $0.2bn (31 December 2023: $0.1bn
increase), mostly to reflect heightened uncertainty in specific sectors and
geographies, including adjustments to exposures to the real estate sectors in
the US, Hong Kong, the UK, mainland China and the UAE. Compared with 31
December 2023, management judgemental adjustments increased by $0.1bn at 30
June 2024 due to adjustments applied to high-risk sectors and customers.
In the retail portfolio, management judgemental adjustments were an increase
to modelled allowance for ECL of $0.1bn at 30 June 2024 (31 December 2023:
$0.6bn increase).
Management judgemental adjustments in relation to other credit judgements
increased allowance for ECL by $0.1bn (31 December 2023: $0.5bn). There was a
significant reduction in the amount of adjustments from 31 December 2023 as
performance remained resilient and in the UK there was less uncertainty in
relation to the potential delayed impact of economic scenarios on unsecured
portfolio defaults.
Economic scenarios sensitivity analysis of ECL estimates
Management considered the sensitivity of the ECL outcome against the economic
forecasts as part of the ECL governance process by recalculating the allowance
for ECL under each scenario described above for selected portfolios, applying
a 100% weighting to each scenario in turn. The weighting is reflected in both
the determination of a significant increase in credit risk and the measurement
of the resulting allowances.
The allowance for ECL calculated for the Upside and Downside scenarios should
not be taken to represent the upper and lower limits of possible ECL outcomes.
The impact of defaults that might occur in the future under different economic
scenarios is captured by recalculating allowances for loans at the balance
sheet date.
There is a particularly high degree of estimation uncertainty in numbers
representing tail risk scenarios when assigned a 100% weighting.
For wholesale credit risk exposures, the sensitivity analysis excludes
allowance for ECL and financial instruments related to defaulted (stage 3)
obligors. Loans to defaulted obligors are a small portion of the overall
wholesale lending exposure, even if representing the majority of the allowance
for ECL. The measurement of stage 3 ECL is relatively more sensitive to credit
factors specific to the obligor than future economic scenarios, and therefore
the effects of macroeconomic factors are not necessarily the key consideration
when performing individual assessments of allowances for obligors in default.
Due to the range and specificity of the credit factors to which the ECL is
sensitive, it is not possible to provide a meaningful alternative sensitivity
analysis for a consistent set of risks across all defaulted obligors.
For retail mortgage exposures the sensitivity analysis includes allowance for
ECL for defaulted obligors of loans and advances. This is because the retail
ECL for secured mortgage portfolios, including loans in all stages, is
sensitive to macroeconomic variables.
Wholesale and retail sensitivity
The wholesale and retail sensitivity tables present the 100%-weighted results.
These exclude portfolios held by the insurance business, private banking and
small portfolios, and as such cannot be directly compared with personal and
wholesale lending presented in other credit risk tables. In both the wholesale
and retail analysis, the comparative period results for Downside 2 scenarios
are also not directly comparable with the current period, because they reflect
different risks relative to the consensus scenarios for the period end.
The wholesale and retail sensitivity analysis is stated inclusive of
management judgemental adjustments, as appropriate to each scenario.
For both retail and wholesale portfolios, the gross carrying amount of
financial instruments is the same under each scenario. For exposures with
similar risk profile and product characteristics, the sensitivity impact is
therefore largely the result of changes in macroeconomic assumptions.
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