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RNS Number : 6124Y HSBC Holdings PLC 31 July 2024
HSBC Holdings plc
Interim Report 2024
In fulfilment of its obligations under sections 4.2.2, 6.3.3(2) and 6.3.5(1)
of the Disclosure Guidance and Transparency Rules, HSBC Holdings plc (the
"Company") hereby releases the unedited full text of its 2024 Interim Report
(the "Interim Report") for the half-year ended 30 June 2024.
The document is now available on the Company's website at:
https://www.hsbc.com/investors/results-and-announcements/all-reporting/group
(https://www.hsbc.com/investors/results-and-announcements/all-reporting/group)
HSBC Holdings plc
Interim Report 2024
Opening up a world of opportunity
Our ambition is to be the preferred
international financial partner for our clients.
Our purpose, ambition and values reflect our
strategy and support our focus on execution.
Read more on our values on page 6.
Contents
Overview
1 Performance in 1H24
2 Highlights
4 Who we are
5 Group Chief Executive's review
8 Our strategy
11 ESG overview
12 Financial overview
18 Global businesses
25 Risk overview
Interim management report
28 Financial summary
39 Global businesses
50 Legal entities
56 Reconciliation of alternative
performance measures
62 Risk
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
110 Directors' responsibility statement
Interim condensed consolidated financial
statements
111 Independent review report to HSBC
Holdings plc
113 Interim condensed consolidated
financial statements
120 Notes on the interim condensed
consolidated financial statements
Additional information
142 Shareholder information
149 Forward-looking statements
150 Certain defined terms
151 Abbreviations
A reminder
The currency we report in is US dollars.
Use of alternative performance measures
We supplement our IFRS Accounting Standards figures with non-IFRS Accounting
Standards measures used by management internally that constitute alternative
performance measures under European Securities and Markets Authority guidance
and non-GAAP financial measures defined in and presented in accordance with US
Securities and Exchange Commission rules and regulations. These measures are
highlighted with the following symbol:
Further explanation may be found on pages 14 and 29.
Cover image: Opening up a world of opportunity
We connect people, capital and ideas across the world.
By unlocking the true power of our international networks,
we are able to deliver our purpose of opening up a world
of opportunity.
Performance in 1H24
HSBC is one of the world's leading
international banks.
We have a clear strategy to deliver revenue
and profit growth, enhance customer service
and improve returns to shareholders.
Financial performance indicators
Our financial performance indicators demonstrate our continued focus on the
delivery of sustainable returns for our shareholders. They also provide
insight into the performance that has driven the outcomes of our financial
targets.
Read more on our financial performance in
1H24 on pages 2 and 14.
For an explanation of performance against
our key Group financial targets, see page 12.
For a reconciliation of return on average tangible
equity excluding notable items to return on equity, constant currency profit
before tax excluding notable items to reported profit before tax and target
basis operating expenses to reported operating expenses, see page 60.
For our financial targets we define medium
term as three to four years and long term as
five to six years, commencing 1 January 2024.
Return on average tangible equity
(annualised)
21.4%
(1H23: 22.4%)
Return on average tangible equity excluding notable items of 17.0% (1H23:
18.5%)
Profit before tax
$21.6bn
(1H23: $21.7bn)
Constant currency profit before tax excluding notable items
$18.1bn
(1H23: $18.4bn)
Operating expenses
$16.3bn
(1H23: $15.5bn)
Target basis operating expenses
up 7% to $16.1bn
Common equity tier 1 capital ratio
15.0%
(1H23: 14.7%)
Second interim dividend per share
$0.10
(2023 second interim dividend per share: $0.10
Strategic performance indicators
Our strategy supports our ambition of being the preferred international
financial partner for our clients. We are committed to building a business
for the long term, developing relationships that last.
Read more on our strategy on pages 8 to 10.
Read more on multi-jurisdictional client revenue
on page 61.
Read more on our approach to ESG on page 11.
Net new invested assets
$32bn
Generated in 1H24, of which $38bn
were in Asia.
(1H23: $34bn generated, of which
$27bn were in Asia)
Digitally active Commercial
Banking customers
84%
(1H23: 82%)
Wholesale multi-jurisdictional
client revenue
61%
Wholesale client revenue generated by clients banking with us across multiple
markets. (31 December 2023: 61%)
Gender diversity
34.4%
Women in senior leadership roles.
(31 December 2023: 34.1%)
Sustainable finance and investment
$339.9bn
Cumulative total provided and facilitated
since January 2020.
(31 December 2023: $294.4bn)
Highlights
Financial performance was stable compared with 1H23.
We are now targeting a mid-teens return on average
tangible equity, excluding notable items, for both 2024 and 2025.
Financial performance in 1H24
- Profit before tax of $21.6bn was stable compared with 1H23, including a
$0.2bn net favourable revenue impact of notable items relating to gains and
losses recognised on certain strategic transactions. Profit after tax of
$17.7bn was $0.4bn or 2% lower compared with 1H23.
- In 1H24, we completed the disposal of our banking business in Canada,
recognising a gain of $4.8bn. We also recognised an impairment of $1.2bn
following the classification of our business in Argentina as held for sale.
Results in 1H23 included the impact of a $2.1bn reversal of an impairment
relating to the sale of our retail banking operations in France and a $1.5bn
gain recognised on the acquisition of Silicon Valley Bank UK Limited ('SVB
UK').
- Constant currency profit before tax excluding notable items was stable at
$18.1bn compared with 1H23, as revenue growth and lower expected credit losses
and other impairment charges ('ECL') were offset by a rise in operating
expenses.
- Revenue rose by $0.4bn or 1% to $37.3bn compared with 1H23, including the
gains and losses on certain strategic transactions described above. Net
interest income ('NII') fell by $1.4bn, 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. The increase in funding costs associated with
funding the trading book resulted in an increase in banking net interest
income ('banking NII') of $0.3bn or 1%.
-
Revenue growth also reflected the impact of higher customer activity in our
Wealth products in Wealth and Personal Banking ('WPB'), and in Equities and
Securities Financing in Global Banking and Markets ('GBM'). Constant currency
revenue excluding notable items rose by 2% to $33.7bn, primarily due to growth
in Wealth in WPB, in Equities and Securities Financing in GBM, as well as an
increase in Global Payment Solutions ('GPS').
- Net interest margin ('NIM') of 1.62% decreased by 8 basis points ('bps')
compared with 1H23, reflecting a rise in the funding cost of average
interest-bearing liabilities.
- ECL charges were $1.1bn, a reduction of $0.3bn compared with 1H23. The
reduction reflected a release of stage 3 allowances in GBM in HSBC Bank plc,
lower ECL in Commercial Banking ('CMB') in HSBC UK, and lower charges in the
commercial real estate sector in mainland China. In WPB, ECL charges were
broadly stable as a release of allowances in the UK was offset by higher
charges in Mexico, reflecting unemployment trends and growth in our unsecured
portfolio. Annualised ECL were 22bps of average gross loans, including a 4bps
reduction due to the inclusion of loans and advances classified as held for
sale.
- Operating expenses of $16.3bn were $0.8bn or 5% higher than in 1H23,
mainly due to higher technology spend and investment, inflationary pressures
and an increase in the performance-related pay accrual. Target basis operating
expenses
rose by 7% compared with 1H23. This is measured on a constant currency basis,
excluding notable items, the impact of retranslating the prior year results of
hyperinflationary economies at constant currency, and the direct costs from
the sales of our France retail banking operations and our banking business in
Canada.
- Customer lending balances of $938bn were stable on a reported basis, and
increased by $12bn on a constant currency basis, compared with 31 December
2023. Growth included higher balances in HSBC Bank plc in both CMB and GBM,
and higher term lending in CMB in our entities in mainland China and India. In
addition, mortgage balances increased in HSBC UK in WPB.
- Customer accounts of $1.6tn fell by $18bn on a reported basis, and
increased by $3bn on a constant currency basis compared with 31 December
2023, notably in GBM reflecting growth in time deposit balances in Asia. The
increase in GBM included a short-term deposit from a single corporate
customer.
- Common equity tier 1 ('CET1') capital ratio of 15.0% rose by 0.2
percentage points compared with 4Q23, driven by a reduction in risk-weighted
assets ('RWAs'), partly offset by a reduction in our CET1 capital.
- The Board has approved a second interim dividend of $0.10 per share. We
also intend to initiate a share buy-back of up to $3bn, which we expect to
complete within three months.
Financial performance in 2Q24
- Reported profit before tax increased by $0.1bn to $8.9bn compared with
2Q23, due to a lower ECL charge, which more than offset higher operating
expenses and lower revenue. On a constant currency basis, profit before tax
increased by $0.4bn or 4%.
- Revenue fell by $0.2bn to $16.5bn compared with 2Q23, notably as 2Q23
included the operating results of France and Canada for which sales completed
in 1Q24. In addition, 2Q24 included a loss related to the recycling of
reserves following the completion of the sale of our business in Russia. This
was partly offset by growth in Securities Financing and Equities in GBM and
from Wealth in WPB.
- ECL of $0.3bn decreased by $0.6bn, reflecting lower charges in 2Q24 in the
commercial real estate sector in mainland China, compared with 2Q23, as well
as a reduction in charges in HSBC UK, and the release of stage 3 allowances in
GBM in HSBC Bank plc.
- Operating expenses of $8.1bn rose by $0.3bn or 3%, due to higher
technology costs, including investment, the 2Q23 reversal of historical asset
impairments, which did not recur, and inflationary impacts. This was partly
offset by reductions following the completion of disposals in Canada and
France.
- Customer lending increased by $5bn compared with 1Q24 on a reported basis
and by $8bn on a constant currency basis. The growth was mainly from CMB,
notably in our entities in mainland China and India, and in WPB from mortgage
balance growth in HSBC UK and our entity in the US.
- Customer accounts increased by $24bn compared with 1Q24 on a reported
basis and by $27bn on a constant currency basis. The increase was across all
businesses, primarily in Asia. The increase included a short-term deposit from
a single corporate customer.
-
Outlook
- We will now target a return on average tangible equity ('RoTE'), excluding
the impact of notable items, in the mid-teens for both 2024 and 2025.
- Based upon our current forecasts, we expect banking NII of around $43bn in
2024. This guidance remains dependent
on the path of interest rates globally.
- While loan growth was 1% in 1H24, revenue has continued to benefit from
elevated interest rates. Over the medium to long term, we continue to expect
mid-single digit year-on-year percentage growth in customer lending.
- We are reiterating our cost growth guidance of approximately 5% for 2024
compared with 2023, on a target basis, and now expect ECL charges as a
percentage of average gross loans in 2024 to be within our medium-term
planning range of 30bps to 40bps (including customer lending balances
transferred to held for sale).
- Our guidance reflects our current outlook for the global macroeconomic
environment, including customer and financial markets activity. This includes
our modelling of a number of market dependent factors, such as market-implied
interest rates (as of mid-July 2024), as well as customer behaviour and
activity levels.
- We intend to manage our CET1 capital ratio within our medium-term target
range of 14% to 14.5%, with a dividend payout ratio target basis of 50% for
2024, which excludes material notable items and related impacts.
- Note: we do not reconcile our forward guidance on RoTE excluding notable
items, target basis operating expenses, dividend payout ratio target basis or
banking NII to their equivalent reported measures.
Reshaping the Group for growth
- We continue to make progress on reshaping the Group. In 1H24, we completed
the sales of our retail banking operations in France, our banking business
in Canada, and our business in Russia. We also completed the acquisition of
SilkRoad Property Partners Group in Singapore and Citi's retail wealth
management portfolio in mainland China. In addition, we announced the planned
sales of our business in Argentina and our operations in Armenia.
- In January 2024, we completed the sale of our retail banking operations in
France. The sale also included HSBC Continental Europe's 100% ownership
interest in HSBC SFH (France) and its 3% ownership interest in Crédit
Logement.
In accordance with the terms of the sale, we retained a €7.1bn ($7.6bn)
portfolio of home and other loans.
- In March 2024, we completed the sale of HSBC Bank Canada to the Royal Bank
of Canada. The completion of the transaction resulted in a $4.8bn gain on
sale, inclusive of the recycling of foreign currency translation and other
reserves losses. Following completion of the sale, the Board approved a
special dividend of $0.21 per share, which was paid on 21 June 2024.
- During 2Q24, we completed the sale of our business in Russia and
recognised foreign currency translation reserve losses of approximately
$0.1bn.
- During 2Q24, we entered into a binding agreement to sell our business in
Argentina to Grupo Financiero Galicia. In 1Q24, our investment in HSBC
Argentina was classified as held for sale, and we recognised a $1.2bn pre-tax
loss. At closing, cumulative foreign currency translation reserves and other
reserves will recycle to the income statement. At 30 June 2024, these reserve
losses stood at $5.0bn. We are working towards completing the sale in the
second half of 2024.
- We also entered into an agreement for the sale of our operations in
Armenia. This transaction is subject to regulatory approvals and is expected
to be completed in the second half of 2024.
- In January 2024, we acquired SilkRoad Property Partners Group - expanding
our real estate investment capabilities in Asia-Pacific, aligning with our
ambition of becoming a top direct real estate investment manager in the
region.
- In June 2024, we completed the acquisition of Citi's retail wealth
management portfolio in mainland China. This portfolio complements our growing
set of wealth businesses and our ambition to be the leading international
wealth manager for mass affluent and high net worth individuals in mainland
China.
Acquisitions and disposals that are classified as material notable
items form part of 'strategic transactions' and their impacts are called out
separately in our financial reporting. Read more on the financial impact of
our strategic transactions on pages 14 and 42.
ESG highlights
Transition to net zero
- As part of our ambition to support customers in their transition to net
zero and a sustainable future, we aim to provide and facilitate $750bn to $1tn
of sustainable finance and investments by 2030. In 1H24, we provided and
facilitated $45.5bn of sustainable finance and investments, bringing our
cumulative amount since 1 January 2020 to $339.9bn.
- In recognition of the ongoing support for our clients through sustainable
finance, we have been awarded 'The World's Best Bank for Sustainable Finance',
'Asia's Best Bank for Sustainable Finance', 'Middle East's Best Bank for
Sustainable Finance' and 'Best ESG Bank' in Mexico by Euromoney in the Awards
for Excellence 2024.
- HSBC Asset Management continues to develop innovative products that aim to
provide customers with access to markets and asset classes linked to different
areas of sustainability. The HSBC Sustainable Development Bank Bond ETF, which
was launched in 1H24, provides an investment opportunity in debt issued by
multilateral development banks to finance environmental and socially
responsible projects aimed at encouraging economic development in poorer
nations.
Build inclusion and resilience
- We are committed to rewarding colleagues responsibly, recognising their
success, and supporting our colleagues to grow. At a time when cost of living
pressures have continued to be felt around the world, rewarding responsibly is
an important part of our proposition for colleagues and we are committed to
improving transparency around how we make pay decisions. To build on this in
2024, we have introduced a new variable pay structure for around 145,000
junior and middle management colleagues, providing more clarity around
variable pay levels while retaining flexibility to differentiate outcomes for
performance. We established Living Wage benchmarks in all markets in which we
operate and have been certified by the Fair Wage Network as a global Living
Wage employer in 2024.
- Developing the skills and learning opportunities for our colleagues helps
them to fulfil their potential and achieve their career goals. In 2024, we
have expanded our enterprise skills academies, which focus on building skills
across a range of areas, including sustainability, wealth, and technology.
Who we are
HSBC is one of the largest banking and financial services
organisations in the world. We aim to create long-term
value for our shareholders and capture opportunity.
Our values
Our strategy
For further details on progress made in each of our strategic
areas, see pages 8 to 10.
Our global We serve our
customers through three global businesses.
businesses
Group Chief Executive's review
Noel Quinn
Group Chief Executive
Our strong first half performance is further evidence
that our strategy is working and delivering sustainable,
profitable growth.
Return on average tangible equity
(annualised)
21.4%
(1H23: 22.4%)
Reported revenue
$37.3bn
(1H23: $36.9bn)
After achieving a record profit performance in 2023, we had a strong first
half financial performance that reflected our strategy execution and revenue
diversification over the past five years. We remain confident that we can
deliver attractive returns, even in a lower interest rate environment, as a
result of macroeconomic trends that play to our strengths, market-leading
businesses connecting high-growth markets that we are continuing to invest in,
and ongoing cost discipline. As a result, we are providing new guidance of a
mid-teens return on average tangible equity, excluding the impact of notable
items, in 2025.
Over the last 18 months, HSBC's business model has delivered our highest
return on average tangible equity for more than a decade. We continued to
perform well in our home markets of Hong Kong and the UK - the two pillars
upon which our bank is built. The international wholesale banking business
that we have built on top of these pillars is mature and differentiated, and
has substantial scale. It remains our biggest competitive advantage and is
supported by leading transaction banking products and services in global
trade, payments and foreign exchange. Finally, we are growing and investing in
our international retail and wealth business to sit alongside this, which is
helping to diversify revenue.
Each of these strengths contributed to a good revenue performance in the first
half of 2024, supported by higher interest rates. Our strategy is working and
providing attractive returns for our shareholders. We have announced a second
interim dividend of $0.10 per share, further to the first interim dividend of
$0.10 per share and the special dividend of $0.21 paid in June. We are also
today announcing a share buy-back of up to $3bn, further to the now completed
$3bn share buy-back announced at our first quarter results. This means that we
are announcing a further $4.8bn in distributions with these results, taking
the amount of capital distributed in respect of the last 18 months to $34.4bn.
As we look ahead, the path of interest rates and the outcomes of elections are
amongst the factors that will shape the global operating environment. The
progress that has been made reducing inflation has enabled central banks to
start cutting interest rates. Although we expect a cautious approach, we have
reduced our sensitivity to interest rates. 2024 will also be the biggest
election year on record, as more than 4 billion people have an opportunity to
go to the polls. The US election result will be watched particularly closely
considering the potential for policy change based on the result and the impact
this could have beyond its borders. We will continue to monitor these
situations.
Continued strong financial performance
The first half saw another strong profit performance, driven by growth in our
scale businesses and in areas where we have been investing. There was strong
revenue growth in Wealth, transaction banking revenue remained stable and
wholesale lending increased again in the second quarter, on a constant
currency basis, after growing in the first quarter.
"I have always been immensely proud of the heritage of this bank and the
strategic role it plays in the world. My aim when I took this job was to
deliver financial performance to match our standing. Working together, I
believe we have done that and created a strong platform for growth."
Profit before tax for the first half was $21.6bn, which was stable compared
with the first half of 2023. This included a $4.8bn gain on the sale of our
banking operations in Canada, partly offset by a $1.2bn impairment related to
the planned sale of our banking operations in Argentina, which was announced
in the first half. The prior year also included a $2.1bn reversal of an
impairment relating to the sale of our retail banking operations in France and
a $1.5bn gain recognised on the acquisition of SVB UK.
Revenue increased by $0.4bn or 1% to $37.3bn, including the aforementioned
acquisition and disposal impacts, driven mainly by higher banking net interest
income. We achieved an annualised return on average tangible equity of 21.4%,
or 17% excluding notable items.
Our three global businesses continued to perform well. In Wealth and Personal
Banking, profit before tax of $6.5bn was $2.2bn lower than in 2023 on a
constant currency basis, primarily due to the non-recurrence of a $2.1bn
reversal last year of an impairment relating to the sale of our retail banking
operations in France and $0.1bn of profit before tax in the prior period from
our Canadian banking operations. Wealth revenue of $4.3bn was 12% higher than
the first half of last year, driven by increases in investment distribution
and Global Private Banking, as well as growth in asset management and life
insurance.
In Commercial Banking, profit before tax of $6.5bn was down by $1.5bn on a
constant currency basis, primarily due to the non-recurrence of a $1.6bn gain
last year on the acquisition of SVB UK. Overall performance remained good,
with revenue benefiting from the higher rates environment, growth in
transaction banking and higher collaboration revenue.
Global Banking and Markets delivered a good performance. Revenue grew by 5% on
a constant currency basis, with good growth in areas like Equities and
Securities Financing, while still benefiting from the interest rate
environment.
First half operating expenses of $16.3bn were around 5% higher than in 2023,
mainly due to higher technology costs including investments, inflationary
pressures and different phasing of the accrual of performance-related pay
compared with 2023. On a target basis, operating expenses were 7% higher than
the same period last year. As we expect the overall amount of
performance-related pay for 2024 not to be materially different to 2023, we
expect lower performance-related pay accrual in the second half. We are
therefore reconfirming our cost growth guidance of approximately 5% for 2024
compared with 2023, on a target basis.
ECL and other credit impairment charges for the first half were $1.1bn, which
was a $0.3bn decrease on the first half of 2023. We now expect ECLs as a
percentage of average gross loans in 2024 to be back within our medium-term
planning range of 30bps to 40bps. Our CET1 ratio at the end of the first half
was 15.0%.
Our first half banking net interest income performance and the improved net
interest income outlook mean that we are upgrading our 2024 banking net
interest income guidance from at least $41bn to around $43bn.
Further opportunities to grow revenue
We also expect to deliver a return on average tangible equity in the mid-teens
for 2024 and 2025, excluding the impact of notable items. Clearly there are
downside risks to net interest income when interest rates fall, but we're
confident that we have the levers to achieve these targets.
The first lever is leveraging our international connectivity. We have a strong
international wholesale franchise. After a softer year in 2023, international
trade volumes are forecast to grow more quickly this year and next. As the
world's leading trade finance bank and the third-largest bank for global
foreign exchange revenue since 2021, we expect to capitalise on this. To
illustrate this growth potential, we grew wholesale multi-jurisdictional
client revenue by 4% in the first half of 2024, on a constant currency basis
and excluding HSBC Bank Canada, from $9.4bn to $9.7bn.
Increasing global mobility amongst retail customers is also driving demand for
innovative cross-border banking solutions. This helped us to grow
international customers within Wealth and Personal Banking by 11%, bringing
the total to 7m customers. Revenue from these customers also grew by 6% in the
first half. We believe that there is still significant untapped potential
amongst international wholesale and retail customers.
The second lever is maintaining our leadership in our home markets. Our
leading businesses in Hong Kong and the UK - two of the biggest global
financial centres - both grew profits before tax in the first half, helped by
their strong international connectivity with the rest of the Group. In Hong
Kong, our scale and connectivity are delivering good profitability and
enabling us to capture new opportunities. In the first half, 345,000
new-to-bank customers opened accounts as we continued to capitalise on the
significant inflows into Hong Kong as customers seek higher yields and quality
products. In the UK, we grew international customers by 8% to 2.7m,
underlining the differentiated nature of our UK business compared to other UK
banks. Signs of economic recovery were also underlined by growth in customer
lending of 2% compared with the first half of 2023. We remain confident in our
ability to grow further in these two critical markets.
Future growth levers
In the first half of 2024, we continued
to build new sources of value creation.
We attracted
$32.4bn
of net new invested assets in Wealth.
We increased new to bank customers
in Hong Kong by
77%
The third lever is investing to diversify revenue. Over the last five years,
we have taken a number of actions to reduce our sensitivity to interest rates
and create the bank of the future. Building our wealth business, especially in
Asia, to capitalise on increasing affluence has been one of the key
priorities. As a result of this, wealth revenue was up 12% in the first half,
while we attracted $32.4bn of net new invested assets. Payments is another
fee-based business that we are investing in to capitalise on the expected
increase in global payments revenue. We are the number two bank globally by
payments revenue, up from top four in 2022, with a market share of 4.8%
in 2023 compared with 3.6% in the prior year. HSBC was also named 'World's
Best Bank for Payments and Treasury' by Euromoney, which was one of 33 awards
given to the bank in 2024 that also included 'Best Bank in Asia' and 'World's
Best Bank for Sustainable Finance'.
Through HSBC Innovation Banking, we are building a global proposition that can
help us to become known as the go-to bank for innovation companies. Revenue
from the new proposition increased by 4% in the second quarter and we have
onboarded almost 600 new-to-bank innovation companies globally since the
acquisition of SVB UK.
Thank you
As I prepare to hand on the leadership of HSBC to Georges Elhedery in
September, I would like to place on record what an enormous privilege it has
been to lead this great institution. I never imagined when I started my career
37 years ago that I would have the honour of becoming Group Chief Executive. I
have always been immensely proud of the heritage of this bank and the
strategic role it plays in the world. My aim when I took this job was to
deliver financial performance to match our standing. Working together, I
believe we have done that and created a strong platform for growth.
The success of our transformation programme is evident in the improved returns
that we have delivered. Since I became Group Chief Executive, we have returned
$36bn of dividends and $18bn of share buy-backs to our shareholders, inclusive
of the distributions we have announced with these results, while also
successfully navigating the global pandemic.
This would not have been possible without the support and backing of the
Board, my Group Executive Committee colleagues and, of course, the whole HSBC
team. I have been very fortunate to work with many talented, dedicated and
committed people during my career. I would like to thank them wholeheartedly
for their friendship and partnership - and I wish continued success to
Georges, and to all those who will write the next chapter in the story of this
great bank.
Noel Quinn
Group Chief Executive
31 July 2024
Our strategy
We are implementing our strategy across the four strategic pillars
aligned to our purpose, values and ambition.
Our strategy remains anchored around our four strategic pillars: 'Focus',
'Digitise', 'Energise' and 'Transition'.
We delivered a good set of results in 1H24, driven by our strategy that
benefited from rates staying higher for longer, and the progress we made in
diversifying into alternative sources of revenue.
Our reported revenue was $37.3bn, up 1% compared with 1H23, and up 3% on a
constant currency basis, excluding notable items and the impact of strategic
transactions. Our reported profit before tax was $21.6bn, and we achieved a
RoTE of 21.4%, or 17.0% excluding notable items.
We remain committed to maintaining cost discipline, reconfirming our existing
2024 target of approximately 5% cost growth compared with 2023, on a target
basis.
Focus
Capture growth from diversified revenue streams
We aim to build resilience by growing less capital intensive, fee income
generating businesses such as wealth and transaction banking.
Wealth
Our strategic focus continues to centre on capturing the growing global wealth
opportunity, especially in Asia. Our wealth revenue rose 12% from $3.9bn in
1H23 to $4.3bn in 1H24. In particular, the fee and other income component of
revenue increased by 14% from $3.1bn to $3.5bn. Net new invested assets in
Asia rose from $27bn in 1H23 to $38bn in 1H24, an increase of 43%. In
addition, we saw strong growth in our private banking and insurance
businesses. Private banking revenue increased by 16%, reaching $1.3bn in 1H24.
Insurance new business contractual service margin was $1.3bn in 1H24, a 77%
increase compared with the same period last year.
Transaction banking
We have a leading proposition in transaction banking, supported by our
capabilities in payments, global trade, foreign exchange and securities
services. In 1H24, we continued to invest and cement our leadership position.
Transaction banking revenue remained stable, at $13.2bn in 1H24. Our Global
Payments Solutions ('GPS') business expanded further. Market share by GPS
revenue increased by 1.3 percentage points from 3.5% in 2022 to 4.8% in 2023,
taking our ranking from a top 4 bank globally in 2022 to second globally in
2023(1). GPS fee and other income - an important source of diversification for
us - increased by 4% from 1H23 to $1.1bn in 1H24. Moreover in trade, we were
ranked first globally in 2023, based on trade revenue(1). In foreign exchange
('FX'), we were ranked third globally by revenue in 2023(1), a position we
have held since 2021.
$4.3bn
Global wealth revenue, up 12%
compared with 1H23
$38bn
Asia net new invested assets, up 43%
since 1H23
4.8%
GPS revenue market share(1), up
1.3 percentage points between
2022 and 2023
#1
Ranking by global trade revenue(1)
1 Source: Coalition Greenwich Competitor Analytics - FY23
Focus continued
Continue driving strong profit generation in our home markets
We continue to strengthen our scale positions in our home markets: Hong Kong
and the UK - two of the leading global financial centres. They provide us with
deep liquidity pools, which underpin our strong balance sheet.
Hong Kong
Our strategy remains focused on driving growth from our scale position. In
1H24, profit before tax for our business in Hong Kong reached $6.1bn, an
increase of 1% on a constant currency basis compared with the same period last
year.
The market is seeing good inflows from customers seeking investment
opportunities. Our scale and connectivity position us well
to capture this customer inflow. We had 345,000 new to bank customers in 1H24,
an increase of 77% compared with 1H23. As a result, we saw strong inflows into
both deposits and investments. Customer deposits rose by 2% from 1H23, taking
our deposit balance to $544bn. Net new invested assets also increased by 12%
since 1H23 to $19bn.
UK
HSBC UK continued to cement our scale positions in WPB and CMB in the UK
market. Our profit before tax was $3.7bn in 1H24, an 11% increase compared
with 1H23, excluding a $1.6bn SVB UK acquisition gain recognised in 1H23. In
1H23, HSBC UK profit before tax was $4.9bn on a constant currency basis.
With the UK economy showing continued resilience with signs of growth, we are
well positioned to capitalise on the opportunity. This is evident in our
strong loan growth of 2% since 1H23, taking our loan balance to $270bn. Our
mortgage market share(1) reached 8.1% as of May 2024, a gain of 0.3 percentage
points compared with May 2023. In addition, we saw continued traction in our
WPB international proposition, with international active customers reaching
2.7m in 1H24, an 8% increase compared with 1H23.
345,000
New to bank customers in Hong Kong,
up 77% since 1H23
$19bn
Net new invested assets in Hong Kong,
up 12% compared with 1H23
$270bn
HSBC UK's loans and advances,
up 2% since 1H23
8.1%
HSBC UK's mortgage market share(1),
up 0.3 percentage points from May 2023
1 Bank of England data
Double down on international connectivity
International connectivity continues to be at the heart of our business. We
take advantage of our network to help enable our strong international
wholesale business to capitalise on recovering global trade and capital flows,
while building market-leading WPB international propositions.
International trade volumes and capital flows are expected to rebound. We have
a strong wholesale international proposition to capitalise on this trend.
Wholesale multi-jurisdictional client revenue(1) increased 4% from $9.4bn in
1H23 to $9.7bn in 1H24. We also continued to generate more revenue with
multi-jurisdictional corporate clients, and in CMB this is approximately five
times that of a domestic customer.
Within WPB, in response to the trend of growing global mobility, we continued
to build propositions where we can benefit
from our distinctive international capabilities. As a result of our strategy,
we had 7m international customers(2) in 1H24, who generate on average three
times the revenue compared to that of a domestic customer. WPB revenue from
international customers increased by 6% from $5.1bn in 1H23 to $5.4bn in 1H24.
1 Growth presented on a constant currency basis, excluding HSBC Bank
Canada. For further information and the basis of preparation for wholesale
multi-jurisdictional client revenue,
see page 61.
2 WPB international customers include multi-jurisdictional,
non-resident, and resident foreigner clients, excludes Canada.
4%
Increase in wholesale client revenue from multi-jurisdictional clients
compared with 1H23(1)
6%
Increase in WPB revenue from international customers compared with 1H23
Digitise
Improve customer experience while investing in innovation
In 1H24, we remained focused on our goal to become a digital-first bank.
Customer adoption of our digital services continued to rise. In CMB, 83.9% of
customers were digitally active as of May 2024, an increase of 1.2 percentage
points since May 2023. Our net promoter score for onboarding wholesale
international clients in 1H24 improved by 10 points compared with 1H23. At
55.6%, more than half of WPB customers were mobile active in 1H24, an increase
of 4.1 percentage points from 1H23. Furthermore, a total of 80% of WPB's
international accounts(1) were opened via digital journeys in 1H24, an
increase of 34 percentage points from 1H23.
We have also continued to embrace innovative and disruptive technologies
including artificial intelligence ('Al'), blockchain, and quantum computing to
enhance our services, strengthen security and deliver commercial value.
HSBC has been using AI for over a decade and has over 500 AI solutions in
production across the bank today. In 1H24, we continued to invest in solutions
leveraging AI. AI has helped us in our fight against financial crime by
reducing the processing time required to analyse billions of transactions
across millions of accounts from several weeks to a few days. Adoption of our
AI Markets product, a digital service that utilises natural language
processing to enrich the way investors interact with global markets, has
continued to increase.
We invested in HK-based AI company Fano Labs, which specialises in natural
language processing of local languages like Cantonese, and are developing
solutions leveraging their technology in our contact centres to reduce manual
processes, more accurately analyse data and deliver personalised customer
services. With generative AI we have several use cases that we are beginning
to deploy across the back office, including software developer tooling and
digital assistants for employees.
Earlier this year we delivered the world's largest, and first ever
multi-currency, natively digital bond issuance on our HSBC Orion platform in
Hong Kong(2). More than 50 investors invested in these blockchain-based bonds,
and we have seen repo trading and regular secondary liquidity. We also
extended our existing institutional offering in tokenised gold, successfully
implementing it for Hong Kong retail customers. In Singapore, we invested in
Marketnode, a partnership to co-develop a multi-asset digital infrastructure.
We are testing quantum technology for solving complex computational problems
and enhancing cyber resilience. We recently piloted our first application of
quantum-secure technology for buying and selling tokenised physical gold,
which successfully demonstrated the viability of deploying these advanced
technologies to help protect digital assets from future quantum computing
attacks.
1 Refers to pre-departure international accounts
2 Source: HKMA
Energise
Inspire a dynamic culture
We are opening up a world of opportunity for our colleagues by building an
inclusive organisation that empowers and energises them. We are building a
stronger performance culture, improving colleague experience and preparing our
workforce for the future.
We remain focused on our ambition to create a diverse and inclusive
environment across our organisation. To achieve greater diversity across our
senior leadership population, we have achieved 34.4% female representation in
senior leadership positions by the end of 1H24, and are on track to achieve
our target of 35% by 2025¹.
In 2022, we set a Group-wide ethnicity strategy to better represent the
communities we serve. We are making good progress against this, with 3.1% of
senior leadership roles in the UK and US held by colleagues of Black heritage
in 1H24, against a goal of 3.4% by 2025. We are also on track to double the
number of Black heritage colleagues in senior leadership roles globally by
2025, having increased 65% since 2020. We remain focused on increasing
representation across our global workforce, including Asian heritage
representation. At the end of 1H24, 38.5% of our senior leaders have
self-identified as being from an Asian heritage background.
We continue to offer development programmes to our most senior leaders who are
essential to the execution of our strategy, focused on providing greater
clarity and alignment with our ambitions. In 2024, our Managing Director
Leadership Programme has been enhanced with greater capacity alongside new
masterclass topics and the introduction of an internal business faculty.
1 Data excludes Saudi Arabia due to local data collection
restrictions.
In the following 'ESG overview' section, we outline how we put our
purpose and values into practice.
Transition
Support the transition to net zero
In 2020, we set out our ambition to become a net zero bank by 2050. Since
then, we have taken a number of steps to execute on our ambition and manage
climate risks. We published our first net zero transition plan in January
2024, and we have made progress in supporting our customers through their
transition journey, embedding net zero into the way we operate and partnering
for systemic change.
As part of our ambition to align our financed emissions to achieve net zero by
2050, we have set on-balance sheet or combined financed emissions targets for
a number of emissions-intensive sectors.
To support our customers through the transition to net zero and to a
sustainable future, in 2020 we set out an ambition to provide and facilitate
$750bn to $1tn of sustainable finance and investments by 2030. We provided and
facilitated $45.5bn of sustainable finance and investments in 1H24, bringing
our cumulative total since January 2020 to $339.9bn.
We continued to support our clients in their transition journey. In 1H24, HSBC
Innovation Banking acted as a lead arranger in a $100m credit facility for
US-based Electric Hydrogen to support their manufacturing and deployment of
the company's electrolyser
plants. HSBC also acted as a joint bookrunner for a $1.7bn social bond that is
intended to provide funding for new and existing government-led projects under
Chile's sustainable bond framework seeking to address social needs in the
Republic.
For further details on our climate ambition, see the following
'ESG overview' section.
ESG overview
We are committed to embedding strong environmental,
social and governance principles in the way we do business.
Our approach
Our approach to ESG is shaped by our purpose and values, and a desire to
create sustainable long-term value for our stakeholders. As an international
bank with significant breadth and scale, we understand that we can have a
significant impact in helping to tackle ESG challenges and realise
opportunities. We also recognise the complexity of ESG issues. Our ESG efforts
are focused on the areas that align most closely to our strategy, purpose and
values, and where we can help make a significant difference: the transition to
net zero, building inclusion and resilience, and acting responsibly.
Transition to net zero
We are progressing with the implementation of our net zero transition plan,
which we published in January this year. Our implementation plan sets out how
we are embedding net zero: into the way that we support our customers, into
the way that we operate as an organisation and into how we partner externally
in support of systemic change.
We continue to scale and innovate in our sustainable finance and investment
products and services to support our customers' transitions.
We have established a new business, HSBC Infrastructure Finance, to focus on
infrastructure financing and project finance advisory opportunities associated
with the transition to a net zero global economy. The business will support
our clients with project development and establish additional partnerships in
both the public and private sectors.
For our small and medium-sized enterprise ('SME') customers, HSBC UK has
partnered with carbon management company Greenly to support clients to measure
their carbon footprint by enabling them to identify their main sources of
carbon emissions and spot opportunities to reduce them. This is an important
step for SMEs when developing a transition plan.
During the first half of the year, HSBC Asset Management Alternatives further
enhanced its Energy Transition proposition with the launch of the Red Hexagon
Energy Transition Asia Fund, which will invest in the direct equity of a
targeted portfolio of businesses that own, develop and operate energy
transition infrastructure assets.
Embedding net zero across our business is an ongoing process. Our bank-wide,
three-year sustainability execution programme is underway to enable the
delivery of our sustainability agenda, focused on our net zero ambition and
regulatory requirements.
We continue to work on scaling and evolving our net zero capabilities across
the bank, which includes embedding net zero into our culture.
We continue to work with the public sector, industry, civil society and peers
to help shape effective policies, regulations and standards, and to help
develop insights and learning.
For example, this year we collaborated with Repower, a global non-profit
initiative, to publish the 'Financing the clean re-powering of coal power'
white paper. The paper seeks to raise awareness of the potential to eliminate
emissions from existing coal-fired power plants while supporting a just
transition for communities by investing in clean energy resources on the same
sites.
Build inclusion and resilience
Our inclusion strategy enables HSBC to be an organisation that values
difference and encourages colleagues to embrace diverse perspectives. We
remain on track against our gender and ethnicity senior leadership ambitions,
with 34.4%¹ of senior leadership roles being held by women globally and 3.1%
held by Black heritage colleagues in the UK and US combined at 1H24.
To better reflect the communities we serve, we have enabled 93% of colleagues
to disclose their ethnicity, where legally permissible. At the end of 1H24,
65% of our colleagues have chosen to do so.
We have continued to offer colleagues the opportunity to develop their skills
while ensuring we build a pipeline of talent to support our strategic
priorities. The Sustainability Academy aids in upskilling colleagues for the
transition to net zero, focusing on capability building across key employee
groups who are supporting customers.
We have continued to encourage our colleagues to participate in external
certifications to deepen their expertise. At the end of 1H24, 110 colleagues
have started or completed the Imperial College Sustainability Programme, and
29 colleagues have started the Oxford University Sustainable Finance
Programme.
We have continued to expand our Accelerating Wealth Programme to more internal
and external applicants, to support the expansion of our services,
particularly in Asia. The programme offers a skills-based development plan for
colleagues who are looking to pursue a career in wealth management. Our
technology transformation skills programme aims to ensure we attract, develop
and retain the skilled talent we need to execute the strategy.
We drive inclusion for our customers by identifying and addressing barriers to
finance and financial markets. We aim to simplify the banking experience by
providing tools to help customers manage their finances more easily, as well
as provide education and support to help them make the most of their money. We
also offer social-linked financial products that aim to help clients improve
their societal outcomes. We engage with the communities we operate within
through philanthropic giving, disaster relief and volunteering.
Act responsibly
Our purpose-led conduct approach guides us to do the right thing and to focus
on the impact we have for our customers and the financial markets in which we
operate. It is incorporated into the way we design, approve, market and
manage products and services. It complements our purpose and values and,
together with more formal policies and the tools we have to do our jobs,
provides an enterprise-wide, outcome-focused conduct method.
1 Data excludes Saudi Arabia due to local data restrictions.
Financial overview
In assessing the Group's financial performance, management uses a range
of financial measures that focus on the delivery of sustainable returns for
our shareholders and maintaining our financial strength.
Executive summary
Financial performance in 1H24 demonstrated the execution of our strategy and
strengthened platform for growth, supported by the continued higher global
interest rate environment.
This section sets out our key Group financial targets and the progress we made
towards these during 1H24, and - where relevant - our expectations for the
rest of 2024 and beyond. We also include a more detailed table covering
further key financial metrics that we consider insightful for understanding
the Group's performance.
The Group financial results that follow provide more detailed insight into the
performance that has driven the outcomes of our financial targets. It covers
income statement performance on both a reported and constant currency basis,
and the main factors impacting the strength of our balance sheet, capital and
liquidity position.
Group financial targets
Return on average tangible equity
excluding notable items (annualised)
17.0%
(1H23: 18.5%)
In 1H24, RoTE (annualised) was 21.4%, a decrease of 1.0 percentage point from
1H23.
For the purposes of measuring performance against our Group target, we adjust
RoTE to exclude notable items. From 1 January 2024, we revised the
adjustments made to RoTE from excluding only the impact of strategic
transactions and the impairment of BoCom, to exclude 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.
RoTE excluding notable items (annualised) was 17.0%, a decrease of 1.5
percentage points compared with 1H23. We are now targeting a RoTE excluding
notable items
in the mid-teens for both 2024 and 2025.
Our guidance reflects our current outlook
for the global macroeconomic environment, including customer and financial
markets activity. This includes our modelling of a number of market dependent
factors, such as market-implied interest rates (as of mid-July 2024).
Target basis operating expenses
$16.1bn
(1H23: $15.0bn)
In 1H24, target basis cost growth was 7% compared with 1H23. This primarily
reflected higher investment spend, notably
in technology, inflationary pressures and
an increase in our performance-related pay accrual of $0.3bn, which reflects a
change in the phasing of the performance-related pay pool relative to 1H23.
In 2024, our cost growth guidance is approximately 5% compared with 2023,
on a target basis (2023: $31.0bn). This guidance 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.
Our target basis operating expenses for 2024 excludes the direct cost impact
of the disposals in France and Canada 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.
Capital and dividend policy
CET1 ratio
15.0%
Second interim dividend per ordinary share in respect of 2024
$0.10
At 30 June 2024, our CET1 capital ratio
was 15.0%, up 0.2 percentage points from 31 December 2023. This was driven by
a reduction in RWAs, partly offset by a reduction in our CET1 capital. We
intend to continue to manage the CET1 ratio to within our medium-term target
range of 14% to 14.5%.
Alongside our 1H24 results, the Board has announced a second interim dividend
of $0.10 per ordinary share. Given our returns trajectory, we continue to
target a dividend payout ratio target basis of 50% for 2024. For the purposes
of computing our dividend payout ratio target basis, we exclude from earnings
per share material notable items and related impacts. See page 60 for our
calculation of earnings per share.
Key financial metrics
Half-year to
Reported results 30 Jun 2024 30 Jun 2023
Profit before tax ($m) 21,556 21,657
Profit after tax ($m) 17,665 18,071
Cost efficiency ratio (%) 43.7 41.9
Net interest margin (%) 1.62 1.70
Basic earnings per share ($) 0.89 0.86
Diluted earnings per share ($) 0.88 0.86
Dividend per ordinary share (in respect of the period) ($)(1) 0.20 0.20
Alternative performance measures
Constant currency profit before tax ($m) 21,556 21,472
Constant currency cost efficiency ratio (%) 43.7 41.8
Constant currency revenue excluding notable items ($m) 33,721 33,075
Constant currency profit before tax excluding notable items ($m) 18,067 18,117
Constant currency revenue excluding notable items and strategic transactions 33,543 32,462
($m)
Constant currency profit before tax excluding notable items and strategic 17,975 17,969
transactions ($m)
Expected credit losses and other credit impairment charges (annualised) as % 0.23 0.28
of average gross loans and advances to customers (%)
Expected credit losses and other credit impairment charges (annualised) as % 0.22 0.26
of average gross loans and advances to customers, including held for sale (%)
Basic earnings per share excluding material notable items and related impacts 0.68 0.70
($)
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
Target basis operating expenses ($m) 16,052 14,983
At
Balance sheet 30 Jun 2024 31 Dec 2023
Total assets ($m) 2,975,003 3,038,677
Net loans and advances to customers ($m) 938,257 938,535
Customer accounts ($m) 1,593,834 1,611,647
Average interest-earning assets, year to date ($m) 2,097,866 2,161,746
Loans and advances to customers as % of customer accounts (%) 58.9 58.2
Total shareholders' equity ($m) 183,293 185,329
Tangible ordinary shareholders' equity ($m) 153,109 155,710
Net asset value per ordinary share at period end ($) 8.97 8.82
Tangible net asset value per ordinary share at period end ($) 8.35 8.19
Capital, leverage and liquidity
Common equity tier 1 capital ratio (%)(2) 15.0 14.8
Risk-weighted assets ($m)(2,3) 835,118 854,114
Total capital ratio (%)(2,3) 20.6 20.0
Leverage ratio (%)(2,3) 5.7 5.6
High-quality liquid assets (liquidity value, average) ($m)(3,4) 646,052 647,505
Liquidity coverage ratio (average) (%)(3,4,5) 137 136
Share count
Period end basic number of $0.50 ordinary shares outstanding (millions) 18,330 19,006
Period end basic number of $0.50 ordinary shares outstanding and dilutive 18,456 19,135
potential ordinary shares (millions)
Average basic number of $0.50 ordinary shares outstanding (millions) 18,666 19,478
For reconciliations of our reported results to a constant currency
basis, including lists of notable items, see page 40. For detail on other
alternative performance measures, including definitions and calculations, see
'Reconciliation of alternative performance measures' on pages 56 to 61.
1 Dividend per ordinary share for the half year to 30 June 2024
excludes the special dividend of $0.21 per ordinary share arising from the
proceeds of the sale of our banking business in Canada to Royal Bank of
Canada.
2 Unless otherwise stated, regulatory capital ratios and requirements
are based on the transitional arrangements of the Capital Requirements
Regulation in force at the time. References to EU regulations and directives
(including technical standards) should, as applicable, be read as references
to the UK's version of such regulation or directive, as onshored into UK law
under the European Union (Withdrawal) Act 2018, and as may be subsequently
amended under UK law.
3 Regulatory numbers and ratios are as presented at the date of
reporting. Small changes may exist between these numbers and ratios and those
subsequently submitted in regulatory filings. Where differences are
significant, we may restate in subsequent periods.
4 The liquidity coverage ratio is based on the average value of the
preceding 12 months.
5 We have enhanced our calculation processes during 1H24. As Group
LCR is reported as a 12-month average, the benefit of these changes will be
recognised incrementally over the coming year starting from 30 June 2024.
Basis of presentation
Impact of strategic transactions
To aid the understanding of our results, we separately disclose the impact of
strategic transactions classified as material notable items on the results of
the Group and our global businesses. Material notable items are a subset of
notable items and categorisation is dependent on the nature of each item in
conjunction with 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 on 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. See
page 42 for supplementary analysis of the impact of strategic transactions.
Constant currency performance
Constant currency performance is computed by adjusting reported results of
comparative periods for the effects of foreign currency translation
differences, which distort period-on-period comparisons.
We consider constant currency performance to provide useful information for
investors by aligning internal and external reporting, and reflecting how
management assesses period-on-period performance.
Notable items
We separately disclose 'notable items', which are components of our income
statement that management would consider as outside the normal course of
business and generally non-recurring in nature. From 1H24, we now disclose
'profit before tax excluding notable items' and 'revenue excluding notable
items'. We have introduced these new measures due to the significant impact of
notable items on the Group's results. We consider profit before tax excluding
notable items and revenue excluding notable items as useful information in
understanding period-on-period performance.
From 1H24, we also adjust our constant currency revenue and profit before tax
excluding notable items for the distorting income statement results when
calculating the impact of strategic transactions.
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.
The tables on pages 40 to 43 and pages 52 to 55 detail the effects of notable
items on each of our global business segments and legal entities during 1H24
and 1H23.
Management view of revenue on a constant currency basis
Our global business segment commentary includes tables that provide breakdowns
of revenue on a constant currency basis by major product. These reflect the
basis on which revenue performance of the businesses is assessed and managed.
Global Trade Solutions
During 2Q24, we renamed our Global Trade and Receivables Finance business as
Global Trade Solutions ('GTS'), to better reflect our broad suite of products
and the focus we place on serving our clients globally.
Reported results
1H24 compared with 1H23 - reported performance
Half-year to Variance
Reported results 1H24 vs 1H23
30 Jun 2024 30 Jun 2023 of which strategic transactions(1)
$m $m $m % $m
Net operating income before change in expected credit losses and other credit 37,292 36,876 416 1 (92)
impairment charges ('revenue')
ECL (1,066) (1,345) 279 21 27
Net operating income 36,226 35,531 695 2 (65)
Total operating expenses (16,296) (15,457) (839) (5) 388
Operating profit/(loss) 19,930 20,074 (144) (1) 323
Share of profit in associates and joint ventures 1,626 1,583 43 3 -
Profit before tax 21,556 21,657 (101) - 323
Tax income/(expense) (3,891) (3,586) (305) (9)
Profit/(loss) after tax 17,665 18,071 (406) (2)
Revenue excluding notable items 33,721 33,540 181 1
Profit before tax excluding notable items 18,067 18,392 (325) (2)
1 For details, see 'Impact of strategic transactions' on page 42.
Half-year to
30 Jun 2024 30 Jun 2023
Notable items $m $m
Revenue
Disposals, acquisitions and related costs 3,571 3,321
Fair value movements on financial instruments(1) - 15
Currency translation on revenue notable items - 91
Operating expenses
Disposals, acquisitions and related costs (101) (118)
Restructuring and other related costs 19 47
Currency translation on operating expenses notable items - 1
1 Fair value movements on non-qualifying hedges in HSBC Holdings.
Reported results continued
Reported profit
Reported profit before tax of $21.6bn
was stable compared with 1H23. The 1H24 period included a $4.8bn gain
following the completion of the disposal of our banking business in Canada,
inclusive of fair value gains on related hedging and recycling of related
reserves, partly offset by a $1.2bn impairment recognised following the
classification of our business in Argentina
as held for sale. It also included the non-recurrence of a $2.1bn reversal in
1H23 of an impairment relating to the sale of our retail banking operations in
France, which was subsequently reinstated in 4Q23 prior to completion, and a
$1.5bn gain recognised
on the acquisition of SVB UK.
Reported profit after tax of $17.7bn was $0.4bn or 2% lower compared with
1H23.
Reported revenue
Reported revenue of $37.3bn was $0.4bn or 1% higher. The increase included a
$4.8bn gain in 1H24 on the disposal of our banking business in Canada,
inclusive of fair value gains on related hedging and recycling of related
reserves, which was broadly offset by the period-on-period impacts of a $1.2bn
impairment recognised in 1H24 following the classification of our business in
Argentina as held for sale, the non-recurrence of a $2.1bn reversal in 1H23 of
an impairment relating to the sale of our retail banking operations in France,
and a $1.5bn gain recognised in 1H23 on the acquisition of SVB UK, as
described above.
The increase also reflected revenue growth in Equities and Securities
Financing in GBM as market sentiment improved, as well as higher wealth
revenue in WPB, with growth in all products.
Revenue also increased in Markets Treasury, driven by higher NII due to
reinvestments in our portfolio at higher yields, partly offset by a fall in
trading income due to lower interest rate volatility in Asia compared with
1H23. Markets Treasury revenue is allocated to our global businesses.
These factors were partly offset by a reduction in Global Foreign Exchange
revenue in GBM due to lower customer activity compared with a strong 1H23.
Credit and Lending revenue decreased in CMB, primarily driven by margin
compression, and in GBM, reflecting an enhanced focus on returns and weaker
client demand.
In Corporate Centre, there were also adverse fair value movements on financial
instruments in Central Treasury and structural hedges, a loss related to the
recycling of reserves following the completion of the sale of our business in
Russia and an impairment following the classification of our operations in
Armenia as held for sale.
Reported ECL
Reported ECL of $1.1bn were $0.3bn or 21% lower. 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, and also reflected 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 was offset by higher
charges in Mexico, reflecting unemployment trends and growth in our unsecured
portfolio.
Reported operating expenses
Reported operating expenses of $16.3bn were $0.8bn or 5% higher, 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 phasing of the performance-related pay pool
relative to 1H23. Our operating expenses also rose due to the incremental
costs from HSBC Innovation Banking ('IVB') of $0.1bn, the non-recurrence of a
$0.2bn impact from the reversal of historical asset impairments in 1H23, and
higher bank levies in 1H24.
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.
Reported share of profit from associates and JVs
Reported share of profit from associates and joint ventures of $1.6bn was $43m
or 3% higher. This included an increase in the share of profit from Saudi
Awwal Bank ('SAB').
Tax expense
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 2.0 percentage points by the
release of provisions for uncertain tax positions.
Reported profit after tax in 1H24
$17.7bn
(1H23: $18.1bn)
Reported net interest income in 1H24
$16.9bn
down 7% compared with 1H23.
Reported performance - 2Q24 vs 2Q23
Quarter ended Variance
Reported results 2Q24 vs 2Q23
30 Jun 2024 30 Jun 2023 31 Mar 2024 of which strategic transactions(1)
$m $m $m $m % $m
Net operating income before change in expected credit losses and other credit 16,540 16,705 20,752 (165) (1) (362)
impairment charges ('revenue')
ECL (346) (913) (720) 567 62 7
Net operating income 16,194 15,792 20,032 402 3 (355)
Total operating expenses (8,145) (7,871) (8,151) (274) (3) 335
Operating profit/(loss) 8,049 7,921 11,881 128 2 (20)
Share of profit in associates and joint ventures 857 850 769 7 1 -
Profit before tax 8,906 8,771 12,650 135 2 (20)
Tax income/(expense) (2,078) (1,726) (1,813) (352) (20)
Profit/(loss) after tax 6,828 7,045 10,837 (217) (3)
1 For details, see 'Impact of strategic transactions' on page 42.
Quarter ended
30 Jun 2024 30 Jun 2023 31 Mar 2024
Notable items $m $m $m
Revenue
Disposals, acquisitions and related costs (161) (241) 3,732
Currency translation on revenue notable items - 1 -
Operating expenses
Disposals, acquisitions and related costs (38) (57) (63)
Restructuring and other related costs 6 47 13
Currency translation on operating expenses notable items - - -
Reported profit
Reported profit before tax of $8.9bn was $0.1bn, or 2%, higher than in 2Q23,
reflecting lower ECL charges, which more than offset a reduction in revenue
and growth in operating expenses.
Reported profit after tax of $6.8bn was $0.2bn, or 3%, lower compared with
2Q23.
Reported revenue
Reported revenue fell by $0.2bn or 1% to $16.5bn and included an adverse
impact of foreign currency translation differences of $0.4bn. In addition, the
reduction reflected lower revenue following the 1Q24 completion of the
disposals of our retail banking business in France and the sale of our banking
business in Canada, as well as a loss related to the recycling of reserves
following the completion of the sale of our business in Russia.
The reduction in revenue was partly offset by growth in Markets and Securities
Services in GBM, notably from Securities Financing and Equities, and from
Wealth in WPB. In addition, there was an increase in revenue due to the
non-recurrence of 2Q23 fair value losses on the hedging of the proceeds from
the sale of our banking business in Canada.
There was also revenue growth in Markets Treasury, mainly from higher NII due
to reinvestments in our portfolio at higher yields. This revenue is allocated
to our global businesses.
Reported ECL
Reported ECL in 2Q24 of $0.3bn decreased by $0.6bn reflecting lower charges in
2Q24 in the commercial real estate sector in mainland China, compared with
2Q23, as well as a reduction in ECL charges in HSBC UK, notably due to a net
release of allowances in WPB and lower charges in CMB. In addition, the
decrease in ECL charges reflected the release of stage 3 allowances related to
a single GBM exposure in HSBC Bank plc.
Reported operating expenses
Reported operating expenses of $8.1bn were $0.3bn or 3% higher, driven by
growth in technology, including investment, inflationary impacts and a higher
performance-related pay accrual. It also included the non-recurrence of a
$0.2bn impact from the reversal of historical asset impairments in 2Q23. These
increases were partly offset by continued cost discipline, reductions
following the completion of disposals in Canada and France and a favourable
impact of foreign currency translation differences of $0.2bn.
Reported profit after tax in 2Q24
$6.8bn
(2Q23: $7.0bn)
Constant currency results
1H24 compared with 1H23 - constant currency basis
Results - on a constant currency basis Half-year to 1H24 vs 1H23
30 Jun 2024 30 Jun 2023 $m % of which strategic transactions(1 ) $m
$m
$m
Revenue 37,292 36,502 790 2 (172)
ECL (1,066) (1,317) 251 19 30
Total operating expenses (16,296) (15,244) (1,052) (7) 384
Operating profit 19,930 19,941 (11) - 242
Share of profit in associates and joint ventures 1,626 1,531 95 6 -
Profit before tax 21,556 21,472 84 - 242
1 For details, see 'Impact of strategic transactions' on
page 42.
Profit before tax of $21.6bn was stable on a constant currency basis as
revenue growth and lower ECL charges broadly offset growth in operating
expenses. Constant currency profit before tax excluding notable items of
$18.1bn was also stable compared with 1H23.
Revenue increased by $0.8bn or 2% on a constant currency basis and included a
$4.8bn gain on the disposal of our banking business in Canada, inclusive of
fair value gains on the hedging of the sales proceeds and recycling of related
reserves. This gain was broadly offset by the period-on-period impacts of a
$1.2bn impairment recognised in 1H24 following the classification of our
business in Argentina as held for sale, the non-recurrence of a $2.1bn
reversal in 1H23 of an impairment relating the sale of our retail banking
operations in France and a $1.6bn gain recognised on the acquisition of SVB
UK.
The remaining increase in revenue was due to higher customer activity in our
Wealth products in WPB, and in Equities and Securities Financing in GBM,
partly offset by a reduction in revenue in Global Foreign Exchange in GBM.
Constant currency revenue excluding notable items was $33.7bn, an increase of
2% compared with 1H23.
ECL were $0.3bn lower on a constant currency basis. 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 was offset by higher charges in Mexico, reflecting unemployment
trends and growth in our unsecured portfolio.
Operating expenses were $1.1bn higher on a constant currency basis, mainly
driven by higher technology spend and investment, the impacts of inflation and
a higher performance-related pay accrual. The increase also included a rise of
$0.1bn due to additional costs of IVB, the non-recurrence of a $0.2bn impact
from the reversal of historical asset impairments in 1H23, and higher bank
levies in 1H24. These factors were partly offset by the impact of our
continued cost discipline and reductions following the completion of disposals
in Canada and France.
Balance sheet and capital
Balance sheet strength
Total assets of $3.0tn were $64bn lower than at 31 December 2023 on a reported
basis, and included the adverse impact of foreign currency translation
differences of $41bn. On a constant currency basis, total assets decreased by
$23bn, reflecting lower assets held for sale following the completion of the
sales of our retail banking operations in France and our banking business in
Canada in 1H24. This was partly offset by higher trading asset balances and an
increase in financial investments.
Reported loans and advances to customers of $0.9tn remained stable compared
with 31 December 2023, and grew by $12bn on a constant currency basis. This
included an increase in CMB, notably in HSBC Bank plc, mainland China and
India. In addition, mortgage balances increased in HSBC UK in WPB.
Reported customer accounts of $1.6tn decreased by $18bn. On a constant
currency basis, customer accounts increased by $3bn, notably in GBM,
reflecting growth in time deposit balances in Asia. The increase in GBM also
included a large short-term deposit from a single corporate customer.
Loans and advances to customers as a percentage of customer accounts were 59%,
compared with 58% at 31 December 2023.
Distributable reserves
The distributable reserves of HSBC Holdings at 30 June 2024 were $13.7bn,
compared with $30.9bn at 31 December 2023. The decrease was primarily driven
by dividends on ordinary shares and additional tier 1 coupon distributions of
$12.2bn and share buy-back payments of $5bn. The profits generated in HSBC
Holdings of $9.7bn in 1H24 will be reflected in the distributable reserves as
at 31 December 2024.
Capital position
We actively manage the Group's capital position to support our business
strategy and meet our regulatory requirements at all times, including under
stress, while optimising our capital efficiency. To do this, we monitor our
capital position using a number of measures. These include our capital ratios
and the impact on our capital ratios as a result of stress.
Our CET1 ratio at 30 June 2024 was 15.0%, up from 14.8% at 31 December 2023,
driven by a reduction in RWAs, partly offset by a reduction in our CET1
Capital.
Liquidity position
We actively manage the Group's liquidity and funding to support our business
strategy and meet regulatory requirements at all times, including under
stress. To do this, we monitor our position using a wide set of measures,
including the liquidity coverage ratio ('LCR') and the net stable funding
ratio ('NSFR'). During 1H24, we enhanced our liquidity consolidation process
and revised the associated provisions originally recognised to address
historical limitations. As Group LCR is reported as a 12-month average, the
benefit of these changes will be recognised incrementally over the coming year
starting from 30 June 2024. The average high-quality liquid assets ('HQLA') we
held was $646.1bn. This excludes HQLA in legal entities which are not
transferable due to local restrictions. For further details, see page 103.
Common equity tier 1 ratio
(%)
15.0%
(31 December 2023: 14.8%)
Wealth and Personal Banking
We serve around 40 million customers globally, including
over 7 million who are international, from retail customers
to ultra high net worth individuals and their families.
Contribution to Group profit before tax
Calculation is based on profit before tax of our global businesses excluding
Corporate Centre.
To meet our customers' needs, we offer a full suite of products and services
across transactional banking, lending and wealth.
Results - on a constant currency basis Half-year to 1H24 vs 1H23
30 Jun 2024 30 Jun 2023 $m % of which strategic
$m
$m
transactions(2)
$m
Net operating income 14,312 16,095 (1,783) (11) (2,389)
ECL (476) (484) 8 2 5
Operating expenses (7,406) (7,020) (386) (5) 363
Share of profit in associates and JVs 28 35 (7) (20) -
Profit before tax 6,458 8,626 (2,168) (25) (2,021)
RoTE (annualised)(1) (%) 30.6 43.1
1 RoTE (annualised) in 1H23 included a 10.5 percentage point favourable
impact of the reversal of the impairment
losses relating to the planned sale of our retail banking
operations in France.
2 Impact of strategic transactions classified as material notable items.
For details, see 'Impact of strategic transactions'
on page 42.
WPB continued to invest in our key strategic priorities of expanding our
Wealth franchise in Asia, developing our transactional banking and lending
capabilities, and addressing our customers' international needs.
Performance in 1H24 reflected strong growth in Wealth, with double digit
growth in Private Banking non-interest income and Retail investment
distribution as well as growth in asset management and life insurance. We also
saw moderate balance sheet growth, growth in our invested assets and wealth
deposits. The results included a broadly stable ECL charge and growth in
operating expenses.
Divisional highlights
14%
Growth in wealth non-interest income compared with 1H23.
Constant currency profit before tax ($bn)
$6.5bn
Half-year to
16%
Growth in the contractual service margin in insurance since 1H23, up to
$12.2bn.
Constant currency net operating income ($bn)
$14.3bn
Half-year to
Management view of revenue Half-year to 1H24 vs 1H23
30 Jun 2024 30 Jun 2023 $m % of which strategic
$m
$m
transactions(3)
$m
Wealth 4,336 3,888 448 12 (81)
- investment distribution 1,436 1,273 163 13 (63)
- Global Private Banking 1,327 1,147 180 16
-
net interest income 598 585 13 2
-
non-interest income 729 562 167 30
-
- life insurance 912 851 61 7
-
- asset management 661 617 44 7 (18)
Personal Banking 9,689 10,160 (471) (5) (257)
- net interest income 9,002 9,508 (506) (5) (216)
- non-interest income 687 652 35 5 (41)
Other(1) 287 2,047 (1,760) (86) (2,051)
- of which: reversal of impairment loss relating to the planned sale of our 54 2,058 (2,004) >(100) (2,004)
retail banking operations in France
Net operating income(2) 14,312 16,095 (1,783) (11) (2,389)
1 'Other' includes Markets Treasury, HSBC Holdings interest expense
and hyperinflation. It also includes the distribution and manufacturing (where
applicable) of retail and credit protection insurance, disposal gains
and other non-product-specific income.
2 'Net operating income' means net operating income before change in
expected credit losses and other credit impairment charges (also referred to
as 'revenue').
3 Impact of strategic transactions classified as material notable items.
For details, see 'Impact of strategic transactions' on page 42.
Half-year to
30 Jun 2024 30 Jun 2023
Notable items $m $m
Revenue
Disposals, acquisitions and related costs 55 2,034
Currency translation on revenue notable items - 24
Operating expenses
Disposals, acquisitions and related costs - (23)
Restructuring and other related costs 4 -
Currency translation on operating expenses notable items - (1)
Financial performance
Profit before tax of $6.5bn was $2.2bn lower than in 1H23 on a constant
currency basis. The reduction was driven by the non-recurrence of a $2.1bn
reversal in 1H23 of an impairment relating to the sale of our retail banking
operations in France, although it was subsequently reinstated in 4Q23 and the
sale completed on 1 January 2024. In addition, the decrease included the
non-recurrence of $0.1bn of profit before tax in 1H23 from our banking
business in Canada, which we sold in 1Q24. NII was stable compared with 1H23
and fee income increased 10%. The results included a broadly stable ECL charge
and a 5% growth in operating expense on a constant currency basis.
Revenue of $14.3bn was $1.8bn or 11% lower on a constant currency basis. This
included the impact of a reversal of an impairment relating to the planned
sale of our retail banking operations in France included within 'Other'.
Wealth revenue increased $0.4bn or 12% as we continue to accelerate our wealth
expansion. This included double digit growth in investment distribution and in
Global Private Banking, as well as revenue growth in asset management and life
insurance. This was partly offset by a reduction in Personal Banking NII of
$0.5bn, mainly due to the impact of the disposals in France and Canada
mentioned above and margin compression, partly offset by balance sheet growth.
In Wealth, revenue of $4.3bn was $0.4bn or 12% higher.
- Global Private Banking revenue was $0.2bn or 16% higher due to a
strong performance in brokerage and trading in our entities in Asia.
- Investment distribution revenue was $0.2bn or 13% higher, driven
by mutual funds, structured products and bonds due to the combination of the
execution of our strategy and improved market sentiment, notably in our
entities in Asia.
- Life insurance revenue was $0.1bn or 7% higher. The growth
reflected an increase in contractual service margin ('CSM') release of $0.1bn,
largely due to growth in the CSM balances. New business CSM of $1.3bn was 77%
higher, mainly in Hong Kong.
- Asset management revenue was $44m or 7% higher, driven by a 12%
increase in assets under management and positive market movements. This was
partly offset by a reduction in revenue due to the sale of our banking
business in Canada.
- In Personal Banking, revenue of $9.7bn was down $0.5bn or 5%.
- Net interest income was $0.5bn or 5% lower due to the impact of
the sales in France and Canada and narrower margins. Compared with 1H23,
lending balances fell due to the sale of our retail banking operations in
France partly offset by
-
growth in HSBC UK, and in our entities in Hong Kong, the US and Mexico.
Mortgage lending rose in HSBC UK and in our entities in Hong Kong and the US.
Compared with 1H23, unsecured lending increased, notably in HSBC UK, in our
entities in Asia and in Mexico, partly offset by a reduction due to the sale
of our retail banking operations in France. Deposit balances fell by $9.2bn,
mainly due to the sale of our retail banking operations in France, and
declines in HSBC UK balances due to competition on savings products and cost
of living pressures. These were partly offset by growth in our main legal
entities in mainland China, Australia, Taiwan and the Channel Islands.
ECL of $0.5bn were broadly stable compared with 1H23 on a constant currency
basis. The 1H24 ECL benefited from allowance releases in HSBC UK, as portfolio
performance remained resilient, offset by higher charges in Mexico driven by
unemployment trends and portfolio volume increases.
Operating expenses of $7.4bn were 5% higher on a constant currency basis,
reflecting continued investment in Wealth in Asia, higher technology spend and
investment, a higher performance-related pay accrual, and from the impact of
inflation. These were partly offset by continued cost discipline and the
impact of the disposals in France and Canada.
Commercial Banking
We operate in 50 markets, serving around 1.2(1) million
customers, ranging from small enterprises to large companies
operating globally, including those in the new innovation economy.
Contribution to Group profit before tax
Calculation is based on profit before tax of our global businesses excluding
Corporate Centre.
We partner with businesses around the world, supporting every stage of their
growth, their international ambitions and their sustainability transitions. We
deliver value to our clients through our international network, financing
strength, digital capabilities and our universal banking capabilities,
including our industry leading global trade and payments solutions.
We have continued to strengthen our transaction banking capabilities, which
are at the heart of our international proposition. We have been recognised as
the World's Best Bank for Payments and Treasury (Euromoney
Awards for Excellence 2024) and our multi-year investment in our payments
capabilities aims to help clients operate more efficiently, navigate
transformation and improve risk management.
CMB performance in 1H24 remained solid, with revenue benefiting from the
higher interest rates environment, growth in transaction banking and higher
collaboration revenue. The growth was offset by the non-recurrence of a gain
recognised in 1H23 on the acquisition of SVB UK. The increase in operating
expenses reflected our committed investment in IVB and technology.
Divisional highlights
7%
Increase in CMB multi-jurisdictional client revenue compared with 1H23.
Constant currency profit before tax
($bn)
$6.5bn
Half-year to
c.600
HSBC Innovation Banking has onboarded almost 600 new to bank customers in
1H24.
Constant currency net operating income
($bn)
$10.9bn
Half-year to
Management view of revenue Half-year to 1H24 vs 1H23
30 Jun 2024 30 Jun 2023 $m % of which strategic
$m
$m
transactions(4)
$m
Global Trade Solutions 970 995 (25) (3)
(11)
Credit and Lending 2,650 2,694 (44) (2)
(41)
Global Payments Solutions 6,016 5,857 159 3
(32)
GBM products, Insurance and Investments, and Other(1) 1,260 2,540 (1,280) (50) (1,537)
- of which: share of revenue from Markets and Securities Services and 676 655 21 3
Banking products
- of which: gain on the acquisition of Silicon Valley Bank UK Limited - 1,572 (1,572) 100 (1,572)
Net operating income(2) 10,896 12,086 (1,190) (10) (1,621)
- of which: transaction banking(3) 7,468 7,342 126 2
1 Includes a gain on the acquisition of SVB UK and CMB's share of
revenue from the sale of Markets and Securities Services and Banking products
to CMB customers. GBM's share of revenue from the sale of these products to
CMB customers is included within the corresponding lines of the GBM management
view of revenue. Also includes allocated revenue from Markets Treasury, HSBC
Holdings interest expense and hyperinflation.
2 'Net operating income' means net operating income before change in
expected credit losses and other credit impairment charges (also referred to
as 'revenue').
3 Transaction banking comprises Global Trade Solutions, Global
Payments Solutions and CMB's share of Global Foreign Exchange (shown within
'share of revenue from Markets and Securities Services and Banking products').
4 Impact of strategic transactions classified as material notable
items. For details, see 'Impact of strategic transactions' on page 42.
Half-year to
30 Jun 2024 30 Jun 2023
Notable items $m $m
Revenue
Disposals, acquisitions and related costs - 1,507
Currency translation on revenue notable items - 65
Operating expenses
Disposals, acquisitions and related costs 2 (15)
Restructuring and other related costs 3 29
Currency translation on operating expenses notable items - -
Financial performance
Profit before tax of $6.5bn was $1.5bn lower than in 1H23 on a constant
currency basis. This was primarily due to the non-recurrence of a $1.6bn gain
recognised in 1H23 on the acquisition of SVB UK, partly offset by incremental
IVB revenue following the acquisition of SVB UK, and a $0.1bn increase in net
interest income in Global Payments Solutions ('GPS') and lower ECL charges.
The decrease also reflected growth in operating expenses.
Revenue of $10.9bn was $1.2bn or 10% lower on a constant currency basis. This
was primarily due to the non-recurrence of a $1.6bn gain recognised in 1H23 on
the acquisition of SVB UK.
- In GPS, revenue rose by $0.2bn, with growth in most of our legal
entities, due to wider margins from interest rate rises and repricing actions,
while average balances decreased following the sale of our Canada banking
business. There was also a 2% increase in fee income as business initiatives
drove growth in transaction banking including higher volumes, domestic and
international payments, mainly in our legal entities in Europe and Asia,
partly offset by the sale of our Canada banking business.
- In Global Trade Solutions ('GTS'), revenue was down 3%, driven
by lower average balances reflecting the higher rates environment and the
softer trade cycle, notably in our main legal entity in Asia.
- In Credit and Lending, revenue decreased by $44m or 2%, due to
the sale of our Canada business, margin compression and lower balances
reflecting softer demand from customers, notably in Asia.
- In GBM products, Insurance and Investments, and Other, revenue
decreased by $1.3bn, largely due to the non-recurrence of a $1.6bn gain
recognised in 1H23 on the acquisition of SVB UK, and the adverse impacts of
hyperinflationary accounting of $0.2bn. These increases were partly offset by
higher revenues from GBM collaboration, Markets Treasury income and interest
income on own capital.
ECL of $0.6bn were $0.1bn lower compared with 1H23 on a constant currency
basis. The 1H24 period included updates to credit assumptions in HSBC UK, and
our legal entities in Asia and the Middle East, partly offset by new stage 3
charges in our entity in the Middle East relating to the construction sector.
In addition, there were lower charges in relation to the commercial real
estate sector in mainland China compared with 1H23.
Operating expenses of $3.9bn were $0.4bn higher on a constant currency basis,
largely driven by the adverse impact of hyperinflationary accounting of
$0.1bn, incremental costs in IVB of $0.1bn following the acquisition of SVB
UK, ongoing investment in technology and inflationary impacts. These increases
were partly mitigated by the impact of our continued cost discipline.
Global Banking and Markets
We support multinational corporates, financial institutions and institutional
clients, as well as public sector and government bodies.
Contribution to Group profit before tax
Calculation is based on profit before tax of our global businesses excluding
Corporate Centre.
We are a leader in facilitating global trade and payments, particularly into
and within Asia and the Middle East, helping to enable our clients in the East
and West to achieve their objectives by accessing our expertise and
geographical reach. Our product specialists deliver a comprehensive range of
transaction banking, financing, capital markets and advisory, and risk
management services.
GBM delivered a strong performance in 1H24, achieving an annualised RoTE of
14.0%. On a constant currency basis, we grew revenue by 5%, while costs grew
by 3%, even as we continued to invest in technology and people to improve
operating resilience and support future revenue growth. We remain focused on
areas of strategic priority across Global Banking and Markets. We also had a
reduction in ECL compared with 1H23.
Divisional highlights
14.0%
Return on average tangible equity (annualised), down 0.2 percentage points
compared with 1H23.
Constant currency profit before tax
($bn)
$3.8bn
Half-year to
43%
Increase in Securities Financing revenue compared with 1H23.
Constant currency net operating income
($bn)
$8.7bn
Half-year to
Management view of revenue Half-year to 1H24 vs 1H23
30 Jun 2024 30 Jun 2023 $m % of which strategic
$m
$m
transactions(6)
$m
Markets and Securities Services 4,824 4,628 196 4 (16)
- Securities Services 1,136 1,143 (7) (1) -
- Global Debt Markets 554 592 (38) (6) (2)
- Global Foreign Exchange 1,968 2,166 (198) (9) (12)
- Equities 446 235 211 90 -
- Securities Financing 731 512 219 43 (1)
- Credit and funding valuation adjustments (11) (20) 9 45 (1)
Banking 4,300 4,230 70 2 (39)
- Global Trade Solutions 347 334 13 4 (4)
- Global Payments Solutions 2,246 2,173 73 3 (23)
- Credit and Lending 888 981 (93) (9) (6)
- Investment Banking(1) 544 561 (17) (3) (3)
- Other(2) 275 181 94 52 (3)
GBM Other (382) (537) 155 29 4
- Principal Investments 29 13 16 >100 -
- Other(3) (411) (550) 139 25 4
Net operating income(4) 8,742 8,321 421 5 (51)
- of which: transaction banking(5) 5,697 5,816 (119) (2) (39)
1 From 1 January 2024, we renamed 'Capital Markets and Advisory' as
'Investment Banking' to better reflect our purpose and offering.
2 Includes portfolio management, earnings on capital and other capital
allocations on all Banking products.
3 Includes notional tax credits and Markets Treasury, HSBC Holdings
interest expense and hyperinflation.
4 'Net operating income' means net operating income before change in
expected credit losses and other credit impairment charges (also referred to
as 'revenue').
5 Transaction banking comprises Securities Services, Global Foreign
Exchange (net of revenue shared with CMB), GTS and GPS.
6 Impact of strategic transactions classified as material notable items.
For details, see 'Impact of strategic transactions' on page 42.
Half-year to
30 Jun 2024 30 Jun 2023
Notable items $m $m
Revenue
Disposals, acquisitions and related costs (14) -
Currency translation on revenue notable items - -
Operating expenses
Disposals, acquisitions and related costs - 3
Restructuring and other related costs 3 -
Currency translation on operating expenses notable items - -
Financial performance
Profit before tax of $3.8bn was $0.4bn or 12% higher than in 1H23 on a
constant currency basis. This was driven by an increase in revenue of $0.4bn
or 5%, notably from strong performances in Equities and Securities Financing.
In addition, ECL charges decreased compared with 1H23, while operating
expenses increased by $0.1bn.
Revenue of $8.7bn was $0.4bn or 5% higher on a constant currency basis.
In Markets and Securities Services, revenue increased by $0.2bn or 4%.
- In Securities Services, revenue was stable as strong underlying
business performance was offset by an outflow of deposit balances in
Argentina.
- In Global Debt Markets, revenue decreased by $38m or 6% as
client demand for structured financing offset an uncertain trading environment
in rates.
- In Global Foreign Exchange, revenue fell by $0.2bn or 9%
compared with a strong performance in 1H23, driven by low volatility and
margin compression.
-
In Equities, revenue rose by $0.2bn or 90%, reflecting improved market
sentiment and strong client demand for wealth products. In contrast, 1H23
reflected considerably weaker performance due to lower volume and volatility.
- In Securities Financing, revenue grew by $0.2bn or 43%, driven
by US Prime client on-boarding and strong institutional financing demand.
In Banking, revenue increased by $0.1bn or 2%.
- In GPS, revenue increased by $0.1bn due to wider spreads and
higher fees, reflecting continued growth in cross-border payments and pricing
actions.
- Investment Banking revenue, which includes Issuer Services,
decreased by $17m or 3%, from a strong 1H23 and amid lower Issuer Services
balances.
- Credit and Lending revenue decreased by $0.1bn or 9%, due to
continued muted client demand.
In GBM, Other revenue increased by $0.2bn, reflecting higher Markets Treasury
revenue, which is allocated to the global businesses.
ECL were $11m, compared with charges of $0.1bn in 1H23 on a constant currency
basis. The 1H24 period included a release related to a single client.
Operating expenses of $4.9bn increased by $0.1bn or 3% on a constant currency
basis, due to the impact of higher inflation and a higher performance-related
pay accrual relative to 1H23, partly offset by continued focus on cost
management.
Corporate Centre
The results of Corporate Centre primarily comprise the financial impact
of certain acquisitions and disposals and the share of profit from our
interests
in our associates and joint ventures. It also includes Central Treasury,
stewardship costs and consolidation adjustments.
Corporate Centre performance in 1H24 primarily reflected the financial impact
of certain acquisitions and disposals, including the gain on sale of our
banking business in Canada and an impairment relating to the planned disposal
of our business in Argentina.
Financial performance
Profit before tax of $4.8bn increased by $3.3bn compared with 1H23, on a
constant currency basis.
Revenue of $3.3bn was $3.3bn higher on a constant currency basis, primarily
due to the impact of notable items. In 1H24, these included a $4.8bn gain on
the sale of our banking business in Canada, inclusive of fair value gains on
related hedging and recycling of related reserves. These also included an
impairment of $1.2bn recognised upon the classification of our business in
Argentina as held for sale, and a loss of $0.1bn related to the recycling of
reserves following the completion of the sale of our business in Russia. In
1H23, notable items included a favourable $0.1bn impact following the reversal
of an impairment related to the sale of our France retail banking operations.
The increase in revenue was partly offset by adverse fair value movements on
financial instruments in Central Treasury and structural hedges, and an
impairment following the classification of our operations in Armenia as held
for sale.
Operating expenses increased by $0.1bn on a constant currency basis, including
a charge in the US related to the incremental costs of the FDIC special
assessment, as well as an increase in costs associated with disposals.
Share of profit from associates and joint ventures of $1.6bn rose by $0.1bn or
7% on a constant currency basis, which included an increase in share of profit
from SAB.
Results - on a constant currency basis Half-year to 1H24 vs 1H23
30 Jun 2024 30 Jun 2023 $m % of which strategic
$m
$m
transactions(1)
$m
Net operating income 3,342 - 3,342 - 3,889
ECL (6) (3) (3) (100) -
Operating expenses (111) 10 (121) >(100) (21)
Share of profit in associates and JVs 1,597 1,497 100 7 -
Profit before tax 4,822 1,504 3,318 >100 3,868
RoTE (annualised) (%) 20.7 8.0
1 Impact of strategic transactions classified as material notable items.
For details, see 'Impact of strategic transactions' on
page 42.
Management view of revenue Half-year to 1H24 vs 1H23
30 Jun 2024 30 Jun 2023 $m % of which strategic
$m $m transactions(6)
$m
Central Treasury(1) (26) 81 (107) >(100) -
Legacy portfolios 14 (11) 25 >100 -
Other(2,3) 3,354 (70) 3,424 >100 3,889
- of which: gain on the sale of our banking business in Canada and 4,795 (288) 5,083 >(100) 5,083
associated hedges(4)
- of which: impairment loss relating to the planned sale of our business in (1,191) - (1,191) 100 (1,191)
Argentina
Net operating income(5) 3,342 - 3,342 n/a 3,889
1 Central Treasury comprises valuation differences on issued long-term
debt and associated swaps and fair value
movements on financial instruments.
2 Other comprises gains and losses on certain planned business
disposals, funding charges on property and technology
assets, revaluation gains and losses on investment properties and
property disposals, as well as consolidation
adjustments and other revenue items not allocated to global
businesses.
3 Revenue from Markets Treasury, HSBC Holdings net interest expense and
hyperinflation are allocated out to the global
businesses, to align them better with their revenue and expense.
The total Markets Treasury revenue component of
this allocation for 1H24 was $886m (1H23: $362m).
4 Includes fair value gains/(losses) on the foreign exchange hedging of
the proceeds of the sale and the recycling of
related reserves.
5 'Net operating income' means net operating income before change in
expected credit losses and other credit
impairment charges (also referred to as 'revenue').
6 Impact of strategic transactions classified as material notable items.
For details, see 'Impact of strategic transactions' on
page 42.
Notable items Half-year to
30 Jun 2024 30 Jun 2023
$m
$m
Revenue
Disposals, acquisitions and related costs 3,530 (220)
Fair value movements on financial instruments - 15
Currency translation on revenue notable items - 2
Operating expenses
Disposals, acquisitions and related costs (103) (83)
Restructuring and other related costs 9 18
Currency translation on operating expenses notable items - 2
Risk overview
Active risk management helps us to achieve our strategy, serve
our customers and communities and grow our business safely.
Key risk appetite metrics
Component Measure Risk appetite 1H24
Capital CET1 ratio - end point basis ≥13.0% 15.0%
Change in expected credit losses and other credit impairment charges Change in expected credit losses and other credit impairment charges as a % of ≤0.50% 0.22%
advances: Retail (WPB)
Change in expected credit losses and other credit impairment charges as a % of ≤0.45% 0.38%
advances: Wholesale (GBM, CMB)
Managing risk
HSBC's operations are subject to changes in economic and financial conditions
as well as geopolitical developments that could have a material impact on the
Group's operations and financial risks. We continuously review these factors
in all of our key markets and conduct regular reviews of economic risks and
expectations.
The global economy grew more quickly than expected in the first half of 2024,
with the US, China and Europe growing faster than forecast in the first
quarter. Activity indicators in the second quarter of 2024 also signalled
continued growth. This broad resilience in economic activity means that a
slowdown in inflation has been uneven. While headline inflation has trended
down, services prices have proved more persistent. As a consequence, market
expectations for central bank interest rate cuts have been volatile, although
the European Central Bank ('ECB') cut interest rates in June and the US
Federal Reserve and Bank of England are expected to follow in the second half
of 2024.
Geopolitical tensions could impact the Group's operations and its risk profile
and are a source of significant uncertainty, including the ongoing
Russia-Ukraine and Israel-Hamas wars, as well as the potential for further
escalation within the Middle East region. The attacks on commercial shipping
in the Red Sea continued to contribute to higher shipping costs. It was
recently reported that these attacks have caused Egypt's Suez Canal a
significant loss in revenue due to a lower number of vessels using the route.
Sanctions and trade restrictions require close monitoring owing to increased
complexity and the frequency of changes associated with them. The US, the UK
and the EU, as well as other countries, have imposed significant sanctions and
trade restrictions against Russia, with new sanctions added during 2024. The
US and UK also announced additional sanctions against Iran in the first half
of 2024 in response to attacks against Israel, and further sanctions could be
imposed in response to additional escalation.
As noted in the Annual Report and Accounts 2023, the new 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. 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. Additionally, the imposition of
such sanctions under the new regime against any non-US HSBC entity could
result in significant adverse commercial, operational and reputational
consequences for HSBC.
Strategic competition has the potential to impact the Group's operations and
financial risks. The relationships between China and several other countries,
including the US and the UK, remain complex. The US, the UK, the EU and other
countries have imposed various sanctions and trade restrictions on Chinese
individuals and companies in response to earlier measures, China has imposed
its own sanctions, trade restrictions and law enforcement measures on persons
and entities in other countries.
Supply chains remain vulnerable to a deterioration in these bilateral
relationships and this has resulted in efforts to de-risk certain sectors,
with the reshoring of manufacturing activities, but the approach of countries
to strategic competition and engagement with China continues to develop.
Further sanctions or counter-sanctions may adversely affect the Group,
its customers and various markets.
Fiscal policy, deficits and public indebtedness also influence our risk
profile. Public spending as a proportion of GDP is likely to remain high for
most of our key economies with elevated spending focused on social welfare,
defence and climate transition initiatives. Against a backdrop of slower
economic growth and expectations for a high interest rate environment
continuing for longer than previously anticipated, elevated borrowing costs
could increase and adversely impact the fiscal responses of highly-indebted
sovereigns.
Political changes may also have implications for policy and could consequently
affect our business and its risks. 2024 is scheduled to be the biggest
election year in history with more than half the world's population having the
opportunity to go to the polls, including eight of the ten most populous
countries in the world. This may continue to result in uncertainty in some
markets in response to shifting domestic and foreign policy priorities. The
recently concluded UK election has seen a change in government, whilst the
French elections led to a hung parliament, with a new government to be formed
in the second half of 2024. Any changes in government policies could impact
the Group's business and risks. We continue to closely monitor these
developments.
The real estate sector faces challenges in many of our major markets with
weakness observed in both residential and commercial real estate investment
prices and sentiment. The Hong Kong commercial real estate market has softened
due to high vacancy rates and the prolonged higher interest rate environment,
leading to a halt in commercial land sales. While mainland China GDP is
tracking close to official targets, its commercial real estate sector remained
subdued, without signs of a sustained recovery. We continue to closely
monitor, and seek to proactively manage, the potential implications of the
real estate downturn for our customers and commercial real estate portfolios.
All the above risks could have an impact on our retail customers and we
continue to closely monitor the impact of inflation and the increased cost of
living to offer the right support to our customers in line with regulatory,
government and wider stakeholder expectations.
Managing risk continued
We engage closely with regulators to help ensure that we continue to meet
their expectations regarding financial institutions' activities to support
economies during times of market volatility.
Our approach to macroeconomic scenarios in relation to IFRS 9 'Financial
Instruments' remained unchanged in the first half of 2024 compared with the
corresponding period in 2023. Adjustments to the design and narrative of the
most severe downside scenario have been made to reflect increased geopolitical
risks.
In addition, management adjustments to expected credit losses and other
impairment charges ('ECL') were applied to reflect ongoing uncertainty in
certain sectors, driven by inflation, interest rate sensitivity and other
macroeconomic risks, which were not fully captured by our models.
We continue to monitor, and seek to manage, the potential implications of all
the above developments on our customers and our business. While the financial
performance of our operations varies by geography, our balance sheet and
liquidity remained strong.
For further details of our Central and other scenarios,
see 'Measurement uncertainty and sensitivity analysis of ECL
estimates' on page 69.
Our risk appetite
Our risk appetite defines our desired forward-looking risk profile and informs
the strategic and financial planning process. It provides an objective
baseline to guide strategic decision making, helping to ensure that planned
business activities provide an appropriate balance of return for the risk
assumed, while remaining within acceptable risk levels. Risk appetite supports
senior management in allocating capital, funding and liquidity optimally to
finance growth, while monitoring exposure to non-financial risks.
At 30 June 2024, our CET1 ratio and ECL charges were within their defined risk
appetite thresholds. Our CET1 capital ratio at 30 June 2024 was 15.0%, up 0.2
percentage points from 31 December 2023, reflecting a capital increase from
strategic transactions, including the gain on disposal of our Canada banking
business adjusted for the $0.21 per share special dividend, offset by an
increase in RWAs mainly from asset size movements and model updates, excluding
the reduction from our disposals in France and Canada. For further details of
the key drivers of the overall CET1 ratio, see 'Own funds disclosure' on page
100. Wholesale ECL charges during the year reflect the default of several
mainland China and Hong Kong commercial real estate developer clients.
Wholesale and Retail ECL charges were within appetite due to relatively low
overall defaults.
Stress tests
We regularly conduct stress tests to assess the resilience of our balance
sheet and our capital adequacy, as well as to provide actionable insights into
how key elements of our portfolios may behave during a crisis. We use the
outcomes to calibrate our risk appetite and to inform our strategic and
financial plans, helping to improve the quality of management's decision
making. The results from the stress tests also drive recovery and resolution
planning to help enhance the Group's financial stability under various
macroeconomic scenarios. The selection of stress scenarios is based upon the
identification and assessment of our top risks, emerging risks and our risk
appetite.
The Prudential Regulation Authority ('PRA') cancelled the 2024 Annual Cyclical
Stress testing exercise and instead commenced a Desk Based Stress Test
exercise, which will use PRA models and in-house expertise to test the
resilience of the UK banking system against more than one adverse
macroeconomic scenario. HSBC has provided 2023 year-end data to support this.
The results of this exercise across firms will be published in aggregate only.
The PRA intends to return to a concurrent exercise in 2025, involving the
submission of stressed projections and will provide further details later this
year.
During the first half of 2024, the Group-wide internal stress test commenced
and will be used to gauge the Group's capital adequacy alongside testing of
the Group's strategy. The concluding results of the Group-wide internal stress
test will provide updates to the Group Risk Committee in support of its
assessment of the adequacy of HSBC Holdings' capital levels. Additionally, the
underlying conclusions drawn from this exercise will also be included in the
Group internal capital adequacy assessment process ('ICAAP').
Climate risk
Climate risk relates to the financial and non-financial impacts that may arise
as a consequence of climate change and the move to a net zero economy. Climate
risk can impact us either directly or through our relationships with clients.
These include the potential risks arising as a result of our net zero
ambition, which could lead to reputational concerns, and potential legal
and/or regulatory action if we are perceived to have misled stakeholders on
our business activities or if we fail to achieve our stated net zero targets.
We seek to manage climate risk across all our businesses in line with our
Group-wide risk management framework and are incorporating climate
considerations within our traditional risk types.
For further details of our approach to climate risk management, see
'Climate risk' on page 221 of our Annual Report and Accounts 2023.
For further details of our TCFD disclosures, see the 'ESG review' on
pages 69 to 74 of our Annual Report and Accounts 2023.
Climate stress tests
To support the requirements for assessing the impacts of climate change, we
continue to develop a set of capabilities to execute climate stress testing
and scenario analysis. These are used to help improve our understanding of
climate risks and opportunities in our portfolio for managing risk and
business decision making.
We intend to run further internal climate scenario analyses, including
short-term scenarios in the second half of 2024. The outcomes will be used to
identify challenges and opportunities with regards to our net zero strategy,
inform capital planning and risk appetite, as well as to respond to climate
stress tests for regulators, including the Hong Kong Monetary Authority.
For further details of our approach to climate risk stress testing, see
'Insights from scenario analysis' on page 225 of our Annual Report and
Accounts 2023.
Our operations
We remain committed to investing in the reliability and resilience of our IT
systems and critical services, including those provided by third parties,
which support all parts of our business. We do so to help protect our
customers, affiliates and counterparties, and to help ensure that we minimise
any disruption to services. In our approach to defending against these
threats, we invest in business and technical controls to help us prevent,
detect, manage and recover from issues in a timely manner within our risk
appetite.
We are working to ensure that we balance the opportunity AI presents to
accelerate delivery of our strategy, with the need to ensure appropriate
controls are in place to mitigate the associated risks. HSBC is committed to
using AI ethically and responsibly. HSBC's Principles for the Ethical Use of
Data and AI are available at
www.hsbc.com/who-we-are/businesses-and-customers/hsbc-and-ai. We continue to
refine and embed governance and controls into our risk management processes to
help meet the Group's needs and increasing regulatory expectations for when AI
is both developed internally and enabled through third parties.
We continue to focus on improving the quality and timeliness of the data used
to inform management decisions, and are progressing with the implementation of
our strategic and regulatory change initiatives to help deliver the right
outcomes for our customers, people, investors and communities.
For further details of our risk management framework and
risks associated with our banking and insurance manufacturing operations, see
pages 137 and 145 of our Annual Report and Accounts 2023, respectively.
Top and emerging risks
Our top and emerging risks report identifies forward-looking risks so that
they can be considered in determining whether any incremental action is needed
to either prevent them from materialising or to limit their effect. Top risks
are those that have the potential to have a material adverse impact on the
financial results, reputation or business model of the Group.
We actively manage and take actions to mitigate our top risks. Emerging risks
are those that, while they could have a material impact on our risk profile
were they to occur, are not considered immediate and are not under active
management. Our suite of top and emerging risks is subject to regular review
by senior governance forums.
We continue to monitor closely the identified risks and ensure management
actions are in place, as required.
For further details on our top and emerging risks see pages 140 to 144
of our Annual Report and Accounts 2023.
Risk Trend Description
Externally driven
Geopolitical and macroeconomic risks } Our operations and portfolios are subject to risks associated with political
instability, civil unrest and military conflict, which could lead to
disruption of our operations, physical risk to our staff and/or physical
damage to our assets. Conflict in certain regions, wider geopolitical tensions
and electoral uncertainty are creating a more complicated environment for
business and trade. Global economic activity nevertheless remains broadly
resilient at mid-2024, despite still-high interest rates by historical
standards.
Technology and cybersecurity risk ~ There is a risk of service disruption or loss of data resulting from
technology failures or malicious activities from internal or external threats.
We continue to monitor changes to the threat landscape, including those
arising from ongoing geopolitical and macroeconomic events and the impact this
may have on third-party risk management. We operate a continuous improvement
programme to help support the resilience and stability of our technology
operations and counter a fast-evolving and heightened cyber threat
environment.
Environmental, social and governance ('ESG') risks ~ We are subject to ESG risks, including in relation to climate change, nature
and human rights. These risks have increased owing to the pace and volume of
regulatory developments globally, signs of diverging national agendas,
increasing frequency of severe weather events, and due to stakeholders placing
more emphasis on financial institutions' actions and investment decisions in
respect of ESG matters. Failure to meet these evolving expectations may result
in financial and non-financial risks, including reputational, legal and
regulatory compliance risks.
Financial crime risk ~ We are exposed to financial crime risk from our customers, staff and third
parties engaging in criminal activity. The financial crime risk environment is
heightened due to increasingly complex geopolitical challenges, the
macroeconomic outlook, the complex and dynamic nature of sanctions compliance,
evolving financial crime regulations, rapid technological developments, an
increasing number of national data privacy requirements and the increasing
sophistication of fraud. As a result, we will continue to face the possibility
of regulatory enforcement and reputational risk.
Digitalisation and technological advances ~ Developments in technology and changes in regulations continue to enable new
entrants to the banking industry as well as new products and services offered
by competitors. This challenges us to continue to innovate with new digital
capabilities and evolve our products, to attract, retain and best serve our
customers. Along with opportunities, new technology, including generative AI,
can introduce risks and disruption. We seek to ensure technology developments
are managed with appropriate controls and oversight.
Evolving regulatory environment risk } The regulatory and compliance risk environment is set against continued
geopolitical risk and regulatory focus on operational resilience (including
around cyber risk), financial resilience, model risk and sound risk and
financial crime management practices. Multiple jurisdictions are progressing
implementation of Basel 3.1 standards, and crypto-asset and AI-related
regulations are developing quickly. Making cross-border payments cheaper and
more efficient is a key objective for global standard setters, and regulatory
focus on ESG matters continues.
Internally driven
Data risk } We use data to serve our customers and run our operations, often in real-time
within digital experiences and processes. If our data is not accurate and
timely, our ability to serve customers, operate with resilience or meet
regulatory requirements could be impacted. We seek to ensure that non-public
data is kept confidential, and that we comply with the growing number of
regulations that govern data privacy and cross-border movement of data.
Risks arising from the receipt of services from third parties } We procure goods and services from a range of third parties. Due to the
current macroeconomic and geopolitical climate, the risk of service disruption
in our supply chain has heightened. We continue to strengthen our controls,
oversight and risk management policies and processes to select and manage
third parties, including our third parties' own supply chains, particularly
for key activities that could affect our operational resilience.
Model risk ~ Model risk arises whenever business decision making includes reliance on
models. We use models in both financial and non-financial contexts, as well as
in a range of business applications. Evolving regulatory requirements are
driving material changes to the way model risk is managed across the banking
industry, with a particular focus on capital models. New technologies,
including AI and generative AI, are driving a need for enhanced model risk
controls.
Change execution risk } Delivering change effectively enables us to meet rapidly evolving customer and
stakeholder needs, and helps us achieve our strategy. We understand the risks
associated with change execution, and deliver complex change in line with
established risk management processes, and prioritising sustainable outcomes.
We continue to focus on meeting industry and regulatory expectations and
fulfilling our obligations to customers and the marketplace.
Risks associated with workforce capability, capacity and environmental factors Ä Our businesses, functions and geographies are exposed to risks associated with
with potential impact on growth employee retention and talent availability, and compliance with employment
laws and regulations. Although attrition across the Group has continued to
decline, failure to manage these risks may impact the delivery of our
strategic objectives or lead to regulatory sanctions or legal claims.
~ Risk heightened during the first half of 2024 } Risk remained at the same level as full year 2023 (Ä) Risk decreased during the first half of 2024
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