TIDM63AS
RNS Number : 4365U
HSBC Bank plc
01 August 2022
HSBC Bank plc
2022 Interim Report
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 Bank plc (the "Company") hereby releases the unedited full
text of its 2022 Interim Report for the half-year ended 30 June
2022.
The document is now available on the Company's website:
http://www.hsbc.com/investor-relations/subsidiary-company-reporting
The document has also been submitted to the National Storage
Mechanism (NSM) and will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
HSBC Bank plc
Interim Report 2022
Registered number - 00014259
Contents
Page
Presentation of information 2
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Cautionary statement regarding 2
forward-looking statements
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Overview
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Highlights 3
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Key financial metrics 4
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Purpose and strategy 5
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HSBC Bank plc's strategy and
progress on our
commitments 6
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Our Global Businesses 8
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How we do business 9
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Economic background and outlook 10
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Interim management report
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Financial summary 10
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Reported performance 11
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Adjusted performance 12
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Review of business position 15
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Reconciliation of alternative
performance measures 16
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Risk 16
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Risk overview 16
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Managing risk 17
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Top and emerging risks 19
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Areas of special interest 19
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Key developments in the first
half of 2022 22
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Credit risk 22
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Treasury risk 33
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Interim condensed financial
statements
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Statement of Directors' Responsibilities 59
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Independent Review Report to
HSBC Bank plc 60
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Condensed financial statements 61
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Consolidated income statement 61
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Consolidated statement of comprehensive
income 62
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Consolidated balance sheet 63
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Consolidated statement of cash
flows 64
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Consolidated statement of changes
in equity 65
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Notes on the condensed financial
statements 67
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Presentation of information
This document comprises the Interim Report 2022 for HSBC Bank
plc ('the company') and its subsidiaries (together 'the group').
'We', 'us' and 'our' refer to HSBC Bank plc together with its
subsidiaries. References to 'HSBC' or 'the Group' within this
document mean HSBC Holdings plc together with its subsidiaries.
It contains the Interim management report and Condensed
financial statements of the group, together with the Auditor's
review report, as required by the Financial Conduct Authority's
('FCA') Disclosure Guidance and Transparency Rules ('DTR').
Within the Interim management report and Condensed financial
statements and related notes, the group has presented income
statement figures for the three most recent six-month periods to
illustrate the current performance compared with recent
periods.
Unless otherwise stated, commentary on the income statement
compares the six months to 30 June 2022 with the same period in the
prior year. Balance sheet commentary compares the position at 30
June 2022 to 31 December 2021.
In accordance with IAS 34 'Interim Financial Reporting', the
Interim Report is intended to provide an update on the Annual
Report and Accounts 2021 and therefore focuses on events during the
first six months of 2022, rather than duplicating information
previously reported.
Our reporting currency is GBP sterling. Unless otherwise
specified, all $ symbols represent US dollars.
Cautionary statement regarding
forward-
looking statements
This Interim Report 2022 contains certain forward-looking
statements with respect to the company's financial condition;
results of operations and business, including the strategic
priorities; financial, investment and capital targets; and the
company's ability to contribute to the Group's Environmental,
social and governance ('ESG') targets, commitments and ambitions
described herein.
Statements that are not historical facts, including statements
about the company's beliefs and expectations, are forward-looking
statements. Words such as 'may', 'will', 'should', 'expects',
'targets', 'anticipates', 'intends', 'plans', 'believes', 'seeks',
'estimates', 'potential' and 'reasonably possible', or the negative
thereof, other variations thereon or similar expressions are
intended to identify forward-looking statements. These statements
are based on current plans, information, data, estimates and
projections, and therefore undue reliance should not be placed on
them. Forward-looking statements speak only as of the date they are
made. The company makes no commitment to revise or update any
forward-looking statements to reflect events or circumstances
occurring or existing after the date of any forward-looking
statements. Written and/or oral forward-looking statements may also
be made in the periodic reports to the US Securities and Exchange
Commission, offering circulars and prospectuses, press releases and
other written materials, and in oral statements made by the
company's Directors, officers or employees to third parties,
including financial analysts. Forward-looking statements involve
inherent risks and uncertainties. Readers are cautioned that a
number of factors could cause actual results to differ, in some
instances materially, from those anticipated or implied in any
forward-looking statement. These include, but are not limited
to:
-- changes in general economic conditions in the markets in
which the company operates, such as new, continuing or deepening
recessions, inflationary pressures and fluctuations in employment
and creditworthy customers beyond those factored into consensus
forecasts (including, without limitation, as a result of the
Russia-Ukraine war and the Covid-19 pandemic); the Covid-19
pandemic and its impact on global economies, which could have a
material adverse effect on the company's financial condition,
results of operations, prospects, liquidity, capital position and
credit ratings; deviations from the market and economic assumptions
that form the basis for the company's ECL measurements (including,
without limitation, as a result of the Russia-Ukraine war,
inflationary pressures and the Covid-19 pandemic); changes in
foreign exchange rates and interest rates; volatility in equity
markets; lack of liquidity in wholesale funding or capital markets,
which may affect the company's ability to meet its obligations
under financing facilities or to fund new loans, investments and
businesses; geopolitical tensions or diplomatic developments, both
in Europe and in other regions such as Asia, producing social
instability or legal uncertainty, such as the Russia-Ukraine war
and the related imposition of sanctions, the UK's relationship with
the EU following the UK's withdrawal from the EU, diplomatic
tensions between China and the US, extending to the UK, the EU,
India and other countries, and political developments in Hong Kong
and Taiwan, which may adversely affect the group by creating
regulatory, reputational and market risks; the efficacy of
government, customer, and the company's and the Group's actions in
managing and mitigating ESG risks, in particular climate risk,
nature-related risks and human rights risks, each of which can
impact the company both directly and indirectly through its
customers and which may result in potential financial and
non-financial impacts; illiquidity and downward price pressure in
national real estate markets; adverse changes in central banks'
policies with respect to the provision of liquidity support to
financial markets; heightened market concerns over sovereign
creditworthiness in over-indebted countries; adverse changes in the
funding status of public or
private defined benefit pensions; societal shifts in customer
financing and investment needs, including consumer perception as to
the continuing availability of credit; exposure to counterparty
risk, including third parties using us as a conduit for illegal
activities without the company's knowledge; the discontinuation of
certain key Ibors and the development of near risk-free benchmark
rates, as well as the transition of legacy Ibor contracts to near
risk-free benchmark rates, which exposes the company to material
execution risks, and increases some financial and non-financial
risks; and price competition in the market segments that the
company serves;
-- changes in government policy and regulation, including the
monetary, interest rate and other policies of central banks and
other regulatory authorities in the principal markets in which the
company operates and the consequences thereof (including, without
limitation, actions taken as a result of the Covid-19 pandemic and
the impact of the Russia-Ukraine war on inflation); initiatives to
change the size, scope of activities and interconnectedness of
financial institutions in connection with the implementation of
stricter regulation of financial institutions in key markets
worldwide; revised capital and liquidity benchmarks, which could
serve to deleverage bank balance sheets and lower returns available
from the current business model and portfolio mix; changes to tax
laws and tax rates applicable to the company, including the
imposition of levies or taxes designed to change business mix and
risk appetite; the practices, pricing or responsibilities of
financial institutions serving their consumer markets;
expropriation, nationalisation, confiscation of assets and changes
in legislation relating to foreign ownership; the UK's relationship
with the EU following the UK's withdrawal from the EU, which
continues to be characterised by uncertainty, particularly with
respect to the regulation of financial services, despite the
signing of the Trade and Cooperation Agreement between the UK and
the EU; general changes in government policy that may significantly
influence investor decisions; the costs, effects and outcomes of
regulatory reviews, actions or litigation, including any additional
compliance requirements; and the effects of competition in the
markets where we operate, including increased competition from
non-bank financial services companies; and
-- factors specific to the company and the Group, including the
company's success in adequately identifying the risks it faces,
such as the incidence of loan losses or delinquency, and managing
those risks (through account management, hedging and other
techniques); the company's ability to achieve its financial,
investment, capital targets and the achievement of the Group's ESG
targets, commitments and ambitions, which may result in the
company's failure to achieve any of the expected benefits of its
strategic priorities; model limitations or failure, including,
without limitation, the impact that the
consequences of the Covid-19 pandemic and the current high
inflation macroeconomic environment have had on the performance and
usage of financial models, which may require the company to hold
additional capital, incur losses and/or use compensating controls,
such as judgemental post-model adjustments, to address model
limitations; changes to the judgements, estimates and assumptions
the company bases its financial statements on; changes in the
company's ability to meet the requirements of regulatory stress
tests; a reduction in the credit ratings assigned to the company or
any of its subsidiaries, which could increase the cost or decrease
the availability of the company's funding and affect its liquidity
position and net interest margin; changes to the reliability and
security of the company's data management, data privacy,
information and technology infrastructure, including threats from
cyber-attacks, which may impact its ability to service clients and
may result in financial loss, business disruption and/or loss of
customer services and data; the accuracy and effective use of data,
including internal management information that may not have been
independently verified; changes in insurance customer behaviour and
insurance claim rates; the company's dependence on loan payments
and dividends from subsidiaries to meet its obligations; changes in
accounting standards, including the implementation of IFRS 17
'Insurance Contracts', which may have a material impact on the way
the company prepares its financial statements and (with respect to
IFRS 17) may negatively affect the profitability of HSBC's
insurance business; changes in the company's ability to manage
third-party, fraud and reputational risks inherent in its
operations; employee misconduct, which may result in regulatory
sanctions and/or reputational or financial harm; changes in skill
requirements, ways of working and talent shortages, which may
affect the company's ability to recruit and retain senior
management and diverse and skilled personnel; and changes in the
company's ability to develop sustainable finance and
climate-related products consistent with the evolving expectations
of their regulators, and their capacity to measure the climate
impact from its financing activity (including as a result of data
limitations and changes in methodologies), which may affect the
Group's ability to achieve its climate ambition. Effective risk
management depends on, among other things, the company's ability
through stress testing and other techniques to prepare for events
that cannot be captured by the statistical models it uses; the
company's success in addressing operational, legal and regulatory,
and litigation challenges; and other risks and uncertainties we
identify in 'Top and emerging risks' on page 17 of the Interim
Report 2022.
Highlights
For the half-year ended 30 June 2022.
Reported profit before tax (GBPm)
GBP327m
(1H21: GBP815m)
Reported revenue (GBPm)
GBP3,122m
(1H21: GBP3,357m)
Reported risk-weighted assets at
period end (GBPbn)
GBP121bn
(31 Dec 2021: GBP104bn)
Adjusted profit before tax (GBPm)
GBP710m
(1H21: GBP990m)
Total assets at period end (GBPbn)
GBP710bn
(31 Dec 2021: GBP597bn)
Common equity tier 1 ratio at period
end (%)
14.7%
(31 Dec 2021: 17.3%)
Key financial metrics
Half-year to
-------------------------
30 Jun 30 Jun 31 Dec
2022 2021 2021
------------------------------------------------------------- ------- ------- -------
For the period (GBPm)
------------------------------------------------------------- ------- ------- -------
Profit before tax (reported basis) 327 815 208
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Profit before tax (adjusted basis)(1) 710 990 587
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Net operating income before change in expected
credit losses and other credit impairment charges(2) 3,122 3,357 2,763
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Profit attributable to the parent company 237 737 304
------------------------------------------------------------- ------- ------- -------
At period end (GBPm)
------------------------------------------------------------- ------- ------- -------
Total equity attributable to the parent company 23,862 23,719 23,584
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Total assets 709,701 623,963 596,611
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Risk-weighted assets(3) 120,977 110,769 104,314
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Loans and advances to customers (net of impairment
allowances) 94,840 93,210 91,177
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Customer accounts 224,991 200,649 205,241
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Capital ratios (%)(3)
------------------------------------------------------------- ------- ------- -------
Common equity tier 1 14.7 16.1 17.3
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Tier 1 17.9 19.6 21.0
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Total capital 28.2 30.2 31.7
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Leverage ratio (%)(4) 4.8 3.8 4.1
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Performance, efficiency and other ratios (%)
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Return on average ordinary shareholders' equity
(annualised)(5) 1.8 7.0 1.6
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Adjusted return on average tangible equity (annualised)(6,7) 3.1 6.8 6.1
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Cost efficiency ratio (reported basis)(8) 82.9 81.1 99.2
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Cost efficiency ratio (adjusted basis)(8) 72.3 76.1 86.3
Ratio of customer advances to customer accounts 42.2 46.5 44.4
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1 Adjusted performance is computed by adjusting reported results
for the effect of significant items as detailed on pages 11 and
12.
2 Net operating income before change in expected credit losses
and other credit impairment charges is also referred to as
revenue.
3 Unless otherwise stated, regulatory capital ratios and
requirements are based on the transitional arrangements of the
Capital Requirements Regulation in force at the time. These include
the regulatory transitional arrangements for IFRS 9 'Financial
Instruments', which are explained further on page 35. References to
EU regulations and directives (including technical standards)
should, as applicable, be read as a reference to the UK's version
of such regulation and/or directive, as onshored into UK law under
the European Union (Withdrawal) Act 2018, as amended.
4 The leverage ratio is calculated using the end point
definition of capital and the IFRS 9 regulatory transitional
arrangements, in line with the UK leverage rules that were
implemented on 1 January 2022, and excludes central bank claims.
Comparatives for 2021 are reported based on the disclosure rules in
force at that time, and include claims on central banks.
5 The return on average ordinary shareholders' equity is defined
as profit attributable to the parent company divided by the average
total shareholders' equity.
6 Return on tangible equity ('RoTE') is calculated by adjusting
reported profit attributable to ordinary shareholders by excluding
movements in present value of in-force ('PVIF') and significant
items (net of tax), divided by average tangible shareholders'
equity excluding fair value of own debt, debit valuation adjustment
('DVA') and other adjustments for the period. The calculation of
this measure includes the UK bank levy, a tax levied by Her
Majesty's Revenue and Customs ('HMRC') on HSBC Holdings plc in
accordance with Schedule 19 of the UK Finance Act 2011.
7 For this metric, half-year to 31 December 2021 is calculated
on a full-year basis and not a second half of 2021 basis.
8 Reported cost efficiency ratio is defined as total operating
expenses (reported) divided by net operating income before change
in expected credit losses and other credit impairment charges
(reported), while adjusted cost efficiency ratio is defined as
total operating expenses (adjusted) divided by net operating income
before change in expected credit losses and other credit impairment
charges (adjusted).
Purpose and strategy
Our purpose and ambition
Our purpose is 'Opening up a world of opportunity' and our
ambition is to be the preferred international finance partner for
our clients.
HSBC values
HSBC values define who we are as an organisation and are key to
our long-term success.
We value difference
Seeking out different perspectives.
We succeed together
Collaborating across boundaries.
We take responsibility
Holding ourselves accountable and taking the long view.
We get it done
Moving at pace and making things happen.
HSBC in Europe
Europe is an important part of the global economy, accounting
for 36% of global goods trade(1) and one-quarter of global Gross
Domestic Product (UNCTAD, IMF 2021). In addition, Europe is the
world's top exporter of services and second largest exporter of
manufactured goods (UNCTAD, IMF 2021). HSBC Bank plc helps to
facilitate trade within Europe and between Europe and other
countries where the Group has a presence.
With assets of GBP710bn at 30 June 2022, HSBC Bank plc is one of
Europe's largest banking and financial services organisations. We
employ around 14,600 people across our locations. HSBC Bank plc is
responsible for HSBC's European business, aside from UK retail and
most UK commercial banking activity which, post ring-fencing, are
managed by HSBC UK Bank plc.
HSBC Bank plc operates as one integrated business with two main
hubs in London and Paris. This aligns with UK and European Union
legal entity and regulatory requirements for financial services,
following the UK's withdrawal from the European Union. HSBC Bank
plc is present in 20 markets(2) . Our operating entities represent
the Group to customers, regulators, employees and other
stakeholders. We are organised around the principal operating units
detailed below.
The London hub provides overall governance and management for
the Europe region as a whole and is a global centre of excellence
for wholesale banking for the Group. In addition, the management
team directly oversees our businesses in Armenia, Channel Islands
& Isle of Man, Israel, Malta, Russia and South Africa.
HSBC Continental Europe, comprises our Paris hub and its
European Union ('EU') branches (Belgium, Czech Republic, Greece,
Ireland, Italy, Luxembourg, Netherlands, Poland, Spain and Sweden).
We are creating an integrated Continental European bank anchored in
Paris to better serve our clients, and simplify our
organisation.
HSBC Germany Holdings GmbH serves the European Union's largest
economy and one of the leading export nations globally (Eurostat
and The World Trade Organization, 2021). HSBC Germany's business
proposition mirrors the importance of trade and global
connectivity.
1 Based on goods trade only.
2 Full list of markets where HSBC Bank plc has a presence:
Armenia, Belgium, Channel Islands and Isle of Man, Czech Republic,
France, Germany, Greece, Ireland, Italy, Israel, Luxembourg, Malta,
Netherlands, Poland, Russia, South Africa, Spain, Sweden,
Switzerland and the UK.
HSBC Bank plc's strategy and progress
on our
commitments
Our ambition in Europe is to be the leading international
wholesale bank connecting East and West, with a complementary
Wealth business, an efficient operating model and a robust control
framework (see our global businesses on page 7).
HSBC Bank plc exists to open up a world of opportunity for our
customers by connecting them to international markets. Europe is
the second largest goods trading region in the world(1) and Asia is
Europe's biggest and fastest growing external trading partner
(UNCTAD, IMF 2021). We are well positioned to capitalise on this
opportunity and play a pivotal role for the Group.
In February 2021, the Group adapted our strategy to focus on our
strengths, digitise at scale, energise for growth and transition to
net zero. Below we provide a progress update on our commitments and
strategic initiatives for the first half of 2022.
Looking ahead, with inflationary pressure across Europe, central
banks raising interest rates and the outbreak of war in Ukraine, we
expect to be operating in a more volatile environment for the
remainder of the year. Further information as to how we have and
will continue to support and engage with our stakeholders can be
found on page 8.
Focus on our strengths
Through our transformation programme we are building a leaner,
simpler bank with a sharper strategic focus. We have redesigned our
franchise around the needs of our international clients and
maintaining product and service capability where clients demand
them. We intend to be a market leader in sustainable financing and
assist the Group in meeting its commitment for net zero operations
and supply chain by 2030.
In response to the requirement for an Intermediate Parent
Undertaking ('IPU'), HSBC Continental Europe is planning to acquire
HSBC Trinkaus & Burkhardt GmbH ('HSBC Germany') and HSBC Bank
Malta plc in 2022, with plans for HSBC Private Bank (Luxembourg) SA
to complete in 2023.
We intend to establish a Paris branch of HSBC Private Bank
(Luxembourg) SA, from which French clients would be served. The
project is expected to complete in the fourth quarter of 2022.
We have commenced the implementation process for the sale of
French retail business, expected to complete in the second half of
2023, subject to regulatory approval. Please see Note 11: Business
disposals for more information.
Following a strategic review of our business in Greece, an
agreement has been signed to sell HSBC Continental Europe's
operations in Greece to Pancreta Bank SA. The transaction is
expected to complete in the first half of 2023.
Following a strategic review of our business in Russia, HSBC
Europe BV (a wholly-owned subsidiary of HSBC Bank plc) has entered
into an agreement to sell its wholly-owned subsidiary HSBC Bank
(RR) (Limited Liability Company), subject to regulatory
approvals.
Digitise at scale
We continue to invest in the digitisation of our global
businesses, which is central to our strategy.
Within Europe, Wealth and Private Banking ('WPB') is focused on
enhancing our engagement between clients and relationship managers,
and allowing clients to self-serve at a time that suits them. For
example, in the first half of 2022 we have rolled out a new digital
portfolio and risk analysis platform (underpinned by BlackRock's
Aladdin platform); this enables Private Bank advisors to make
suitable investment recommendations to clients. Looking ahead we
will seek to deploy secure and private communications via social
media channels between clients and relationship managers. We also
plan to introduce new ESG-centred reporting.
We are committed to maintaining our core strength in Global
Liquidity and Cash Management; focused on enhancing our digital and
self-serve capabilities for our clients. We enhanced the
functionality of our Liquidity Management Dashboard; improving
customers' ability to create and manage cash flow forecasts. In
addition, we have enhanced our Green Deposits offering by sharing
detailed reports, associated with funds placed into green deposits,
to help customers to meet their sustainability objectives.
Our strategy within Global Trade and Receivables Finance
('GTRF') Europe is to make trade easier, faster and safer, whilst
delivering sustainable and profitable growth. In the first half of
2022, we enhanced our digital channel HSBCnet and strengthened
collaboration with third-party platforms. An example of this was
rolling out Contour, a blockchain solution that fully digitises
letters of credit. In the first quarter of 2022, more than 80% of
trade transactions across Europe were conducted digitally and we
continue to see an increase in clients adopting digital
solutions.
For digital currencies and assets, we are building a strategic
tokenisation platform in Global Banking and Markets and we plan to
launch the platform with a tokenised bond deal with a major
European client. The platform allows tokenised primary issuance,
and features a securities services registration layer, and support
for secondary market trading. We plan to extend the platform to
other geographies and products.
In Foreign Exchange we further enhanced our electronic trading
infrastructure to provide improved risk management to our clients.
Our focus is to support customers' FX and cross-border payment
needs through improved pricing tools and e-trading.
Energise for growth
Empowering our organisation and energising our employees is
crucial for building a more effective workforce. We have made
progress against our people strategy including our diversity and
inclusion agenda. We are committed to improving our gender
diversity across our senior leadership cadre at band 3 and above
in
our global career band structure, reaching 24.9% at the first
half of 2022, an increase of 0.9% since the first half of 2021.
However, we acknowledge we have more to do given our target of
gender diversity for 2022 is 26.4% and it remains a priority for
the bank's executive committee, which has put in place development
and recruitment strategies to retain, promote and attract female
leaders. Separately, we are also taking action to improve ethnic
diversity.
A number of initiatives have been launched to drive awareness
and encourage the disclosure of ethnicity by employees, where
permissible.
HSBC has appeared in Stonewall's Top Global Employers for 2022
for the sixth time and is one of only 26 international companies to
appear on the list. The list is compiled from submissions to
Stonewall's Global Workplace Equality Index. The charity rates
organisations' performance across nine areas, including policies
and benefits, training, employee engagement, leadership, community
engagement and understanding local context.
We continue to energise our colleagues through initiatives that
help develop their future skills and learning opportunities. Given
our shift to hybrid working, 79% of learning undertaken in Europe
was online and 21% was in face-to-face format with positive course
evaluation scores.
Transition to net zero
Becoming a net zero bank
Our approach to a carbon net zero transition focuses on key
areas of managing emissions from supply chain, energy and travel by
reducing consumption, increasing use of renewable energy and
managing latent omissions.
Supporting our customers
HSBC aims to provide $750bn to $1tn of sustainable financing and
investments by 2030 to help our customers in the transition to net
zero and a sustainable future. HSBC Bank plc contributed $19.7bn
towards this target in the first half of 2022, bringing its total
contribution since 1 January 2020 to approximately $84.9bn,
representing 50% of Group's total cumulative sustainable finance
and investments.
Unlocking new climate solutions
HSBC continue to unlock new climate solutions, focusing on
supporting innovation in critical areas such as green technologies.
To support this, in January 2022 Group announced investment of
$100m as an anchor partner in Breakthrough Energy Catalyst, a
programme that uses private-public capital to accelerate the
development of clean technologies.
Our global businesses
The Group manages its products and services through its three
global businesses: Global Banking and Markets ('GBM'); Commercial
Banking ('CMB'); Wealth and Personal Banking ('WPB'); and the
Corporate Centre (comprising, certain legacy assets, central
stewardship costs, and interests in our associates and joint
ventures).
Business segments
Our operating model has the following material segments: a GBM
business which is further split into three reportable segments;
MSS, GB and GBM Other (as defined below), CMB, WPB and a Corporate
Centre. These segments are supported by Digital Business Services
and eleven global functions, including Risk, Finance, Compliance,
Legal, Marketing and Human Resources.
Markets & Securities Global Banking GBM Other Commercial Banking Wealth and
Services ('MSS') ('GB') ('CMB') Personal Banking
('WPB')
Markets & Securities Global Banking GBM Other primarily We have a clear In Europe, Wealth
Services is delivers tailored comprises Principal strategy to be and Personal
a products group financial solutions Investments the leading Banking serves
that services to corporate and GBM's share international customers with
customers of and institutional of the Group's corporate bank their financial
all Global Businesses clients worldwide Markets Treasury in Europe. We needs through
and institutional opening up function. help to connect Private Banking,
clients across opportunities The Principal our European customers Retail Banking,
the financial through the strength Investments to our international Wealth Management,
sector globally. of our global portfolio is network of Insurance and
We offer clients network and focused on relationship Asset Management.
a range of services capabilities. delivering managers and product Our core retail
and capabilities We provide a investments specialists; proposition
including trading, comprehensive that align supporting offers a full
financing and suite of services to the group's their growth ambitions suite of products
securities services including capital strategy and and targets. Our including personal
across asset markets, advisory, seeks to deliver products, which banking, mortgages,
classes and lending, trade strong returns are designed to loans, credit
geographies, services and across a diversified help our customers cards, savings,
supported by global liquidity portfolio. seize growth investments
dedicated sales and cash management. Our commitment opportunities, and insurance.
and research Our European to sustainable range from term Alongside this,
teams. teams take a private equity loans to region-wide WPB offers various
Our European client-centric funds contributes treasury and trade propositions
teams play a approach bringing directly to solutions. Commercial in certain markets,
key role in together relationship the Group's Banking is at including Jade,
providing cross-asset and product expertise aim to provide the centre of Premier and
services, bridging to deliver financial and facilitate creating revenue Advance; as
emerging and solutions customised $750bn and synergies within well as wealth
developed markets, to suit our clients' $1tn of sustainable the Group: we solutions, financial
and collaborating growth ambitions finance and collaborate closely planning and
with other global and financial investment with our Global international
businesses to objectives. We by 2030. Banking and Markets services. In
provide clients work closely colleagues to the Channel
across the Group with our business provide expertise Islands and
with bespoke partners including in capital finance the Isle of
products and MSS, WPB and and advisory solutions Man, we serve
solutions that CMB, to provide to support our local Islanders
support their a range of tailored Commercial Banking as well as
growth ambitions. products and clients. Our trade international
services that teams within customers, the
meet the needs Commercial majority of
of international Banking also provide whom are customers
clients across import and export of HSBC in other
the company. finance solutions markets, through
Global Banking to Global Banking our HSBC Expat
Europe operates and Markets clients. proposition.
as an integral We also enable Our Private
part of the global customers to gain Banking proposition,
business and visibility over serves high
contributes their liquidity net worth and
significant positions through ultra-high net
revenues to other our main hubs worth clients,
regions, particularly in France and from Channel
Asia, through Germany, which Islands and
our European in turn helps Isle of Man,
client base, clients to unlock France and Germany,
supporting the efficiencies in with a total
Europe ambition their Treasury relationship
to be the leading structures. As balance greater
international the European economy than $2m. The
wholesale bank, pivots to a net range of services
partly by benefiting zero carbon economy, available to
from the client we are expanding private banking
network managed our services and clients includes
outside Europe. products to provide investment management,
customers with Private Wealth
innovative sustainable Solutions and
finance solutions bespoke lending
and ensuring our such as lending
relationship managers against financial
are informed to assets and residential
match these to mortgage financing
our clients' net for high-end
zero ambitions. properties.
Commercial Banking Private Banking
contributes hosts a 'Next
significant Generation'
revenues to other programme of
regions, particularly events to support
Asia, through our clients'
our European client next generation
base, and draws in building
benefits from and retaining
the client network the wealth within
managed outside the family.
Europe. The private
bank offers
this through
its philanthropy
advisory to
our clients,
which looks
at business
succession planning.
We continue
to focus on
meeting the
needs of our
customers, the
communities
we serve, and
our people,
whilst working
to build the
bank of the
future.
---------------------- ---------------------- --------------------- ---------------------- -----------------------
Adjusted profit/(loss) before tax
GBP285m GBP119m GBP(35)m GBP307m GBP184m
(1H21: GBP75m) (1H21: GBP274m) (1H21: GBP141m) (1H21: GBP211m) (1H21: GBP219m)
---------------------- ---------------------- --------------------- ---------------------- -----------------------
Our global businesses are presented on an adjusted basis, which
is consistent with the way in which we assess the performance of
our global businesses.
How we do business
Our purpose, 'Opening up a world of opportunities', explains why
we exist and guides us in what we do every day. It is a long-term,
optimistic and confident statement of the opportunity and growth we
see for our customers and ourselves in the future.
Our approach
The Group continues to embed our purpose and values in the
organisation. The Group regularly asks our people to reflect on how
we are opening up a world of opportunity for our customers,
investors, colleagues and communities. In the first half of 2022,
the Group invited all our colleagues globally to join a live online
conversation to share ideas on how to improve customer and
colleague experience, and delivering on our purpose. These ideas
will be analysed and shared with leaders to inspire action.
Our conduct
Our purpose-led conduct approach guides us to do the right thing
and focus on the impact we have for our customers and the financial
markets in which we operate. Together with more formal policies and
the tools we have to do our jobs, our conduct approach provides a
clear path to achieving our purpose and delivering our strategy.
For further details, see
www.hsbc.com/who-we-are/esg-and-responsible-business/our-conduct.
Our colleagues
We have continued to support our colleagues in navigating the
impacts and requirements of Covid-19 across operations. Wherever in
place, we have continued to follow social distancing and protection
measures in line with local guidance.
The Russia-Ukraine war continues to have devastating
consequences within Ukraine and beyond. We have prioritised
supporting our colleagues within the region, many of whom have been
directly impacted by the conflict.
To support the well-being of our colleagues, we have encouraged
the use of our employee assistance programme, which provides
psychological and legal support in English, Polish, Russian and
Ukrainian. We also published guides and coordinated webinars on the
importance of self-care, as well as supporting others who have
endured stressful situations.
We are continuing to define and embed our future ways of working
and implementing hybrid working. We aim to build a culture that
promotes flexibility, collaboration, learning and well-being in
both physical and virtual workplaces.
Developing the skills of colleagues is critical to energising
our organisation and developing career resilience. We foster
learning through a range of resources, including our new Learning
platform Degreed with the intent of modernising our learning
culture via increased mobile accessibility, personalised learning
suggestions and access to extensive HSBC and third-party content.
Current active usage of the platform has reached 48% of our people,
up from 15% at the end of 2021. We have also deployed Talent
Marketplace which matches colleagues to new projects and
experiences based on their aspirations and interests. The tool is
live in the UK and will be deployed to France, Germany, Poland,
Malta and Channel Island and Isle of Man ('CIIOM') in the second
half of 2022 and the first quarter of 2023 and remaining European
markets throughout 2023.
Our climate transition
Europe is at the forefront of international efforts on
sustainable finance and net zero.
In Germany, the Federal States of North Rhine-Westphalia (NRW)
issued a EUR2bn Sustainable Bond to raise capital for the country's
Growing Green strategy that envisages gross investments of EUR50bn
in renewable energy by the end of the decade. The proceeds from the
issuance will be used to finance the regional government's plan for
significant investments in renewable energy such as solar and wind
projects.
Delivering for our stakeholders
Having a clear purpose and strong values has never been more
important. As the world changed over the course of the past two
years, we have adapted to new ways of working. We have endeavoured
to provide support to our customers during this challenging
period.
We recognise that the world is at different stages of the
pandemic, with some countries going through a peak while others are
on a trajectory to recovery. We look to support our stakeholders,
taking this into account.
In the below section, we set out how we have engaged and
supported our stakeholders - our customers, communities, employees,
investors, governments and regulators, and suppliers - during the
first half of 2022.
Customers
Europe is home to some of the best performing, forward-thinking
companies, ranging from entrepreneurial start-ups to large
multinationals. HSBC supports individuals, and businesses of all
sizes, across Europe by offering a wide range of banking
services.
Our wholesale business focuses on both supporting European
clients across the Group and helping International clients in
Europe. We service client's international needs, across our product
offering, including transaction banking and financing through
leveraging HSBC's global network.
HSBC's global expatriate proposition, 'HSBC Expat', serves the
group's internationally mobile clients. In the first half of 2022
we streamlined the Expat mortgage journey by launching an online
eligibility tool. This has reduced the number of customer
appointments from 3 to 1 with 229 applications received in week 3
since launch. Further enhancements are planned during H2 across
both Expat and the Channel Islands and Isle of Man to drive down
turnaround time for customers, improve our net promoter score,
reduce complaint levels, and to fix fundamental journeys for
customers.
To support Ukrainian customers during unsettling times, we have
proactively and empathetically contacted a number of these
individuals within Expat, with support from relationship managers
to advise and reiterate that we are here to support them.
MSS manufactures a range of ESG-Linked solutions for our
Institutional and Corporate clients. For example, in first half of
2022, we have traded in H1 notes referencing the first ESG
Biodiversity screened index in the market.
Communities
In 2022, HSBC committed to donate to aid the humanitarian work
of the International Committee of The Red Cross and UNICEF
charities to support the vulnerable communities of Ukraine,
impacted by ongoing conflict. The funding will be directed towards
the repairing of vital infrastructures of schools, healthcare
centres and water supplies, whilst also supporting its hospitals
with additional medicine and medical equipment. It will also
provide families and household members with food and basic hygiene
supplies. In addition to the HSBC Group donation, HSBC Bank plc
also contributed in support of these efforts.
As many communities across Europe continue to experience the
long-term negative impacts stemming from the pandemic, HSBC Bank
plc continues to support various social entrepreneurship and
financial education projects which help to foster employability and
economic development with long-standing partners.
Investors
The company values the ongoing engagement we have with our
investors and have begun to reflect the Group's approach to new
ways of working in conducting our investor programme, offering
in-person, virtual, and hybrid meetings and events.
The company's relationship with its debt investors is held via
HSBC Group Investor Relations as many of these relationships span
investments across multiple entities within the broader HSBC
Group.
Governments and regulators
The company proactively engages with regulators and governments
to facilitate strong relationships via virtual and in-person
meetings, and responses to consultations individually and jointly
via the industry bodies.
Suppliers
The company works closely with its suppliers, maintaining
collaborative relationships so that we succeed together. As part of
enabling a sustainable future HSBC Bank plc engages with its
largest suppliers to encourage their completion of the CDP Climate
Change questionnaire. The Group's commitment is to reduce carbon
emissions from our operations and supply chain to net zero by 2030
or sooner.
Economic background and
outlook
UK
Inflation continues to rise sharply
UK consumer price inflation currently stands at a 40-year high
(9.4% year-on-year in June). High inflation has been driven by a
combination of surging energy and food prices, global supply
bottlenecks, the upswing in demand following pandemic-related
restrictions and a tight labour market.
This inflation means aggregate real-terms household income is
falling and, alongside a waning in the rebound that followed the
end of Covid-19-related restrictions, appears to be starting to
weigh on broader economic activity. The GfK consumer confidence
index fell to a record low in June.
However, the labour market is holding up better. Although the
unemployment rate edged up to 3.8% in May, compared with a March
trough of 3.7%, that is still very low by historical standards.
Looking ahead, HSBC Research expects UK inflation to peak at around
12% in October 2022, on the back of a likely further sharp rise in
regulated utility prices.
But beyond that, HSBC Research expects inflation to start to
fall in 2023, reaching 2.7% by the end of next year, as the impact
of past energy and food price rises 'drop out' of the annual
calculation, as global supply bottlenecks ease, and as softening
aggregate demand bears down on price pressures. But through that
period, economic growth is likely to remain sluggish.
Rate rises ahead
Fiscal policy support has been substantial, with the government
unveiling GBP37bn of support to households in response to the cost
of living squeeze, with measures including upcoming energy bill
rebates and direct payments to low income households. Nevertheless,
these measures are unlikely to fully offset the broader real income
squeeze.
Meanwhile, against a backdrop of exceptionally high inflation,
the Bank of England ('BoE') is raising interest rates. Having cut
the Bank Rate to 0.1% in 2020, the BoE began lifting the rate in
December 2021 and it now stands at 1.25%. Market prices imply the
Bank Rate rising by roughly another 150bps by the end of 2022. HSBC
Research expects the BoE to raise the Bank Rate to 2.75% by
year-end. But with sluggish growth and softening inflation
potentially in prospect, Research expects no further rate hikes in
2023.
Eurozone
High inflation, slow growth ahead
Eurozone consumer price inflation has risen sharply, reaching an
annual rate of 8.6% in June, the highest since the inception of the
euro. Energy prices currently account for around half of that
inflation rate, but underlying inflation components, including
non-energy industrial goods and services, are running above
average. This strength reflects a combination of global supply
bottlenecks, price adjustments following the easing of restrictions
and strength in the labour market.
Amid growing inflation-related headwinds, the eurozone economy
has slowed since growing by 0.6% in the first quarter. However, the
labour market continues to make gains, with the eurozone
unemployment rate edging down to 6.6% in May, the lowest since
comparable records began in in 1998.
As the inflation squeeze continues to erode real-terms incomes,
however, a challenging outlook lies ahead. HSBC Research expects
GDP to broadly flat-line through the middle of 2022, before
returning to modest growth. But risks lie to the downside. In
particular, potential reductions in gas supply from Russia could
lead to higher utility bills and, possibly, economic disruption
relating to outright rationing.
Fiscal support, monetary tightening
Substantial fiscal support measures continue. Pandemic-related
job support schemes have mostly been wound down. But now, in order
to mitigate the impact of high inflation on household real incomes,
governments have provided a range of measures including energy
price caps and payments to households. Meanwhile, funds from the
EUR750bn EU Recovery Fund, which should lift levels of investment,
are starting to flow.
On 21 July, the European Central Bank ('ECB') lifted policy
rates for the first time in 11 years, with the deposit rate rising
from -0.50% to 0.00%. Consistent with messaging from the ECB, and
the strong near-term inflation outlook, HSBC Research expects
further rate rises over the coming year. But while the ECB has set
up a tool to guard against rising periphery bond spreads, there
remains a risk of an undue tightening of financial conditions in
Southern Europe.
Financial summary
Use of alternative performance
measures
Our reported results are prepared in accordance with
International Financial Reporting Standards ('IFRSs') as detailed
in the Financial Statements starting on page 57. In measuring our
performance, the financial measures that we use include those
derived from our reported results in order to eliminate factors
that distort period-on-period comparisons. These are considered
alternative performance measures.
All alternative performance measures are described and
reconciled to the closest reported financial measure when used.
The global business segmental results are presented on an
adjusted basis in accordance with IFRS 8 'Operating Segments', as
detailed in 'Basis of preparation' in Note 3: Segmental analysis on
page 64. Reconciliation of reported and adjusted performance are
presented on pages 11 and 12.
Adjusted performance
Adjusted performance is computed by adjusting reported results
for the period-on-period effects of significant items that distort
period-on-period comparisons.
We use 'significant items' to describe collectively the group of
individual adjustments excluded from reported results when arriving
at adjusted performance. These items, which are detailed below, are
ones that management and investors would ordinarily identify and
consider separately when assessing performance to understand better
the underlying trends in the business.
We consider adjusted performance provides useful information for
investors by aligning internal and external reporting, identifying
and quantifying items management believes to be significant and
providing insight into how management assesses period-on-period
performance.
Summary consolidated income statement
Half-year to
---------------------------------------------------------------------------------------
30 Jun 30 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
----------------------------- --------------------------- ---------------------------- ----------------------------
Net interest income 991 860 894
----------------------------- --------------------------- ---------------------------- ----------------------------
Net fee income 644 744 669
----------------------------- --------------------------- ---------------------------- ----------------------------
Net income from financial
instruments measured
at fair value 206 2,067 1,365
----------------------------- --------------------------- ---------------------------- ----------------------------
Gains less losses from
financial investments - 46 14
----------------------------- --------------------------- ---------------------------- ----------------------------
Net insurance premium income 1,036 987 919
----------------------------- --------------------------- ---------------------------- ----------------------------
Other operating income 12 353 241
----------------------------- --------------------------- ---------------------------- ----------------------------
Total operating income(1,2) 2,889 5,057 4,102
----------------------------- --------------------------- ---------------------------- ----------------------------
Net insurance claims,
benefits paid and movement
in liabilities to
policyholders 233 (1,700) (1,339)
----------------------------- --------------------------- ---------------------------- ----------------------------
Net operating income before
change in expected
credit losses and other
credit impairment charges(1) 3,122 3,357 2,763
----------------------------- --------------------------- ---------------------------- ----------------------------
Change in expected credit
losses and other credit
impairment charges (187) 71 103
----------------------------- --------------------------- ---------------------------- ----------------------------
Net operating income 2,935 3,428 2,866
----------------------------- --------------------------- ---------------------------- ----------------------------
Total operating expenses(2) (2,587) (2,721) (2,741)
----------------------------- --------------------------- ---------------------------- ----------------------------
Operating profit 348 707 125
----------------------------- --------------------------- ---------------------------- ----------------------------
Share of profit in associates
and joint ventures (21) 108 83
----------------------------- --------------------------- ---------------------------- ----------------------------
Profit before tax 327 815 208
----------------------------- --------------------------- ---------------------------- ----------------------------
Tax (expense)/credit (86) (74) 97
----------------------------- --------------------------- ---------------------------- ----------------------------
Profit for the period 241 741 305
----------------------------- --------------------------- ---------------------------- ----------------------------
Profit attributable to the
parent company 237 737 304
----------------------------- --------------------------- ---------------------------- ----------------------------
Profit attributable to
non-controlling interests 4 4 1
----------------------------- --------------------------- ---------------------------- ----------------------------
1 Net operating income before change in expected credit losses
and other credit impairment charges is also referred to as
revenue.
2 Total operating income and expenses include significant items as detailed on pages 11 and 12.
2
Reported performance
Reported profit before tax of GBP327m was GBP488m lower than the
first half of 2021. This was primarily due to net ECL charges in
the first half of 2022, notably due to the impact of the
Russia-Ukraine war and increased economic uncertainty, compared
with net ECL releases in the first half of 2021. There was also a
loss from associates and joint ventures compared with a gain in
2021.
Reported revenue decreased by GBP235m or 7%, mainly due to
losses associated with the planned sales of our branch operations
in Greece and our operations in Russia of GBP222m in the first half
of 2022. This decrease was partly offset by strong performance in
Markets and Securities Services ('MSS') and higher revenue from
interest rate rises, notably in Global Liquidity and Cash
Management ('GLCM') in Global Banking and CMB. The first half of
2021 also included higher restructuring and other related costs
comprising disposal losses associated with RWA reductions.
Operating expenses were lower mainly driven by a lower
performance-related pay accrual.
Net interest income ('NII' ) increased by GBP131m or 15%
compared with the first half of 2021, mainly in CMB and Global
Banking driven by the benefit of the higher interest rate
environment, notably in GLCM.
Net fee income decreased by GBP100m or 13%, notably in Global
Debt Markets in MSS and Global Banking, driven by lower
underwriting fees as market activity fell due to the effect of the
Russia-Ukraine war and wider macroeconomic uncertainties. This
compared with a strong first half of 2021 when corporates raised
finance as initial Covid-19 restrictions were eased. This reduction
was partly offset by higher income in GLCM, as volumes grew and we
delivered on our strategic initiatives.
Net income from financial instruments measured at fair value
decreased by GBP1,861m, primarily in insurance manufacturing in
WPB. This decrease was driven by lower returns on financial assets
supporting insurance contracts where the policyholder is subject to
part or all of the investment risks.
This adverse movement resulted in a corresponding movement in
liabilities to policyholders, reflecting the extent to which
policyholders participate in the investment performance of the
associated assets. The offsetting movements are recorded in
liabilities to policyholders.
In MSS, revenue increased reflecting strong client activity and
robust risk management, notably in Global FX and Equities, due to
elevated market volatility resulting from the Russia-Ukraine war
and the macroeconomic impacts from rising inflation and increasing
interest rates. This was partly offset by lower revenue in Global
Debt Markets due to lower primary activity driven by market
uncertainties.
Gains less losses from financial investments decreased by
GBP46m, mainly driven by losses on the disposal of bonds held at
fair value through other comprehensive income ('FVOCI') in Markets
Treasury.
Net insurance premium income increased by GBP49m or 5% in WPB
from insurance revenue in France due to higher new business
volumes.
Other operating income decreased by GBP341m, mainly in Corporate
Centre driven by losses of GBP222m in the first half of 2022
associated with the planned sales of our branch operations in
Greece and our operations in Russia. In addition, the first half of
2021 benefited from a fair value gain from a long-standing
investment in a Germany-based brokerage company. Revenue also
decreased in GBM Other, notably in Principal Investments, driven by
lower valuation gains compared with the first half of 2021.
Net insurance claims, benefits paid and movement in liabilities
to policyholders decreased by GBP1,933m, primarily in insurance
manufacturing in WPB. This decrease was driven by lower returns on
financial assets supporting contracts where the policyholder is
subject to part or all of the investment risks. The losses
recognised on the financial assets measured at fair value through
profit and loss held to support these insurance contract
liabilities are reported in 'Net income from financial instruments
designated at fair value'. This was partly offset by an increase in
premium income.
Changes in expected credit losses and other impairment charges
('ECL') were a net charge of GBP187m in the first half of 2022,
compared with a release of GBP71m in the first half of 2021. The
net charge in the first half of 2022 included additional stage 1
and stage 2 allowances in respect of heightened levels of
uncertainty and exacerbating inflationary pressures, in part due to
the broader impact of the Russia-Ukraine war. This compared with a
net release in the first half of 2021 primarily relating to
Covid-19 related allowances built up in 2020. Additionally, there
were higher stage 3 charges in the first half of 2022.
Total operating expenses decreased by GBP134m, mainly driven by
a lower performance-related pay accrual and a reduction due to an
update in the VAT recovery rate and the recognition of a recovery
of VAT paid in 2021 in France. This was partly offset by an
increase of GBP57m in restructuring and other related costs.
Share of (loss)/profit in associates and joint ventures was a
loss of GBP21m compared with a gain of GBP108m in the first half of
2021. The loss in the first half of 2022 included a loss of GBP24m
which reflected a true-up of the prior year valuation of an
associate.
Tax expense was GBP86m compared with a tax expense of GBP74m in
the same period of 2021. The effective tax rate for the first half
of 2022 of 26.3% was driven by movements in unrecognised deferred
tax, the impact of prior year adjustments and the remeasurement of
UK deferred tax balances following substantive enactment of
legislation to reduce the rate of UK banking surcharge from 8% to
3% from 1 April 2023.
The effective tax rate of 9.1% for the first half of 2021 was
driven by the remeasurement of UK deferred tax balances following
the substantive enactment of legislation to increase the main rate
of UK corporation tax from 19% to 25% from 1 April 2023 and
movements in unrecognised deferred tax.
Adjusted performance
Significant revenue items by business segment - (gains)/losses
Half-year to 30 Jun 2022
GBM Corporate
MSS GB Other CMB WPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------- -------------------- ------------------ --------------------- --------------------- --------------------- --------------------- --------------------
Reported revenue 1,294 734 101 627 655 (289) 3,122
------------------------------------------------------- -------------------- ------------------ --------------------- --------------------- --------------------- --------------------- --------------------
Significant revenue items (40) - 9 (1) (1) 220 187
- fair value movements on financial
instruments(1) (41) - (5) (1) (1) (1) (49)
-------------------------------------------------------
* restructuring and other related costs(2) 1 - 14 - - (1) 14
* European restructurings - - - - - 222 222
------------------------------------------------------- -------------------- ------------------ --------------------- --------------------- --------------------- ---------------------
Adjusted revenue 1,254 734 110 626 654 (69) 3,309
------------------------------------------------------- -------------------- ------------------ --------------------- --------------------- --------------------- --------------------- --------------------
Half-year to 30 Jun 2021
------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------
Reported revenue 1,114 678 230 556 714 65 3,357
------------------------------------------------------- -------------------- ------------------ --------------------- --------------------- --------------------- --------------------- --------------------
Significant revenue items 10 - 100 (1) (1) (65) 43
------------------------------------------------------- -------------------- ------------------ --------------------- --------------------- --------------------- --------------------- --------------------
* fair value movements on financial instruments(1) 10 - (4) (1) (1) - 4
-------------------------------------------------------
* restructuring and other related costs(2) - - 104 - - (65) 39
------------------------------------------------------- -------------------- ------------------ --------------------- --------------------- --------------------- ---------------------
Adjusted revenue 1,124 678 330 555 713 - 3,400
------------------------------------------------------- -------------------- ------------------ --------------------- --------------------- --------------------- --------------------- --------------------
Half-year to 31 Dec 2021
------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------
Reported revenue 929 689 80 540 562 (37) 2,763
------------------------------------------------------- -------------------- ------------------ --------------------- --------------------- --------------------- --------------------- --------------------
Significant revenue items 2 - 169 - - (4) 167
------------------------------------------------------- -------------------- ------------------ --------------------- --------------------- --------------------- --------------------- --------------------
* fair value movements on financial instruments(1) 2 - (1) - - - 1
-------------------------------------------------------
* restructuring and other related costs(2) - - 170 - - (4) 166
------------------------------------------------------- -------------------- ------------------ --------------------- --------------------- --------------------- ---------------------
Adjusted revenue 931 689 249 540 562 (41) 2,930
------------------------------------------------------- -------------------- ------------------ --------------------- --------------------- --------------------- --------------------- --------------------
1 Includes fair value movements on non-qualifying hedges and
debit valuation adjustments on derivatives.
2 Includes losses associated with the RWA reduction commitments.
Significant cost items by business segment - (recoveries)/charges
Half-year to 30 Jun 2022
--------------------------------------
GBM Corporate
MSS GB Other CMB WPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- ------------------ ------------------ -------------------- --------------------- -------------------- ------------------- -------------------
Reported operating expenses (970) (456) (178) (309) (469) (205) (2,587)
-------------------------------------------- ------------------ ------------------ -------------------- --------------------- -------------------- ------------------- -------------------
Significant cost items - - 33 13 4 146 196
* restructuring and other related costs - - 30 11 2 119 162
* European restructurings - - 3 2 2 27 34
Adjusted operating expenses (970) (456) (145) (296) (465) (59) (2,391)
-------------------------------------------- ------------------ ------------------ -------------------- --------------------- -------------------- ------------------- -------------------
Half-year to 30 Jun 2021
--------------------------------------------
Reported operating expenses (1,051) (462) (226) (335) (508) (139) (2,721)
-------------------------------------------- ------------------ ------------------ -------------------- --------------------- -------------------- ------------------- -------------------
Significant cost items - - 32 (8) 5 103 132
-------------------------------------------- ------------------ ------------------ -------------------- --------------------- -------------------- ------------------- -------------------
* restructuring and other related costs - - 32 (8) 5 91 120
--------------------------------------------
* European restructurings - - - - - 12 12
-------------------------------------------- ------------------ ------------------ -------------------- --------------------- -------------------- -------------------
Adjusted operating expenses (1,051) (462) (194) (343) (503) (36) (2,589)
-------------------------------------------- ------------------ ------------------ -------------------- --------------------- -------------------- ------------------- -------------------
Half-year to 31 Dec 2021
--------------------------------------------
Reported operating expenses (1,013) (456) (362) (276) (473) (161) (2,741)
-------------------------------------------- ------------------ ------------------ -------------------- --------------------- -------------------- ------------------- -------------------
Significant cost items - - 71 7 1 133 212
-------------------------------------------- ------------------ ------------------ -------------------- --------------------- -------------------- ------------------- -------------------
* restructuring and other related costs - - 71 7 1 122 201
--------------------------------------------
* European restructurings - - - - - 11 11
-------------------------------------------- ------------------ ------------------ -------------------- --------------------- -------------------- -------------------
Adjusted operating expenses (1,013) (456) (291) (269) (472) (28) (2,529)
-------------------------------------------- ------------------ ------------------ -------------------- --------------------- -------------------- ------------------- -------------------
Net impact on profit before tax by business segment
Half-year to 30 Jun 2022
--------------------------------------------------------------------------------------------------------------------------------------------------------
GBM Corporate
MSS GB Other CMB WPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- -------------------- ------------------ -------------------- --------------------- --------------------- --------------------- -------------------
Reported profit/(loss) before
tax 325 119 (77) 295 181 (516) 327
-------------------------------- -------------------- ------------------ -------------------- --------------------- --------------------- --------------------- -------------------
Net impact on reported profit or
loss (40) - 42 12 3 366 383
-------------------------------- -------------------- ------------------ -------------------- --------------------- --------------------- --------------------- -------------------
* significant revenue items (40) - 9 (1) (1) 220 187
--------------------------------
* significant cost items - - 33 13 4 146 196
-------------------------------- -------------------- ------------------ -------------------- --------------------- --------------------- ---------------------
Adjusted profit/(loss) before
tax 285 119 (35) 307 184 (150) 710
-------------------------------- -------------------- ------------------ -------------------- --------------------- --------------------- --------------------- -------------------
Half-year to 30 Jun 2021
--------------------------------
Reported profit/(loss) before
tax 65 274 9 220 215 32 815
-------------------------------- -------------------- ------------------ -------------------- --------------------- --------------------- --------------------- -------------------
Net impact on reported profit or
loss 10 - 132 (9) 4 38 175
-------------------------------- -------------------- ------------------ -------------------- --------------------- --------------------- --------------------- -------------------
* significant revenue items 10 - 100 (1) (1) (65) 43
--------------------------------
* significant cost items - - 32 (8) 5 103 132
-------------------------------- -------------------- ------------------ -------------------- --------------------- --------------------- ---------------------
Adjusted profit/(loss) before
tax 75 274 141 211 219 70 990
-------------------------------- -------------------- ------------------ -------------------- --------------------- --------------------- --------------------- -------------------
Half-year to 31 Dec 2021
-------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------------------
Reported profit/(loss) before
tax (85) 315 (282) 272 103 (115) 208
-------------------------------- -------------------- ------------------ -------------------- --------------------- --------------------- --------------------- -------------------
Net impact on reported profit or
loss 2 - 240 7 1 129 379
-------------------------------- -------------------- ------------------ -------------------- --------------------- --------------------- --------------------- -------------------
* significant revenue items 2 - 169 - - (4) 167
--------------------------------
* significant cost items - - 71 7 1 133 212
-------------------------------- -------------------- ------------------ -------------------- --------------------- --------------------- ---------------------
Adjusted profit/(loss) before
tax (83) 315 (42) 279 104 14 587
-------------------------------- -------------------- ------------------ -------------------- --------------------- --------------------- --------------------- -------------------
Adjusted performance
Adjusted profit before tax was GBP710m, down GBP280m or 28%
compared with the first half of 2021. This was largely driven by
higher ECL, lower revenue and a loss in associates and joint
ventures, partly offset by lower operating expenses.
Adjusted revenue decreased by GBP91m or 3%, mainly in GBM Other
driven by lower favourable valuation gains in Principal
Investments, and in Corporate Centre due to the non-recurrence of a
fair value gain from a long-standing investment in a Germany-based
brokerage company and lower valuation gains in Legacy Credit. In
addition, revenue in WPB was also lower in insurance manufacturing
driven by lower favourable market impacts.
By contrast, revenue was higher in MSS, notably in Global FX,
Securities Services and Equities, driven by strong client activity
and robust risk management, although partly offset by a decrease in
revenue in Global Debt Markets. Revenue also increased in Global
Liquidity and Cash Management ('GLCM') within Global Banking and
CMB, driven by the positive impact of interest rates rises and
balance sheet growth, notably in the UK.
Adjusted ECL were GBP258m higher compared with the first half of
2021. There was a net charge of GBP187m compared with a net release
of GBP71m in the first half of 2021. The net charge in the first
half of 2022 was mainly driven by a deterioration in the forward
economic outlook reflecting heightened levels of uncertainty and
exacerbating inflationary pressures, in part due to the broader
impact of the Russia-Ukraine war. This compared with a net release
of stage 1 and stage 2 allowances in the first half of 2021
reflecting an improved economic outlook and stabilisation of credit
risk. There were also higher levels of stage 3 charges in the first
half of 2022.
Adjusted operating expenses were lower by GBP198m or 8%, mainly
driven by a lower performance-related pay accrual and a reduction
due to an update in the VAT recovery rate and the recognition of a
recovery of VAT paid in 2021 in France.
Share of (loss)/profit in associates and joint ventures was a
loss of GBP21m which included a loss of GBP24m from the true-up of
prior year valuations of an associate. This compared with a gain of
GBP108m in the first half of 2021.
Markets and Securities Services
Adjusted profit before tax was GBP285m, an increase of GBP210m
compared with the first half of 2021, largely driven by strong
revenue performance and lower operating expenses.
Revenue increased by GBP130m or 12%, mainly due to strong client
flow, notably in Global FX and Equities. This reflected increased
client activity and risk management due to elevated market
volatility resulting from the Russia-Ukraine war and the
macro-economic impacts from rising inflation and increasing
interest rates. This was partly offset by lower revenue in Global
Debt Markets, mainly driven by lower primary issuances and reduced
client activity due to uncertainty caused by the Russia-Ukraine war
and rising inflation.
Revenue in Securities Services was also up driven by higher net
interest income, mainly from interest rates rises, partly offset by
lower fees as a fall in market indices adversely impacted asset
valuations.
Operating expenses decreased by GBP81m or 8%, mainly driven by a
lower performance-related pay accrual.
Global Banking
Adjusted profit before tax was GBP119m, a decrease of GBP155m
compared with the first half of 2021. This was driven by higher ECL
partly offset by higher revenue.
Revenue increased by GBP56m or 8%, mainly in GLCM due to
strategic initiatives to grow fee income and balances, supported by
interest rate rises, partly offset by lower revenue in Capital
Markets driven by lower transaction volumes in line with the wider
market.
ECL were a net charge of GBP158m compared with a release of
GBP58m in the first half of 2021. The net charge in the first half
of 2022 reflected a deterioration in the forward economic outlook
due to heightened levels of uncertainty in part due to the broader
impact of the Russia-Ukraine war. This compared with a net release
in the first half of 2021 of Covid-19-related allowances previously
built up in 2020.
Operating expenses decreased by GBP6m or 1%, mainly due to a
lower performance-related pay accrual.
Global Banking and Markets Other
Adjusted loss before tax of GBP35m compared with a profit of
GBP141m in the first half of 2021, a decrease of GBP176m. This
reflected lower revenue, partly offset by lower operating
expenses.
Revenue decreased by GBP220m, mainly in Principal Investments
driven by lower valuation gains compared with the first half of
2021. There were also lower intercompany recoveries of costs from
other entities in the Group.
ECL were a net charge of GBP1m compared with a net release of
GBP5m in the first half of 2021.
Operating expenses decreased by GBP49m, mainly driven by the
movement of certain costs, which had historically been recharged to
other entities in the Group, from the bank to HSBC service
companies. There was a corresponding decrease in intercompany
recoveries in revenue.
Commercial Banking ('CMB')
CMB performed well in the first half of 2022 as we continued to
implement our strategy to focus on serving our international
customers.
Adjusted profit before tax was GBP307m, an increase of GBP96m
compared with the first half of 2021. This was mainly driven by
higher revenue and lower operating expenses, partly offset by
higher ECL.
Revenue increased by GBP71m or 13%, primarily in GLCM driven by
the higher interest rate environment and growth in average deposit
balances. There was also an increase in collaboration revenue from
MSS products, notably Global FX.
This was partly offset by a decrease in revenue allocated from
Markets Treasury.
ECL increased by GBP22m compared with the first half of 2021,
mainly driven by higher stage 1 and stage 2 charges, reflecting a
deterioration in the forward economic outlook due to heightened
levels of uncertainty and exacerbating inflationary pressures, in
part due to the broader impact of the Russia-Ukraine war. This
compared with a net release in the first half of 2021 of
Covid-19-related allowances previously built up in 2020. This was
partly offset by stage 3 releases compared with charges in the
first half of 2021.
Operating expenses decreased by GBP47m or 14%, reflecting cost
discipline on discretionary spend and the impact of our
cost-savings initiatives. The decrease was also driven by an update
in the VAT recovery rate and the recognition of a recovery of VAT
paid in 2021 in France.
Wealth and Personal Banking ('WPB')
Adjusted profit before tax was GBP184m, a decrease of GBP35m
compared with the first half of 2021. This was due to lower revenue
and higher ECL, partly offset by lower operating expenses.
Revenue decreased by GBP59m or 8%, mainly in insurance
manufacturing in France and in the UK, largely from lower
favourable market impacts driven by weaker equity market
performance, although there was growth in the value of new business
written.
This was partly offset by an increase in revenue from deposits
in the Channel Islands and Isle of Man due to the higher interest
rate environment and growth in customer balances.
ECL were a net charge of GBP5m compared with a net release of
GBP9m in the first half of 2021. The net charge in the first half
of 2022 mainly reflected a deterioration in the forward economic
outlook due to heightened levels of uncertainty and exacerbating
inflationary pressures, in part due to the broader impact of the
Russia-Ukraine war. The net release in the first half of 2021 was
from Covid-19-related allowances previously built up in 2020.
Operating expenses decreased by GBP38m or 8%, mainly driven by
an increase in the VAT recovery rate and the recognition of a
recovery of VAT paid in 2021 in France as well as lower staff costs
and lower corporate real estate costs due to lower depreciation as
certain assets have been fully written down.
Corporate Centre
Adjusted loss before tax of GBP150m compared with a profit of
GBP70m in the first half of 2021. This was mainly driven by a loss
in associates and joint ventures compared with a gain in the first
half of 2021, as well as lower revenue.
Revenue decreased by GBP69m, primarily driven by the
non-recurrence of a fair value gain from a long-standing investment
in a Germany-based brokerage company booked in the first half of
2021 and lower valuation gains in Legacy Credit portfolios.
Operating expenses increased by GBP23m, driven by an increase in
costs which were recharged to other entities in the Group with a
corresponding increase in revenue.
Share of (loss)/profit in associates and joint ventures was a
loss of GBP21m, of which a loss of GBP24m was due to a true-up of
prior year valuations of an associate. This compared with a gain of
GBP108m in the first half of 2021.
Review of business position
Summary consolidated balance sheet
At
-----------------------------------------------------
30 Jun 31 Dec
2022 2021
GBPm GBPm
------------------------------------------------------------- ------------------------ ---------------------------
Total assets 709,701 596,611
------------------------------------------------------------- ------------------------ ---------------------------
* cash and balances at central banks 126,759 108,482
-------------------------------------------------------------
* trading assets 78,072 83,706
-------------------------------------------------------------
* financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 16,380 18,649
-------------------------------------------------------------
* derivatives 202,510 141,221
-------------------------------------------------------------
* loans and advances to banks 16,349 10,784
-------------------------------------------------------------
* loans and advances to customers 94,840 91,177
-------------------------------------------------------------
* reverse repurchase agreements - non-trading 57,996 54,448
-------------------------------------------------------------
* financial investments 38,743 41,300
-------------------------------------------------------------
* other assets 78,052 46,844
------------------------------------------------------------- ------------------------
Total liabilities 685,709 572,896
------------------------------------------------------------- ------------------------ ---------------------------
* deposits by banks 38,623 32,188
-------------------------------------------------------------
* customer accounts 224,991 205,241
-------------------------------------------------------------
* repurchase agreements - non-trading 34,446 27,259
-------------------------------------------------------------
* trading liabilities 43,636 46,433
-------------------------------------------------------------
* financial liabilities designated at fair value 30,358 33,608
-------------------------------------------------------------
* derivatives 193,956 139,368
-------------------------------------------------------------
* debt securities in issue 8,650 9,428
-------------------------------------------------------------
* liabilities under insurance contracts 20,136 22,264
-------------------------------------------------------------
* other liabilities 90,913 57,107
------------------------------------------------------------- ------------------------
Total equity 23,992 23,715
------------------------------------------------------------- ------------------------ ---------------------------
Total shareholders' equity 23,862 23,584
-------------------------------------------------------------
Non-controlling interests 130 131
------------------------------------------------------------- ------------------------
Total reported assets were 19% higher than at 31 December 2021.
The group maintained a strong and liquid balance sheet with the
ratio of customer advances to customer accounts slightly decreasing
to 42% from 44% at 31 December 2021.
Assets
Cash and balances at central banks increased by 20% as a result
of increased customer deposits and the net repurchase agreements
position.
Trading assets and financial assets designated at fair value
decreased by 7% and 12% respectively primarily due to a decrease in
outright equity positions caused by market volatility.
Derivative assets increased by 43%. This was largely due to an
increase in mark-to-market of interest rate contracts as a result
of a shift in yield curves for major currencies and FX
volatility.
Non-trading reverse repurchase agreements increased by 7%
primarily due to an increase in market activity.
Financial investments decreased by 6% and included losses in OCI
due to adverse fluctuation in value of financial instruments
designated as hold-to-collect-and-sell, serving as hedges to our
exposure to interest rate movement, as a result of an increase in
the term market yield curves in the first half of 2022.
Liabilities
Customer accounts increased by 11% which is consistent with our
funding strategy to grow customer deposits and increase stable
funding.
Non-trading repurchase agreements increased by 26% reflective of
the increased market activity.
Trading liabilities and financial liabilities designated at fair
value balances decreased by 6% and 10% respectively reflective of
market trends and volatility.
Debt securities in issue decreased by 8% primarily due to
maturing medium and longer term debt.
Derivative liabilities increased by 39%. This is in line with
derivative assets as the underlying risk is broadly matched.
Other assets and other liabilities increased by 67% and 59%
respectively due to symmetrical movements in third-party settlement
accounts and cash collateral.
Equity
Total shareholders' equity remained broadly unchanged.
Reconciliation of alternative performance
measures
Return on average ordinary shareholders' equity and return on
average tangible equity
Return on average ordinary shareholders' equity ('RoE') is
computed by taking profit attributable to the ordinary shareholders
of the parent company ('reported results'), divided by average
ordinary shareholders' equity ('reported equity') for the period.
The adjustment to reported results and reported equity excludes
amounts attributable to non-controlling interests and holders of
preference shares and other equity instruments.
Return on average tangible equity ('RoTE') is computed by
adjusting reported results for the movements in the present value
of in-force long-term insurance business ('PVIF') and for
impairment of goodwill and other intangible assets (net of tax),
divided by average reported equity adjusted for goodwill,
intangibles and PVIF for the period.
Return on average tangible equity excluding significant items is
annualised profit attributable to ordinary shareholders, excluding
changes in PVIF, significant items and bank levy (net of tax),
divided by average tangible shareholders' equity excluding fair
value of own debt, debit valuation adjustment ('DVA') and other
adjustments for the period.
We provide RoTE ratio in addition to RoE as a way of assessing
our performance, which is closely aligned to our capital
position.
Return on average
ordinary
shareholders' equity
and return on
average tangible
equity
-------------------------------- ----------------------------------- -----------------------------------
Half-year ended Year ended
--------------------------------------------------------------------- -----------------------------------
30 Jun 30 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
-------------------- -------------------------------- ----------------------------------- -----------------------------------
Profit
-------------------- -------------------------------- ----------------------------------- -----------------------------------
Profit attributable
to the ordinary
shareholders
of the parent
company 178 695 847
-------------------- -------------------------------- ----------------------------------- -----------------------------------
Increase/(decrease)
in PVIF (net of
tax) (122) (117) (149)
-------------------- -------------------------------- ----------------------------------- -----------------------------------
Significant items
(net of tax) 242 74 461
-------------------- -------------------------------- ----------------------------------- -----------------------------------
Profit attributable
to the ordinary
shareholders,
excluding PVIF and
significant items 298 652 1,159
-------------------- -------------------------------- ----------------------------------- -----------------------------------
Equity
-------------------- -------------------------------- ----------------------------------- -----------------------------------
Average total
shareholders'
equity 23,642 23,565 23,629
-------------------- -------------------------------- ----------------------------------- -----------------------------------
Effect of average
preference shares
and other
equity instruments (3,861) (3,722) (3,722)
-------------------- -------------------------------- ----------------------------------- -----------------------------------
Average ordinary
shareholders'
equity 19,781 19,843 19,907
-------------------- -------------------------------- ----------------------------------- -----------------------------------
Effect of PVIF (net
of tax) (677) (529) (553)
-------------------- -------------------------------- ----------------------------------- -----------------------------------
Significant items
and other
adjustments (net
of tax) (145) (81) (92)
-------------------- -------------------------------- ----------------------------------- -----------------------------------
Average tangible
equity excluding
PVIF, significant
items and other
adjustments 18,959 19,233 19,262
-------------------- -------------------------------- ----------------------------------- -----------------------------------
Ratio
-------------------- -------------------------------- ----------------------------------- -----------------------------------
Return on average
ordinary
shareholders'
equity
(annualised) 1.8 7.0 4.3
-------------------- -------------------------------- ----------------------------------- -----------------------------------
Return on average
tangible equity
(annualised) 3.1 6.8 6.1
-------------------- -------------------------------- ----------------------------------- -----------------------------------
Risk
Risk overview
The group continuously identifies and monitors risks. This
process, which is informed by its risk factors and the results of
its stress testing programme, gives rise to the classification of
certain financial and non-financial risks. Changes in the
assessment of these risks may result in adjustments to the group's
business strategy and, potentially, its risk appetite.
Our banking risks include credit risk, treasury risk, market
risk, resilience risk, regulatory compliance risk, financial crime
and fraud risk and model risk. We also incur insurance risk. In
addition to these banking risks, we have identified top and
emerging risks with the potential to have a material impact on our
financial results, or reputation and the sustainability of our
long-term business model.
The exposure to our risks and risk management of these are
explained in more detail in the Risk section of the Report of the
Directors on pages 15 to 31.
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 may have a material impact on the
financial results, reputation or business model of the group in the
year ahead. Emerging risks are those that have large unknown
components and may form beyond a one-year horizon. If any of these
risks were to occur, they could have a material effect on the
group.
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 robust management actions are in place,
as required. Our current top and emerging risks are summarised
below and discussed in more detail on page 22 of the Annual Report
and Accounts 2021.
Risk Trend Description
================== ===== ======================================================================
Externally driven
-------------------------------------------------------------------------------------------------
Geopolitical p Our operations and portfolios are exposed to risks associated
and macroeconomic with political instability, civil unrest and military conflict,
risk which could lead to disruption of our operations, physical
risk to our staff and/or physical damage to our assets.
Heightened geopolitical tensions including the ongoing Russia/Ukraine
war, alongside the economic impacts that continue to result
from the Covid-19 pandemic, have also disrupted supply chains
globally, with potential ramifications for the group. These
events and rising inflation in the European region have
created a marked economic slowdown which will affect our
customers and our business.
------------------ ----- ----------------------------------------------------------------------
Cyber threat u The group is exposed to the risk of service disruption through
and unauthorised technology failures or malicious activity by internal or
access external threats. In response to the recent geopolitical
to systems events, including the Russia-Ukraine war, enhanced monitoring
of this risk is being undertaken. The group operates a continuous
improvement programme to enhance our technology operations
and to counter a hostile and fast-evolving cyber threat
environment.
------------------ ----- ----------------------------------------------------------------------
Regulatory u The Compliance risk environment continues to be complex,
focus on given heightened geopolitical tensions. In the first half
conduct of 2022, the group has seen an increased regulatory focus
of business on operational and cyber resilience, crypto-asset related
risks and sanctions and wider anti-money laundering controls.
These alongside other regulatory priorities may result in
regulatory change requirements across the group in the short
to medium term.
------------------ ----- ----------------------------------------------------------------------
Financial p We are supporting our customers against a backdrop of complex
crime and geopolitical, socioeconomic and technological challenges,
fraud risk including the Russia-Ukraine war. We are monitoring the
direct and indirect impacts on the group, and using our
sanctions compliance controls and expertise to respond to
the new sanctions regulations, noting the challenges that
arise in implementing the complex, novel and ambiguous aspects
of certain sanctions. All financial crime and fraud risk
drivers are regularly monitored, with management action
plans in place to close any control weaknesses.
------------------ ----- ----------------------------------------------------------------------
Ibor transition u We are primarily exposed to regulatory compliance, legal
and resilience risks as part of the transition away from
demising Ibor benchmarks, in advance of their cessation
dates, to new reference rates. As a result, we continue
to take into account the fairness of client outcomes, our
compliance with regulatory expectations and the operation
of our systems and processes. We continue to support the
transition of a small number of contracts in demised Ibors
and have begun our customer engagement for US dollar Libor
transition.
------------------ ----- ----------------------------------------------------------------------
Environmental, p We are exposed to ESG risks relating to climate change,
social nature and human rights. These risks have increased owing
and governance to the pace and volume of regulatory developments across
the region, and stakeholders placing more emphasis on financial
institutions' actions and investment decisions in respect
of ESG matters. If we fail to meet evolving regulatory and
stakeholder expectations on ESG risk management as a result
of any event, behaviour, action or inaction this may result
in financial and non-financial risks for us, including potential
reputational consequences.
------------------ ----- ----------------------------------------------------------------------
Internally driven
-------------------------------------------------------------------------------------------------
People p We monitor workforce capacity and capability requirements
risk in line with our published growth strategy, alongside risks
related to employment relations, practices, culture and
conduct. People risk has heightened in the first half of
2022 as the region is exposed to capacity and capability
risks associated with the retention of employees, combined
with persistent Covid-19 impacts as well as the effects
of the current geopolitical tensions on our employees. Strong
oversight continues to be maintained over people risks arising
from business changes and measures are being rolled out
to support our people with challenges resulting from the
current heightened inflationary pressures.
------------------ ----- ----------------------------------------------------------------------
IT systems u We continue to monitor and improve our IT systems and network
infrastructure resilience, both on our premises and on the Cloud to minimise
and resilience service disruption and improve customer experience. To support
the business strategy, we strengthened our end to end management,
build and deployment controls and system monitoring capabilities.
We continue to seek to reduce the complexity of our technology
estate and consolidate our core banking systems onto a single
strategic platform.
------------------ ----- ----------------------------------------------------------------------
Execution u Failure to effectively prioritise, manage and deliver change
risk impacts our ability to achieve our strategic objectives.
Our transformation programme continues to oversee all initiatives
mobilised to deliver the commitments made to restructure
the business and reduce costs. Given the scale, complexity
and pace of strategic change within the group, we must monitor,
manage and oversee change execution risk to ensure our change
portfolios and initiatives continue to deliver the right
control uplift and outcomes for our customers, people, investors
and communities.
------------------ ----- ----------------------------------------------------------------------
Model risk u Evolving regulatory requirements are driving material changes
to models across the banking industry with particular focus
on capital models. In addition, new technologies such as
machine learning are also driving changes to the model landscape
and the group's strategic focus on Climate risk is leading
to new areas of modelling being developed. A key area of
focus is ensuring our standards, processes and controls
are adequate to identify, measure and manage the resulting
model risks.
------------------ ----- ----------------------------------------------------------------------
Data management u We use data to serve our customers and run our internal
operations, often in real-time within digital journeys and
processes. If this data is not accurate and timely, our
ability to serve customers, operate with resilience, or
meet regulatory requirements could be impacted. We must
ensure the confidentiality of data and comply with the growing
number of laws and regulations governing data privacy and
the cross-border movement of data.
------------------ ----- ----------------------------------------------------------------------
Third-party u We procure services and goods from a range of third parties.
risk management It is critical that we have appropriate risk management
policies, processes and practices over the selection and
governance of third parties and their supply network, particularly
for key activities that could affect our operational resilience.
Any deficiency in the management of risks associated with
our third parties could affect our ability to support our
customers and meet regulatory expectations.
------------------ ----- ----------------------------------------------------------------------
p Risk has heightened during the
first half of 2022
u Risk remains at the same level
as 31 December 2021
Managing risk
We aim to use a comprehensive risk management approach across
the organisation and across all risk types, underpinned by our
culture and values. This is outlined in our risk management
framework, including the key principles and practices that we
employ in managing material risks, both financial and
non-financial. The repercussions from the Russia-Ukraine war,
alongside other current geopolitical tensions and challenging
economic conditions, have impacted our customers and our
organisation throughout the first half of 2022. Despite the
roll-out of Covid-19 vaccines across Europe, the pandemic continued
to cause varying degrees of uncertainty. We continue to focus on
improving the quality and timeliness of the data used to inform
management decisions, through measures such as early warning
indicators, prudent active risk management of our risk appetite,
and ensuring regular communication with our Board and key
stakeholders.
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.
Capital and liquidity remain at the core of our risk appetite
framework, with forward-looking statements informed by stress
testing. We continue to develop our climate risk appetite as we
engage with businesses on including climate risk in decision making
and starting to embed climate risk appetite into business
planning.
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 may have a material impact on our
financial results, reputation or business model in the year ahead.
Emerging risks are those that have large unknown components and may
form beyond a one-year horizon. If any of these risks were to
occur, they could have a material effect on the group.
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 robust management actions are in place,
as required.
Our current top and emerging risks are summarised on the next
page and discussed in more detail on page 22 of our Annual Report
and Accounts 2021.
Areas of special interest
During the first half of 2022, a number of areas have been
identified and considered as part of our top and emerging risks
because of the effect they may have on the group. In this section
we have focused on geopolitical and macroeconomic risk;
climate-related risks and Ibor transition.
Geopolitical and macroeconomic risk
Our operations and portfolios are exposed 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.
Heightened geopolitical tensions, alongside challenges resulting
from the Covid-19 pandemic, have disrupted supply chains globally
and created potential negative ramifications for the group. The
Russia-Ukraine war has led to elevated geopolitical tensions and
resulted in the US, the UK and the EU, as well as other
territories, imposing significant sanctions and other trade
restrictions against the Russian government and its officials,
alongside individuals with close ties to the Russian government and
a number of Russian financial institutions and companies. Russia
has implemented certain countermeasures in response. We continue to
respond to the extensive sanctions and trade restrictions that have
been imposed. The challenges that arise in implementing the
complex, novel and ambiguous aspects of certain sanctions could
create additional regulatory compliance and reputational risks for
the group.
The Russia-Ukraine conflict continues to have far-reaching
geopolitical and economic implications and we are monitoring the
direct and indirect impacts of the war on the group. Our business
in Russia principally serves multinational corporate clients
headquartered in other countries and is not accepting new business
or customers, and is consequently on a declining trend. Following a
strategic review of our business in Russia, HSBC
Europe BV (a wholly-owned subsidiary of HSBC Bank plc) has
entered into an agreement to sell its wholly-owned subsidiary HSBC
Bank (RR) (Limited Liability Company), subject to regulatory
approvals.
Global commodity markets have been significantly impacted by the
Russian-Ukraine war and the Covid-19 pandemic, leading to sustained
supply chain disruptions. This has resulted in product shortages
appearing across the European region and increased prices for both
energy and non-energy commodities (such as food). The resulting
sharp increase in inflation is creating further challenges for
monetary authorities and our customers. The ongoing uncertainty,
rise in the cost of living and decline in consumer confidence has
helped contribute to an economic slowdown.
Central banks have stepped up the pace of policy tightening in
2022 to help ease inflationary pressures, including in Europe,
where the ECB has begun to increase interest rates. Price pressures
may increase further in coming months as the effects of the
Russia-Ukraine war and supply chain disruptions intensify. This may
lead central banks to increase tightening to a greater level than
currently envisaged. There is an increasing risk that a combination
of significant monetary policy tightening and
worse-than-anticipated economic effects from the Russia-Ukraine
war, including as a result of continued pressure exerted through
extensive sanctions, trade restrictions and Russian
countermeasures, could precipitate a recession in Europe and other
parts of the global economy. We will continue to monitor our risk
profile closely in the context of uncertainty over monetary
policy.
Second order impacts from the Russia-Ukraine war and other
geopolitical events remain uncertain and may lead to significant
credit losses on specific exposures, which may not be fully
captured in our ECL estimates. Higher inflationary concerns in the
region are also having an impact on ECL. In the first half of 2022
we continued to carry out enhanced monitoring of model outputs and
use of model overlays, including management judgemental adjustments
based on the expert judgement of senior credit risk managers.
Inflation has been considered both directly in certain models, and
assessed via adjustments where not directly considered. Continuing
economic uncertainty resulting from heightened inflation could
cause ECL model inputs to produce modelled loss results that are
not reliable. Government programmes implemented across Europe
during the Covid-19 pandemic to support businesses and individuals
also impacted the level of credit losses, which in turn may have
impacted the longer-term reliability of our loss and capital
models. As a result, these models may require significant
change.
Political disagreements between the UK and the EU, notably over
the future operation of the Northern Ireland Protocol (the
'Protocol') have stalled the creation of a framework for voluntary
regulatory cooperation in financial services following the UK's
withdrawal from the EU. While negotiations are continuing, it is
unclear whether or when an agreement over the Northern Ireland
Protocol will be reached, particularly as the UK government is
currently in a period of political uncertainty amid a leadership
election to replace Boris Johnson as Prime Minister. In June 2022,
the UK government published proposed legislation which seeks to
amend the Protocol in a number of respects. The terms of such
proposal may be subject to legal challenge by the EU and any such
dispute, together with any retaliatory action that the EU may take,
could further complicate the terms of trade between the UK and the
EU and potentially prevent progress in other areas such as
financial services. We are monitoring the situation closely,
including the potential impacts on our customers.
Our business could also be adversely affected by economic or
political developments in regions of the world outside Europe. This
reflects our extensive business links, through members of the Group
and other entities, in Asia and elsewhere. Diplomatic tensions
between China and the US, extending to the UK, the EU, India and
other countries, and political developments in Hong Kong and
Taiwan, may adversely affect the group. The US, the UK, the EU,
Canada and other countries have imposed various sanctions and trade
restrictions on Chinese persons and companies.
In response to foreign sanctions and trade restrictions, China
has also announced sanctions, trade restrictions and laws that
could impact the group and its customers.
Despite the roll-out of vaccines in the EU and around the world,
the Covid-19 pandemic and its effect on the global economy have
continued to impact our customers and organisation. High
vaccination rates in 2022 maintained across Europe have enabled the
removal of most Covid-19-related restrictions on activity and
constraints on travel. Countries continue to differ in their
approach to restrictions and where restrictions remain during
potential future Covid-19 pandemic waves, this could prolong or
worsen supply chain and international travel disruptions. Renewed
outbreaks and new Covid-19 variants and sub-variants pose a
continuing risk and could result in governments across Europe
reintroducing restrictions, which could impact our personal and
business customers.
Our Central scenario used to calculate impairment assumes that
economic growth across our key markets will slow in the near term
due to the impacts of supply disruptions and price inflation with
growth to return to long-term expected trend in later years.
However, there is a high degree of uncertainty associated with
economic forecasts in the current environment and there are
significant risks to our Central scenario. For further details of
our Central and other scenarios, see 'Measurement uncertainty and
sensitivity analysis of ECL estimates' on page 24.
We continue to monitor the geopolitical and macroeconomic
situation closely, and given the significant uncertainties,
additional mitigating actions may be required.
Climate-related risks
The pace of policy and regulatory developments focusing on
climate risk management, disclosures, and stress testing and
scenario analysis continued to increase in 2022. The Russian
invasion of Ukraine continues to significantly impact the global
commodity markets, necessitating actions in the short term around
energy security. While these actions may impact the near-term
transition path for the group and our customers, we remain
committed to the HSBC Group climate strategy to align our own
operations and supply chain to net zero by 2030, and the financed
emissions from our portfolio of customers to net zero by 2050. As
announced by the HSBC Group in March 2022, the Group intends to
publish a climate transition plan in 2023, and have committed to a
science-aligned phase-down of fossil fuel finance, and a review of
our wider financing and investment policies critical to achieving
net zero by 2050.
Our most material risks in terms of managing climate risk relate
to corporate and retail client financing within our banking
portfolio. We continue to monitor the impacts of climate risk and
further embed our approach across our key risk areas, priority
countries and business lines.
We have refreshed our credit risk policy to further embed
climate risk considerations into our corporate credit decisions for
new money requests and delivered guidance on the oil and gas, power
and utilities and metals and mining sectors. We continue to develop
guidance for our other higher transition risk sectors. To help with
risk assessment, our developing transition and physical risk
questionnaire is currently live across 10 sectors and over 10
countries to determine the level of transition risk and physical
risk exposure which may affect credit decisioning.
In addition to financial risks arising in our corporate banking
portfolio, we could also face increased reputational, legal and
regulatory risks as we make progress towards our net zero ambition,
as stakeholders are likely to place a greater focus on our actions,
investment decisions and disclosures related to this ambition. We
will face these same risks if we are perceived to have misled
stakeholders regarding our climate strategy, the climate impact of
a product or service, or regarding the commitments of our
customers. In response to this risk, we have published guidance to
increase awareness of greenwashing risk across the first and second
lines of defence.
We continued to develop our climate stress testing and scenario
capabilities, including model development, and delivered
regulatory climate stress tests. These are being used to further
improve our understanding of our risk exposures for use in risk
management and business decision making.
While climate risk reporting, in particular reporting on
financed emissions, has improved over time, data quality and
consistency continues to be a key dependency as we develop our risk
appetite and metrics throughout the remainder of 2022.
The methodologies we have used may develop over time in line
with market practice and regulations, as well as owing to
developments in climate science. Any developments in data and
methodologies could result in revisions to reported data going
forward, including on financed emissions, meaning that reported
figures may not be reconcilable or comparable year-on-year. We may
also have to re-evaluate our progress towards our climate-related
targets in future and this could result in reputational, legal and
regulatory risks.
We have also created a product enhancement guide to outline how
climate considerations should be embedded into existing product
governance processes throughout the product lifecycle, across the
group.
Ibor transition
The publication of sterling, Swiss franc, euro and Japanese yen
Libor interest rate benchmarks, as well as Euro Overnight Index
Average ('Eonia') ceased from the end of 2021. Our interbank
offered rate ('Ibor') transition programme, which is tasked with
the development of new near risk-free rate ('RFR') products and the
transition of legacy Ibor products, has continued to transition a
limited number of remaining contracts in these benchmarks to RFRs,
or alternative rates.
During the first half of 2022, we continued to develop
processes, technology and RFR product capabilities in our remaining
locations that have a requirement for US dollar Libor alternatives.
We also implemented controls and are monitoring to help ensure we
do not undertake any new US dollar Libor contracts outside of
agreed upon exemptions and that we control the associated risks. We
have begun to engage with our clients to support them through the
transition of their US dollar Libor and other demising Ibor
contracts, with progress made on the transition of trade, hedging
and uncommitted lending facilities.
We continue to actively engage in market and industry
discussions around the transition of US dollar Libor and other
demising Ibors, and consultations related to ceasing the use of
'synthetic' sterling and Japanese yen Libor.
While we have less than 30 lending and derivatives contracts
remaining in Ibors that demised from the end of 2021, we continue
to engage with our clients and industry bodies to help ensure that
contracts can be transitioned with fair client outcomes.
For US dollar Libor and other demising Ibors, we continue to be
exposed to, and actively monitor, risks including:
-- Regulatory compliance and conduct risks: The transition of
legacy contracts, or sales of products referencing RFRs, may not
deliver fair client outcomes;
-- Resilience and operational risks: Changes to manual and
automated processes, made in support of new RFR methodologies and
the transition of large volumes of contracts may lead to
operational issues;
-- Legal risk: Issues arising from the use of legislative
solutions and from legacy contracts that the group is unable to
transition may result in unintended or unfavourable outcomes for
clients and market participants. This could potentially increase
the risk of disputes;
-- Model risk: As a result of changes to our models, to replace
Ibor related data, there is a risk that the accuracy of model
output is adversely affected;
-- Market risk: As a result of differences in Libor and RFR
interest rates, we are exposed to basis risk resulting from the
asymmetric adoption of rates across assets, liabilities and
products.
Based on our experience in transitioning contracts referencing
Ibors that demised from the end of 2021, and assessment of the
risks that relate to the transition of US dollar Libor contracts,
we do not believe that our risk position has materially changed
during the first half of 2022. Increased market and industry use of
alternative rates, including the Secured Overnight Funding Rate
('SOFR'), have further reduced potential risks relating to the
transition away from US dollar Libor. We will continue to monitor
market initiatives and have developed controls and plans to help
mitigate these risks. We will monitor these risks through the
development of our product capabilities and the transition of
legacy contracts, with a focus on fair client outcomes.
Throughout the remainder of 2022, and into 2023, we are
committed to engaging with our clients and investors to complete an
orderly transition from the remaining Ibors. Additionally,
following the recent announcement relating to the cessation of the
Canadian dollar offered rate ('CDOR') after June 2024, we are
assessing the impacts and will take appropriate actions to effect
the transition.
Financial instruments impacted by Ibor reform
Financial instruments yet
to transition to alternative
benchmarks, by main benchmark
----------------------------------------------------------------------------------------------------------
USD Libor GBP Libor EONIA Others(1)
At 30 Jun 2022 GBPm GBPm GBPm GBPm
--------------- ------------------------- ------------------------- ------------------------- -------------------------
Non-derivative
financial
assets(2)
--------------- ------------------------- ------------------------- ------------------------- -------------------------
Loans and 5,678 - - -
advances to
customers
--------------- ------------------------- ------------------------- ------------------------- -------------------------
Financial
investments 1,167 16 - -
--------------- ------------------------- ------------------------- ------------------------- -------------------------
Others 771 116 - -
--------------- ------------------------- ------------------------- ------------------------- -------------------------
Total
non-derivative
financial
assets 7,616 132 - -
--------------- ------------------------- ------------------------- ------------------------- -------------------------
Non-derivative
financial
liabilities
--------------- ------------------------- ------------------------- ------------------------- -------------------------
Subordinated 1,274 - - -
liabilities
--------------- ------------------------- ------------------------- ------------------------- -------------------------
Others 519 - - -
--------------- ------------------------- ------------------------- ------------------------- -------------------------
Total 1,793 - - -
non-derivative
financial
liabilities
--------------- ------------------------- ------------------------- ------------------------- -------------------------
Derivative
notional
contract amount
--------------- ------------------------- ------------------------- ------------------------- -------------------------
Foreign
exchange 8,198 1,423 - 965
--------------- ------------------------- ------------------------- ------------------------- -------------------------
Interest rate 1,720,110 2,249 1,490 4,356
--------------- ------------------------- ------------------------- ------------------------- -------------------------
Others - - - 144,453
--------------- ------------------------- ------------------------- ------------------------- -------------------------
Total
derivative
notional
contract
amount 1,728,308 3,672 1,490 149,774
--------------- ------------------------- ------------------------- ------------------------- -------------------------
At 31 Dec 2021
--------------- ------------------------- ------------------------- -------------------------- --------------------------
Non-derivative
financial
assets(2)
--------------- ------------------------- ------------------------- -------------------------- --------------------------
Loans and
advances to
customers 5,999 2,562 - 26
--------------- ------------------------- ------------------------- -------------------------- --------------------------
Financial
investments 1,171 140 - -
--------------- ------------------------- ------------------------- -------------------------- --------------------------
Others 693 499 - -
--------------- ------------------------- ------------------------- -------------------------- --------------------------
Total
non-derivative
financial
assets 7,863 3,201 - 26
--------------- ------------------------- ------------------------- -------------------------- --------------------------
Non-derivative
financial
liabilities
--------------- ------------------------- ------------------------- -------------------------- --------------------------
Subordinated 1,145 - - -
liabilities
--------------- ------------------------- ------------------------- -------------------------- --------------------------
Others 479 181 - -
--------------- ------------------------- ------------------------- -------------------------- --------------------------
Total
non-derivative
financial
liabilities 1,624 181 - -
--------------- ------------------------- ------------------------- -------------------------- --------------------------
Derivative
notional
contract amount
--------------- ------------------------- ------------------------- -------------------------- --------------------------
Foreign
exchange 8,288 1,568 - 1,080
--------------- ------------------------- ------------------------- -------------------------- --------------------------
Interest rate 1,567,577 215,377 1,679 76,059
--------------- ------------------------- ------------------------- -------------------------- --------------------------
Others - - - -
--------------- ------------------------- ------------------------- -------------------------- --------------------------
Total
derivative
notional
contract
amount 1,575,865 216,945 1,679 77,139
--------------- ------------------------- ------------------------- -------------------------- --------------------------
1 Comprises financial instruments referencing other significant
demising benchmark rates (euro Libor, Swiss franc Libor, Japanese
Yen Libor, SOR and THBFIX Sibor).
2 Gross carrying amount excluding allowances for expected credit losses.
3 The amounts in the above table do not represent amounts at
risk as the steps to transition for certain trades have been
completed.
The amounts in the above table relate to the group's main
operating entities where we have material exposures impacted by
Ibor reform, including in the United Kingdom, France and Germany.
The amounts provide an indication of the extent of the group's
exposure to the Ibor benchmarks that are due to be replaced.
Amounts are in respect of financial instruments that:
-- Contractually reference an interest rate benchmark that is
planned to transition to an alternative benchmark;
-- Have a contractual maturity date beyond the date by which the
reference interest rate benchmark is expected to cease; and
-- Are recognised on the group's consolidated balance sheet.
Interest rate benchmark reform: Amendments to IFRS 9 and IAS 39
'Financial Instruments'
The group has applied both the first set of amendments ('Phase
1') and the second set of amendments ('Phase 2') to IFRS 9 and IAS
39 applicable to hedge accounting. The hedge accounting
relationships that are affected by Phase 1 and Phase 2 amendments
are presented in the balance sheet as
'Financial assets designated and otherwise mandatorily measured
at fair value through other comprehensive income', 'Loans and
advances to customers', 'Debt securities in issue' and 'Deposits by
banks'. The notional value of the derivatives impacted by the Ibor
reform, including those designated in hedge accounting
relationships, is disclosed above in the section 'Financial
instruments impacted by Ibor reform'. It is expected that the
transition out of US dollar Libor hedging derivatives will be
largely completed by the end of 2022. This transition does not
necessitate any new approaches compared with the mechanisms used so
far for transition and it will not be necessary to change the
transition risk management strategy. There is no significant
judgement required for US dollar Libor to determine whether and
when the transition uncertainty has been resolved.
For some of the Ibors included under the 'Other' header in the
table below, judgement was needed to establish whether a transition
is required. This is because there are Ibor benchmarks subject to
computation improvements and insertion of fallback provisions where
their administrators have yet to provide full clarity on whether or
when these Ibor benchmarks will be demised.
The notional amounts of interest rate derivatives designated in
hedge accounting relationships do not represent the extent of the
risk exposure managed by the group but they are expected to be
directly affected by market-wide Ibor reform and in scope of
Phase 1 amendments and are shown in the table below. The
cross-currency swaps designated in hedge accounting relationships
and affected by Ibor reform are not significant and have not been
presented below:
Hedging instrument impacted by Ibor reform
Hedging instrument
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Impacted by Ibor reform
------------------------------------------------------------------------------------------------------------------------
EUR(1) USD Other(2) Total Not Impacted
by Ibor Notional
reform Amount(3)
GBPm GBPm GBPm GBPm GBPm GBPm
------- --------------------------- ------------------------------ ------------------------------ --------------------------- --------------------------- --------------------------
Fair
Value
Hedges 7,357 351 121 7,829 23,627 31,456
------- --------------------------- ------------------------------ ------------------------------ --------------------------- --------------------------- --------------------------
Cash
Flow
Hedges 5,213 - - 5,213 13,170 18,383
------- --------------------------- ------------------------------ ------------------------------ --------------------------- --------------------------- --------------------------
At 30
Jun
2022 12,570 351 121 13,042 36,797 49,839
------- --------------------------- ------------------------------ ------------------------------ --------------------------- --------------------------- --------------------------
Fair
Value
Hedges 6,407 336 124 6,867 17,619 24,486
------- --------------------------- ------------------------------ ------------------------------ --------------------------- --------------------------- --------------------------
Cash
Flow
Hedges 5,877 - - 5,877 9,190 15,067
------- --------------------------- ------------------------------ ------------------------------ --------------------------- --------------------------- --------------------------
At 31
Dec
2021 12,284 336 124 12,744 26,809 39,553
------- --------------------------- ------------------------------ ------------------------------ --------------------------- --------------------------- --------------------------
1 The notional contract amounts of euro interest rate
derivatives impacted by Ibor reform mainly comprise hedges with
Euribor benchmarks.
2 Other benchmarks impacted by Ibor reform comprise derivatives
that are expected to be impacted by the transition, but do not have
a published cessation date.
3 The notional contract amounts of interest rate derivatives
designated in qualifying hedge accounting relationships indicate
the nominal value of transactions outstanding at the balance sheet
date. They do not represent amounts at risk.
Key developments in the first half
of 2022
We continued to actively manage those risks related to the
Russia-Ukraine war and broader macroeconomic and geopolitical
uncertainties alongside the continued risks resulting from the
Covid-19 pandemic during the first half of 2022, as well as other
key risks described in this section. In addition, we enhanced our
risk management in the following areas:
-- We have continued to improve our risk governance decision
making, particularly with regard to the governance of treasury risk
to ensure senior executives have appropriate oversight and
visibility of macroeconomic trends around inflation and interest
rates.We enhanced our enterprise risk reporting processes to place
a greater focus on our emerging risks, including by capturing the
materiality, oversight and individual monitoring of these
risks.
-- We enhanced our third-party risk management framework and
processes to improve visibility of the role our material third
parties play in our operational resilience and including compliance
with regulatory requirements by our supply network. Further work on
enhancing this framework will continue during 2022.
-- We enhanced, and continue to embed, the governance and
oversight around model adjustments and related processes for IFRS 9
models.
-- We are refreshing our financial crime policies, ensuring they
remain up-to-date and address changing and emerging risks, and we
continue to monitor regulatory changes.
Credit risk
Page
Summary of credit risk 23
--------------------------------- ----
Measurement uncertainty and
sensitivity analysis of ECL
estimates 26
--------------------------------- ----
Reconciliation of changes in
gross carrying/nominal amount
and allowances for loans and
advances to banks and customers
including loan commitments
and financial guarantees 31
--------------------------------- ----
Overview
Credit risk is the risk of financial loss if a customer or
counterparty fails to meet an obligation under a contract. Credit
risk arises principally from direct lending, trade finance and
leasing business, but also from certain other products, such as
guarantees and derivatives.
Credit risk in the first half of 2022
There were no material changes to credit risk policy in the
first half of 2022.
During the first half of 2022, we adopted the EBA 'Guidelines on
the application of definition of default' for our retail
portfolios. This did not have a material impact on our retail
portfolios. This was undertaken for our wholesale lending
portfolios during 2021.
A summary of our current policies and practices for the
management of credit risk is set out in 'Credit risk management' on
pages 32 and 33 of the Annual Report and Accounts 2021.
At 30 June 2022, gross loans and advances to customers and banks
of GBP112.4bn increased by GBP9.3bn, compared with
31 December 2021. This included favourable foreign exchange
movements of GBP1.7bn. Excluding foreign exchange movements, the
growth was driven by a GBP2.5bn increase in wholesale loans and
advances to customers and a GBP5.2bn increase in loans and advances
to banks.
This was partly offset by a GBP0.1bn decrease in personal loans
and advances to customers.
At 30 June 2022, the allowance for ECL of GBP1,470m increased by
GBP211m compared with 31 December 2021. The allowance comprised
GBP1,372m in respect of assets held at amortised cost, GBP74m in
respect of loan commitments and financial guarantees, and GBP24m in
respect of debt instruments measured at FVOCI.
Excluding foreign exchange movements, the allowance for ECL in
relation to loans and advances to customers increased by GBP50m
from 31 December 2021.
This was mainly attributable to:
-- a GBP90m increase in wholesale loans and advances to
customers, of which GBP57m was driven by stage 1 and 2, and GBP33m
was driven by stage 3; and
-- a GBP42m decrease in personal loans and advances to customers in stage 3.
The ECL charge for the first six months of 2022 was GBP187m,
inclusive of recoveries. This was mainly driven by higher stage 2
and 3 charges, heightened economic uncertainty and inflationary
pressures.
At 30 June 2022, net credit exposures to Russia of GBP1bn
(GBP1.1bn gross carrying amounts and GBP0.1bn allowances for ECL)
were reclassified to assets held for sale as we have entered into
an agreement to sell HSBC Bank (RR) (Limited Liability Company),
subject to regulatory approvals.
Summary of credit risk
The following disclosure presents the gross carrying/nominal
amount of financial instruments to which the impairment
requirements in IFRS9 are applied and the associated allowance for
ECL.
The following tables analyse loans by industry sector which
represent the concentration of exposures on which credit risks are
managed.
Summary of financial instruments to which the impairment requirements
in IFRS 9 are applied
At 30 Jun 2022 At 31 Dec 2021
------------------------------------------------------------------------------- ----------------------------------------------------------------
Gross carrying/
nominal Allowance Gross carrying/nominal Allowance
amount for ECL(1) amount for ECL(1)
GBPm GBPm GBPm GBPm
--------------- ------------------------------------------- ---------------------------------- --------------------------------- -----------------------------
Loans and
advances to
customers at
amortised cost 96,064 (1,224) 92,331 (1,154)
--------------- ------------------------------------------- ---------------------------------- --------------------------------- -----------------------------
* personal 25,738 (126) 25,394 (163)
---------------
- corporate and
commercial 57,678 (1,021) 56,087 (964)
---------------
- non-bank
financial
institutions 12,648 (77) 10,850 (27)
--------------- ------------------------------------------- ---------------------------------- ---------------------------------
Loans and
advances to
banks at
amortised
cost 16,384 (35) 10,789 (5)
--------------- ------------------------------------------- ---------------------------------- --------------------------------- -----------------------------
Other financial
assets
measured at
amortised cost 253,869 (113) 202,137 (9)
--------------- ------------------------------------------- ---------------------------------- --------------------------------- -----------------------------
- cash and
balances at
central banks 126,759 - 108,482 -
---------------
- items in the
course of
collection
from other
banks 801 - 346 -
- reverse
repurchase
agreements -
non-trading 57,996 - 54,448 -
---------------
- financial
investments 1,563 - 10 -
---------------
- prepayments,
accrued income
and
other
assets(2) 66,750 (113) 38,851 (9)
--------------- ------------------------------------------- ---------------------------------- ---------------------------------
Total gross
carrying
amount
on-balance
sheet 366,317 (1,372) 305,257 (1,168)
--------------- ------------------------------------------- ---------------------------------- --------------------------------- -----------------------------
Loans and other
credit related
commitments 134,227 (59) 115,695 (55)
--------------- ------------------------------------------- ---------------------------------- --------------------------------- -----------------------------
- personal 2,432 - 2,269 (1)
---------------
- corporate and
commercial 65,672 (54) 63,352 (48)
---------------
- financial 66,123 (5) 50,074 (6)
--------------- ------------------------------------------- ---------------------------------- ---------------------------------
Financial
guarantees(3) 3,944 (15) 11,054 (17)
--------------- ------------------------------------------- ---------------------------------- --------------------------------- -----------------------------
- personal 25 - 26 -
---------------
- corporate and
commercial 2,764 (14) 9,894 (16)
---------------
- financial 1,155 (1) 1,134 (1)
--------------- ------------------------------------------- ---------------------------------- ---------------------------------
Total nominal
amount
off-balance
sheet(4) 138,171 (74) 126,749 (72)
--------------- ------------------------------------------- ---------------------------------- --------------------------------- -----------------------------
504,488 (1,446) 432,006 (1,240)
--------------- ------------------------------------------- ---------------------------------- --------------------------------- -----------------------------
Memorandum Memorandum
allowance allowance
Fair for for
value ECL(5) Fair value ECL(5)
GBPm GBPm GBPm GBPm
--------------- ------------------------------------------- ---------------------------------- --------------------------------- -----------------------------
Debt
instruments
measured at
fair
value through
other
comprehensive
income
('FVOCI') 37,077 (24) 41,188 (19)
--------------- ------------------------------------------- ---------------------------------- --------------------------------- -----------------------------
1 The total ECL is recognised in the loss allowance for the
financial asset unless the total ECL exceeds the gross carrying
amount of the financial asset, in which case the ECL is recognised
as a provision.
2 Includes only those financial instruments which are subject to
the impairment requirements of IFRS 9. 'Prepayments, accrued income
and other assets' as presented within the consolidated balance
sheet on page 59 includes both financial and non-financial
assets.
3 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
4 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
5 Debt instruments measured at FVOCI continue to be measured at
fair value with the allowance for ECL as a memorandum item. Change
in ECL is recognised in 'Change in expected credit losses and other
credit impairment charges' in the income statement.
The following table provides an overview of the group's credit
risk by stage and industry, and the associated ECL coverage. The
financial assets recorded in each stage have the following
characteristics:
-- Stage 1: These financial assets are unimpaired and without a
significant increase in credit risk for which a 12-month allowance
for ECL is recognised.
-- Stage 2: A significant increase in credit risk has been
experienced on these financial assets since initial recognition for
which a lifetime ECL is recognised.
-- Stage 3: There is objective evidence of impairment and the
financial assets are therefore considered to be in default or
otherwise credit impaired for which a lifetime ECL is
recognised.
-- POCI: Financial assets that are purchased or originated at a
deep discount are seen to reflect the incurred credit losses on
which a lifetime ECL is recognised.
Summary of credit risk (excluding debt instruments measured at FVOCI)
by stage distribution and ECL coverage by industry sector
at 30 June 2022
Gross carrying/nominal Allowance for ECL ECL coverage %
amount(2)
---------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------
Stage Stage Stage POCI(3) Total Stage Stage Stage POCI(3) Total Stage Stage Stage POCI(3) Total
1 2 3 1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % % % % %
-------------------------------------- --------------- -------------- -------------- ---------- --------------- -------------- -------------- -------------- ----------- ------------------------------ ----------- --------------- ------------------ ------------------ -----------
Loans and
advances
to customers
at amortised
cost 78,445 15,220 2,397 2 96,064 (94) (215) (913) (2) (1,224) 0.1 1.4 38.1 100.0 1.3
-------------------------------------- --------------- -------------- -------------- ---------- --------------- -------------- -------------- -------------- ----------- ------------------------------ ----------- --------------- ------------------ ------------------ -----------
- personal 23,981 1,432 325 - 25,738 (14) (27) (85) - (126) 0.1 1.9 26.2 - 0.5
-------------------------------------- ----------- --------------- ------------------ ------------------ -----------
* corporate and commercial 42,567 13,286 1,823 2 57,678 (77) (179) (763) (2) (1,021) 0.2 1.3 41.9 100.0 1.8
-------------------------------------- ----------- --------------- ------------------ ------------------ -----------
* non-bank financial institutions 11,897 502 249 - 12,648 (3) (9) (65) - (77) - 1.8 26.1 - 0.6
-------------------------------------- --------------- -------------- -------------- ---------- --------------- -------------- -------------- -------------- ----------- ------------------------------ ----------- --------------- ------------------ ------------------ -----------
Loans and
advances
to banks
at amortised
cost 16,230 89 65 - 16,384 (1) (18) (16) - (35) - 20.2 24.6 - 0.2
-------------------------------------- --------------- -------------- -------------- ---------- --------------- -------------- -------------- -------------- ----------- ------------------------------ ----------- --------------- ------------------ ------------------ -----------
Other financial
assets measured
at amortised
cost 253,523 208 138 - 253,869 (7) (53) (53) - (113) - 25.5 38.4 - -
-------------------------------------- --------------- -------------- -------------- ---------- --------------- -------------- -------------- -------------- ----------- ------------------------------ ----------- --------------- ------------------ ------------------ -----------
Loan and
other credit-related
commitments 128,481 5,570 176 - 134,227 (17) (30) (12) - (59) - 0.5 6.8 - -
-------------------------------------- --------------- -------------- -------------- ---------- --------------- -------------- -------------- -------------- ----------- ------------------------------ ----------- --------------- ------------------ ------------------ -----------
- personal 2,366 61 5 - 2,432 - - - - - - - - - -
-------------------------------------- ----------- --------------- ------------------ ------------------ -----------
* corporate and commercial 60,409 5,095 168 - 65,672 (16) (26) (12) - (54) - 0.5 7.1 - 0.1
-------------------------------------- ----------- --------------- ------------------ ------------------ -----------
- financial 65,706 414 3 - 66,123 (1) (4) - - (5) - 1.0 - - -
-------------------------------------- --------------- -------------- -------------- ---------- --------------- -------------- -------------- -------------- ----------- ------------------------------ ----------- --------------- ------------------ ------------------ -----------
Financial
guarantees(1) 3,366 509 69 - 3,944 - (7) (8) - (15) - 1.4 11.6 - 0.4
-------------------------------------- --------------- -------------- -------------- ---------- --------------- -------------- -------------- -------------- ----------- ------------------------------ ----------- --------------- ------------------ ------------------ -----------
- personal 22 2 1 - 25 - - - - - - - - - -
-------------------------------------- ----------- --------------- ------------------ ------------------ -----------
* corporate and commercial 2,329 368 67 - 2,764 - (7) (7) - (14) - 1.9 10.4 - 0.5
-------------------------------------- ----------- --------------- ------------------ ------------------ -----------
- financial 1,015 139 1 - 1,155 - - (1) - (1) - - 100.0 - 0.1
-------------------------------------- --------------- -------------- -------------- ---------- --------------- -------------- -------------- -------------- ----------- ------------------------------ ----------- --------------- ------------------ ------------------ -----------
At 30 Jun
2022 480,045 21,596 2,845 2 504,488 (119) (323) (1,002) (2) (1,446) - 1.5 35.2 100.0 0.3
-------------------------------------- --------------- -------------- -------------- ---------- --------------- -------------- -------------- -------------- ----------- ------------------------------ ----------- --------------- ------------------ ------------------ -----------
1 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
2 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
3 Purchased or originated credit-impaired ('POCI').
Unless identified at an earlier stage, all financial assets are
deemed to have suffered a significant increase in credit risk when
they are 30 days past due ('DPD') and are transferred from stage 1
to stage 2. The following disclosure presents the ageing of
stage 2 financial assets by those less than 30 and greater than
30 DPD and therefore presents those financial assets classified as
stage 2 due to ageing ('30 DPD') and those identified at an earlier
stage (less than 30 DPD).
Stage 2 days past due analysis at 30 June 2022
Gross carrying
amount Allowance for ECL ECL coverage %
-------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------
of which: of which: of which: of which: of which: of which:
30 30 30
Stage 1 to and Stage 1 to and Stage 1 to and
2 29 DPD(1,2) > DPD(1,2) 2 29 DPD(1,2) > DPD(1,2) 2 29 DPD(1,2) > DPD(1,2)
GBPm GBPm GBPm GBPm GBPm GBPm % % %
------------- -------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- --------------- ----------- ---------------
Loans and
advances
to customers
at amortised
cost 15,220 82 400 (215) (3) (2) 1.4 3.7 0.5
------------- -------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- --------------- ----------- ---------------
- personal 1,432 50 50 (27) (3) (2) 1.9 6.0 4.0
------------- --------------- ----------- ---------------
- corporate
and
commercial 13,286 32 279 (179) - - 1.3 - -
------------- --------------- ----------- ---------------
- non-bank
financial
institutions 502 - 71 (9) - - 1.8 - -
------------- -------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- --------------- ----------- ---------------
Loans and
advances
to banks at
amortised
cost 89 - 8 (18) - - 20.2 - -
------------- -------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- --------------- ----------- ---------------
Other
financial
assets
measured at
amortised
cost 208 3 3 (53) - (2) 25.5 - 66.7
------------- -------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- --------------- ----------- ---------------
1 Days past due ('DPD'). Up-to-date accounts in stage 2 are not shown in amounts presented above.
2 The days past due amounts presented above are on a contractual
basis and include the benefit of any customer relief payment
holidays granted.
Summary of credit risk (excluding debt instruments measured at FVOCI)
by stage distribution and ECL coverage by industry sector at
31 December 2021 (continued)
Gross carrying/nominal
amount(2) Allowance for ECL ECL coverage %
-------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ --------------------------------------------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
1 2 3 POCI(3) Total 1 2 3 POCI(3) Total 1 2 3 POCI(3) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % % % % %
-------------------------------------- ------------------------ -------------- -------------- -------------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- ------------- ----------------- ----------
Loans and
advances
to customers
at amortised
cost 80,730 9,121 2,478 2 92,331 (86) (158) (908) (2) (1,154) 0.1 1.7 36.6 100.0 1.2
-------------------------------------- ------------------------ -------------- -------------- -------------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- ------------- ----------------- ----------
- personal 24,255 686 453 - 25,394 (22) (16) (125) - (163) 0.1 2.3 27.6 - 0.6
-------------------------------------- ---------- ---------- ------------- ----------------- ----------
* corporate and commercial 46,237 8,066 1,782 2 56,087 (58) (137) (767) (2) (964) 0.1 1.7 43.0 100.0 1.7
-------------------------------------- ---------- ---------- ------------- ----------------- ----------
* non-bank financial institutions 10,238 369 243 - 10,850 (6) (5) (16) - (27) 0.1 1.4 6.6 - 0.2
-------------------------------------- ------------------------ -------------- -------------- -------------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- ------------- ----------------- ----------
Loans and
advances
to banks
at amortised
cost 10,750 39 - - 10,789 (4) (1) - - (5) - 2.6 - - -
-------------------------------------- ------------------------ -------------- -------------- -------------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- ------------- ----------------- ----------
Other financial
assets measured
at amortised
cost 202,048 47 42 - 202,137 - - (9) - (9) - - 21.4 - -
-------------------------------------- ------------------------ -------------- -------------- -------------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- ------------- ----------------- ----------
Loan and
other credit
related commitments 107,922 7,571 202 - 115,695 (25) (22) (8) - (55) - 0.3 4.0 - -
-------------------------------------- ------------------------ -------------- -------------- -------------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- ------------- ----------------- ----------
- personal 2,152 114 3 - 2,269 (1) - - - (1) - - - - -
-------------------------------------- ---------- ---------- ------------- ----------------- ----------
* corporate and commercial 56,325 6,829 198 - 63,352 (20) (20) (8) - (48) - 0.3 4.0 - 0.1
-------------------------------------- ---------- ---------- ------------- ----------------- ----------
- financial 49,445 628 1 - 50,074 (4) (2) - - (6) - 0.3 - - -
-------------------------------------- ------------------------ -------------- -------------- -------------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- ------------- ----------------- ----------
Financial
guarantees(1) 10,215 740 99 - 11,054 (3) (7) (7) - (17) - 0.9 7.1 - 0.2
-------------------------------------- ------------------------ -------------- -------------- -------------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- ------------- ----------------- ----------
- personal 23 2 1 - 26 - - - - - - - - - -
-------------------------------------- ---------- ---------- ------------- ----------------- ----------
* corporate and commercial 9,257 540 97 - 9,894 (2) (7) (7) - (16) - 1.3 7.2 - 0.2
-------------------------------------- ---------- ---------- ------------- ----------------- ----------
- financial 935 198 1 - 1,134 (1) - - - (1) 0.1 - - - 0.1
-------------------------------------- ------------------------ -------------- -------------- -------------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- ------------- ----------------- ----------
At 31 Dec
2021 411,665 17,518 2,821 2 432,006 (118) (188) (932) (2) (1,240) - 1.1 33.0 100.0 0.3
-------------------------------------- ------------------------ -------------- -------------- -------------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- ------------- ----------------- ----------
1 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
2 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
3 Purchased or originated credit-impaired ('POCI').
Stage 2 days past due analysis at 31 December 2021 (continued)
Gross carrying amount Allowance for ECL ECL coverage %
--------------------------------------------------------------------- ------------------------------------------------------------------------- -----------------------------------
of which: of which: of which: of which: of which: of which:
30 30 1 to 30
Stage 1 to and Stage 1 to and Stage 29 and
2 29 DPD(1,2) > DPD(1,2) 2 29 DPD(1,2) > DPD(1,2) 2 DPD(1,2) > DPD(1,2)
GBPm GBPm GBPm GBPm GBPm GBPm % % %
------------- --------------------- ---------------------- ---------------------- ----------------------- ----------------------- ----------------------- ---------- ---------- -----------
Loans and
advances
to customers
at amortised
cost 9,121 56 237 (158) (1) (1) 1.7 1.8 0.4
------------- --------------------- ---------------------- ---------------------- ----------------------- ----------------------- ----------------------- ---------- ---------- -----------
- personal 686 49 29 (16) (1) (1) 2.3 2.0 3.4
------------- ---------- ---------- -----------
- corporate
and
commercial 8,066 7 199 (137) - - 1.7 - -
------------- ---------- ---------- -----------
- non-bank
financial
institutions 369 - 9 (5) - - 1.4 - -
------------- --------------------- ---------------------- ---------------------- ----------------------- ----------------------- ----------------------- ---------- ---------- -----------
Loans and
advances
to banks at
amortised
cost 39 - - (1) - - 2.6 - -
------------- --------------------- ---------------------- ---------------------- ----------------------- ----------------------- ----------------------- ---------- ---------- -----------
Other
financial
assets
measured at
amortised
cost 47 - - - - - - - -
------------- --------------------- ---------------------- ---------------------- ----------------------- ----------------------- ----------------------- ---------- ---------- -----------
1 Days past due ('DPD'). Up-to-date accounts in stage 2 are not shown in amounts presented above.
2 The days past due amounts presented above are on a contractual
basis and include the benefit of any customer relief payment
holidays granted.
Stage 2 decomposition as at 30 June 2022
The following table presents the stage 2 decomposition of gross
carrying amount and allowances for ECL for loans and advances to
customers. It also sets out the reasons why an exposure is
classified as stage 2 as at 30 June 2022.
The quantitative classification shows gross carrying values and
allowances for ECL for which the applicable reporting date
probability of default ('PD') measure exceeds defined quantitative
thresholds for retail and wholesale exposures, as set out in
Note 1.2 'Summary of significant accounting policies', on page
119 of the Annual Report and Accounts 2021.
The qualitative classification primarily accounts for credit
risk rating ('CRR') deterioration, watch-and-worry and retail
management judgemental adjustments.
A summary of our current policies and practices for the
significant increase in credit risk is set out in 'Summary of
significant accounting policies' on page 119 of the Annual Report
and Accounts 2021.
Loans and advances to customers at 30 June 2022(1)
Gross carrying amount Allowance for ECL
---------------------------------------------
Corporate Non-bank Corporate Non-bank ECL
and financial and financial Coverage
Personal commercial institutions Total Personal commercial institutions Total % Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
------------- -------- ------------ ------------- ------ -------- ------------- ------------- ----- ---------
Quantitative 465 8,488 160 9,113 (19) (87) (2) (108) 1.2
------------- -------- ------------ ------------- ------ -------- ------------- ------------- ----- ---------
Qualitative 927 4,519 271 5,717 (8) (92) (7) (107) 1.9
------------- -------- ------------ ------------- ------ -------- ------------- ------------- ----- ---------
30 DPD
backstop(2) 40 279 71 390 - - - - -
------------- -------- ------------ ------------- ------ -------- ------------- ------------- ----- ---------
Total stage
2 1,432 13,286 502 15,220 (27) (179) (9) (215) 1.4
------------- -------- ------------ ------------- ------ -------- ------------- ------------- ----- ---------
Loans and advances to customers at 31 December 2021(1)
Gross carrying amount Allowance for ECL
------------------------------------------- -------------------------------------------
Corporate Non-bank Corporate Non-bank ECL
and financial and financial Coverage
Personal commercial institutions Total Personal commercial institutions Total % Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
----------------- -------- ----------- ------------- ----- -------- ----------- ------------- ----- ---------
Quantitative 561 3,611 162 4,334 (13) (41) (1) (55) 1.3
----------------- -------- ----------- ------------- ----- -------- ----------- ------------- ----- ---------
Qualitative 102 4,260 198 4,560 (2) (96) (4) (102) 2.2
----------------- -------- ----------- ------------- ----- -------- ----------- ------------- ----- ---------
30 DPD
backstop(2) 23 195 9 227 (1) - - (1) 0.4
----------------- -------- ----------- ------------- ----- -------- ----------- ------------- ----- ---------
Total stage
2 686 8,066 369 9,121 (16) (137) (5) (158) 1.7
----------------- -------- ----------- ------------- ----- -------- ----------- ------------- ----- ---------
1 Where balances satisfy more than one of the above three
criteria for determining a significant increase in credit risk, the
corresponding gross exposure and ECL have been assigned in order of
categories presented.
2 Days past due ('DPD').
Measurement uncertainty and sensitivity
analysis of ECL estimates
There continues to be a high degree of uncertainty in relation
to economic scenarios. The increased risks of lower economic growth
with higher inflation and unemployment have been exacerbated by the
geopolitical environment and the effects of global supply chain
disruption. The level and speed of recovery from the global
pandemic remains volatile. As a result of this uncertainty,
management judgements and estimates continue to reflect a degree of
caution both in the selection of economic scenarios and their
weightings, and in the use of management judgemental adjustments,
described in more detail below. Additional stage 1 and 2 allowances
were recorded in respect of the heightened levels of
uncertainty.
The recognition and measurement of ECL involves the use of
significant judgement and estimation. We form multiple economic
scenarios based on economic forecasts, apply these assumptions to
credit risk models to estimate future credit losses, and
probability-weight the results to determine an unbiased ECL
estimate.
Methodology
Five economic scenarios have been used to capture the current
economic environment and to articulate management's view of the
range of potential outcomes. Scenarios produced to calculate ECL
are aligned to HSBC's top and emerging risks.
Of the four standard scenarios, three are drawn from consensus
forecasts and distributional estimates. The fourth scenario,
Downside 2, represents management's view of severe downside risks.
In second quarter of 2022, management chose to use an additional
fifth scenario, known as Downside 1, to ensure that current
supply-side risks are sufficiently reflected in forward economic
guidance. The scenario is designed to capture the implications of a
sustained global supply shock that keeps inflation elevated for a
long period, raises unemployment and depresses GDP growth.
The use of an additional scenario is in line with HSBC's forward
economic guidance methodology. Management may include additional
scenarios when consensus scenarios are determined to inadequately
capture the economic risks faced by the Group. Unlike the consensus
scenarios, these additional scenarios are driven by narrative
assumptions aligned to an identified risk and may incorporate
shocks that drive economic activity permanently away from long-term
trend.
Description of economic scenarios
The economic assumptions presented in this section have been
formed by HSBC, with reference to external forecasts specifically
for the purpose of calculating ECL.
Economic forecasts are subject to a high degree of uncertainty
in the current environment. Risks to the outlook are dominated by
the actions of central banks as they raise interest rates to bring
inflation back to target and curtail a rise in inflation
expectations. The implications of the war in Ukraine and the
progression and management of the pandemic in Asia also remain key
sources of uncertainty. Other geopolitical risks, such as the
evolution of the UK's relationship with the EU and differences
between the US and China over a range of strategic issues, also
present downside risks.
The five global scenarios used for the purpose of calculating
ECL at 30 June 2022 are the consensus Central scenario, the
consensus Upside scenario, the consensus Downside scenario, the
Downside 1 scenario and the Downside 2 scenario.
The scenarios used to calculate ECL in the Interim Report 2022
are described below.
The consensus Central scenario
HSBC's Central scenario features a gradual slowdown in GDP
growth through 2022 and 2023, following a strong recovery in 2021.
Unemployment is expected to remain low through this period.
GDP forecasts have been lowered in recent quarters. The sharp
rise in inflation, related to supply shortages and rising commodity
prices, has started to weigh on growth as costs rise and real
income growth stalls.
The Central scenario assumes that inflation peaks in 2022 and,
supported by tighter monetary policy, reverts back towards central
bank targets by the end of 2023.
Global GDP is expected to grow by 3.3% in 2022 in the Central
scenario. The average rate of global GDP growth is expected to be
2.8% over the forecast period, which is in line with the average
growth rate over the five-year period prior to the onset of the
pandemic.
Across the key markets, the Central scenario assumes the
following:
-- Economic growth is expected to slow in the near term as
supply chain disruptions and price inflation diminish purchasing
power. Growth is expected to return to long-term expected trend in
later years as supply chain issues are assumed to ease and
inflation returns towards their target.
-- Unemployment is expected to remain close to pre-pandemic
levels and labour market conditions remain tight across our key
markets.
-- Inflation is expected to remain elevated in 2022 as
commodity, food and goods prices remain high. Inflation is
subsequently expected to converge back to central bank targets over
the next two years of the forecast.
-- Policy interest rates in key markets are expected to rise
over the first 18 months of the projection period as central banks
tighten policy to bring inflation back towards their targets.
Thereafter, they settle at higher levels than they were
pre-pandemic.
-- The West Texas Intermediate oil price is expected to average
above $100 in the first two years of the forecast, before dropping
back as supply constraints ease. Over the entire projection the oil
price is expected to average $81 per barrel.
The Central scenario was created from consensus forecasts
available in May, and subsequently updated in June. Dispersion
between the constituent forecasts of the consensus remains
unusually high, suggesting an elevated level of uncertainty. As a
consequence, probability weights assigned to the Central scenario
vary from 40% to 50% to reflect the uncertainty inherent in
economic forecasts across markets.
The following table describes key macroeconomic variables and
the probabilities assigned in the consensus Central scenario.
Central scenario (3Q22-2Q27)
UK France
% %
--------------------- ----------- -----------
GDP growth rate
--------------------- ----------- -----------
2022: Annual average
growth rate 3.7 2.9
--------------------- ----------- -----------
2023: Annual average
growth rate 1.4 1.8
--------------------- ----------- -----------
2024: Annual average
growth rate 1.6 1.6
--------------------- ----------- -----------
5-year average 1.6 1.5
--------------------- ----------- -----------
Unemployment rate
--------------------- ----------- -----------
2022: Annual average
rate 4.0 7.5
--------------------- ----------- -----------
2023: Annual average
rate 4.2 7.4
--------------------- ----------- -----------
2024: Annual average
rate 4.1 7.3
--------------------- ----------- -----------
5-year average 4.1 7.3
--------------------- ----------- -----------
House price growth
--------------------- ----------- -----------
2022: Annual average
growth rate 9.2 5.8
--------------------- ----------- -----------
2023: Annual average
growth rate 2.9 4.5
--------------------- ----------- -----------
2024: Annual average
growth rate 2.9 4.1
--------------------- ----------- -----------
5-year average 3.3 3.9
--------------------- ----------- -----------
Inflation rate
--------------------- ----------- -----------
2022: Annual average
rate 8.3 4.5
--------------------- ----------- -----------
2023: Annual average
rate 4.7 2.4
--------------------- ----------- -----------
2024: Annual average
rate 2.1 2.0
--------------------- ----------- -----------
5-year average 3.2 2.3
--------------------- ----------- -----------
Probability 50 40
--------------------- ----------- -----------
The graphs compare the respective Central scenarios at year end
2021 with current economic expectations in the second quarter of
2022.
GDP growth: Comparison of Central scenarios
UK
Note: Real GDP shown as year-on-year percentage change.
France
Note: Real GDP shown as year-on-year percentage change.
The consensus Upside scenario
Compared with the consensus Central scenario, the consensus
Upside scenario features a faster rate of GDP growth during the
first two years, before converging to long-run expected trends. The
scenario is demand-driven and is consistent with a number of key
upside risk themes. These include the faster resolution of supply
chain issues; a rapid and peaceful conclusion to the Russia-Ukraine
war; de-escalation of tensions between the US and China; and
improved relations between the UK and the EU.
The following table describes key macroeconomic variables and
the probabilities assigned in the consensus Upside scenario.
Consensus Upside scenario 'best
outcome'
UK France
% %
------------------- ----------------------- -------------------
GDP growth rate 4.3 (2Q24) 3.4 (2Q23)
------------------- --------------- ------ ----------- ------
Unemployment
rate 3.2 (2Q24) 6.4 (2Q24)
------------------- --------------- ------ ----------- ------
House price growth 9.8 (3Q22) 6.1 (3Q23)
------------------- --------------- ------ ----------- ------
Inflation rate 10.2 (3Q22) 6.7 (4Q22)
------------------- --------------- ------ ----------- ------
Probability 10 10
------------------- ----------------------- -------------------
Note: Extreme point in the consensus Upside is 'best outcome' in
the scenario, for example the highest GDP growth and the lowest
unemployment rate, in the first two years of the scenario inflation
is positively correlated with GDP in the Upside scenario, and the
'best outcome' also refers to the cyclical high point.
Downside scenarios
Downside scenarios explore the intensification and
crystallisation of a number of key economic and financial
risks.
Inflation and the monetary policy response to it have become key
concerns for global growth. Supply chain disruptions, caused by the
Covid-19 pandemic and the Russia-Ukraine war, have led to sharp
rises in commodity prices and headline price inflation across many
markets. A key concern is that inflation expectations become
unanchored from central bank targets, particularly as labour
markets and labour supply shortages across some sectors are putting
upward pressure on wages. The de-anchoring of inflation
expectations would raise the risk that inflation remains elevated
for longer, exacerbating cost pressures and the squeeze on
household real incomes and corporate margins. In turn, it raises
the risk of a more forceful policy response from central banks, a
steeper trajectory for interest rates and ultimately, economic
recession.
Covid-19-related risks also remain significant. Despite the
easing of Covid-19-related restrictions across Europe, the
emergence of a new Covid-19 variant with greater vaccine-resistance
that necessitates a stringent public health policy response remains
a key risk to the global outlook.
The geopolitical environment also present risks, including:
-- a prolonged Russia-Ukraine war with escalation beyond Ukraine's borders;
-- the deterioration of the trading relationship between the UK
and the EU over the Northern Ireland Protocol; and
-- continued differences between the US and other countries with
China, which could affect sentiment and restrict global economic
activity.
The consensus Downside scenario
In the consensus Downside scenario, economic activity is
considerably weaker compared with the Central scenario. In this
scenario, GDP growth weakens, unemployment rates rise and asset
prices fall. The scenario is structured as a demand shock where
inflation and commodity prices fall, before gradually recovering
towards their long-run expected trends.
The following table describes key macroeconomic variables and
the probabilities assigned in the consensus Downside scenario.
Consensus Downside scenario 'worst
outcome'
UK France
% %
------------------- ------------------------------------ ------------------------------------
GDP growth rate (0.7) (2Q23) 0.1 (2Q23)
------------------- ---------------------------- ------ ---------------------------- ------
Unemployment
rate 5.5 (2Q23) 8.5 (1Q23)
------------------- ---------------------------- ------ ---------------------------- ------
House price growth (4.1) (3Q23) 2.4 (2Q23)
------------------- ---------------------------- ------ ---------------------------- ------
Inflation rate 0.7 (2Q24) (0.6) (2Q23)
------------------- ---------------------------- ------ ---------------------------- ------
Probability 0 0
------------------- ------------------------------------ ------------------------------------
Note: Extreme point in the consensus Downside is 'worst outcome'
in the scenario, for example the lowest GDP growth and the highest
unemployment rate, in the first two years of the scenario.
Inflation is positively correlated with GDP in the Downside
scenario and the 'worst outcome' refers to the cyclical low
point.
Downside 1 scenario
An additional Downside scenario has been created to explore the
implications of a prolonged period of high price inflation, a more
aggressive upward path for policy interest rates, higher
unemployment and a global recession.
In this scenario, the Russia-Ukraine war leads to a sustained
supply shock that keeps inflation elevated above the baseline for a
longer period than in the other scenarios.
The scenario assumes that major central banks are slow to
respond, but as inflation expectations start to de-anchor from the
inflation target, they resort to taking stronger action. The rise
in interest rates is expected to cause a severe credit crunch that
ultimately results in a global economic contraction later in the
projection period.
The following table describes key macroeconomic variables and
the probabilities assigned in the Downside 1 scenario.
Downside 1 scenario' worst outcome'
UK France
% %
------------------- ------------------------------------- ------------------------------------
GDP growth rate (3.7) (1Q25) (3.1) (1Q25)
------------------- ----------------------------- ------ ---------------------------- ------
Unemployment
rate 6.6 (1Q24) 9.1 (3Q25)
------------------- ----------------------------- ------ ---------------------------- ------
House price growth (11.9) (1Q24) (2.0) (4Q24)
------------------- ----------------------------- ------ ---------------------------- ------
Inflation rate 9.5 (3Q22) 5.0 (4Q22)
------------------- ----------------------------- ------ ---------------------------- ------
Probability 30 35
------------------- ------------------------------------- ------------------------------------
Note: Extreme point in the additional Downside is 'worst
outcome' in the scenario, for example the lowest GDP growth and the
highest inflation and unemployment rate.
Downside 2 scenario
The Downside 2 scenario features a deep global recession and
reflects management's view of the tail of the economic risk
distribution. It incorporates the crystallisation of a number of
risks simultaneously, including further escalation of the
Russia-Ukraine war, worsening of supply chain disruptions and the
emergence of a vaccine-resistant Covid-19 variant that necessitates
a stringent public health policy response.
This scenario features an initial supply-side shock that pushes
up inflation. This impulse is expected to prove short lived as a
large downside demand shock causes commodity prices to correct
sharply and global price inflation to slow as a severe and
prolonged recession takes hold.
The following table describes key macroeconomic variables and
the probabilities assigned in the Downside 2 scenario.
Downside 2 scenario 'worst outcome'
UK France
% %
------------------- ------------------------------------- ------------------------------------
GDP growth rate (6.3) (2Q23) (5.5) (2Q23)
------------------- ----------------------------- ------ ---------------------------- ------
Unemployment
rate 8.5 (3Q23) 10.2 (2Q24)
------------------- ----------------------------- ------ ---------------------------- ------
House price growth (15.2) (3Q23) (4.5) (2Q24)
------------------- ----------------------------- ------ ---------------------------- ------
Inflation rate (2.2) (4Q23) (2.7) (4Q23)
------------------- ----------------------------- ------ ---------------------------- ------
Probability 10 15
------------------- ------------------------------------- ------------------------------------
Note: Extreme point in the Downside 2 is 'worst outcome' in the
scenario, for example the lowest GDP growth and the highest
unemployment rate in the first two years of the scenario. After a
temporary increase, inflation remains positively correlated with
GDP in the Downside 2 scenario and the 'worst outcome' refers to
the scenario low point.
Scenario weightings
In reviewing the economic conjuncture, the level of uncertainty
and risk, management has considered both global and
country-specific factors. This has led management to assigning
scenario probabilities that are tailored to its view of uncertainty
in individual markets.
A key consideration in second quarter of 2022 has been the high
level of uncertainty attached to the Central scenario projections.
These concerns focused on:
-- the risks of higher inflation given the risks attached to gas
supply security in Europe and global oil supply. In turn, that
raises the possibility of a more significant impact on real incomes
and GDP growth; and
-- market interest rate expectations that imply a rapid and
significant change to the interest rate environment.
In the UK, the surge in price inflation and a squeeze on
household real incomes have led to strong monetary policy responses
from central banks. Economic and financial volatility remains
elevated due to uncertainty around the implications of higher
interest rates. For the UK, the consensus Upside and Central
scenarios had a combined weighting of 60%.
France faces the greatest economic uncertainties of our key
markets. Uncertainties around the outlook remain elevated due to
Europe's exposure to the war in Ukraine through the economic costs
incurred from the imposition of sanctions, trade disruption and
energy dependence on Russia. Additional risks stem from the ECB's
anticipated exit from a long period of negative interest rate
policy. The consensus Upside and Central scenarios had a combined
weighting of 50%.
The following graphs show the historical and forecasted GDP
growth rate for the various economic scenarios in UK and
France.
UK
France
Note: Real GDP shown as year-on-year percentage change.
Critical accounting estimates and judgements
The calculation of ECL under IFRS 9 involves significant
judgements, assumptions and estimates, as set out in the Annual
Report and Accounts 2021 under 'Critical accounting estimates and
judgements'. The level of estimation uncertainty and judgement has
remained high since 31 December 2021, including judgements relating
to:
-- the selection and weighting of economic scenarios, given
rapidly changing economic conditions and a wide distribution of
economic forecasts. There is judgement in making assumptions about
the effects of inflation, supply chain disruption and length of
time and severity of the continuing economic effects of the
Covid-19 pandemic and health policy responses; and
-- estimating the economic effects of those scenarios on ECL,
particularly as the historical relationship between macroeconomic
variables and defaults might not reflect the dynamics of high
inflation scenarios.
How economic scenarios are reflected in ECL calculations
The methodologies for the application of forward economic
guidance into the calculation of ECL for wholesale and retail loans
and portfolios are set out on page 44 of the Annual Report and
Accounts 2021. Models are used to reflect economic scenarios on ECL
estimates. These models are based largely on historical
observations and correlations with default rates.
Economic forecasts and ECL model responses to these forecasts
are subject to a high degree of uncertainty in the current
environment, and models continue to be supplemented by management
judgemental adjustments where required.
Management judgemental adjustments
In the context of IFRS 9, management judgemental adjustments are
typically increases or decreases to the ECL at either a customer,
segment or portfolio level to account for late-breaking events,
model deficiencies and other assessments applied during management
review and challenge.
This includes refining model inputs and outputs and using
post-model adjustments based on management judgement and higher
level quantitative analysis for impacts that are difficult to
model.
The wholesale and retail management judgemental adjustments are
presented as part of the global business impairment committees with
independent review from Model Risk Management. This is in line with
the governance process for IFRS 9 as set out on page 32 of the
Annual Report and Accounts 2021.
The drivers of the management judgemental adjustments continue
to evolve with the economic environment.
We have internal governance in place to monitor management
judgemental adjustments regularly and, where possible, to reduce
the reliance on these through model recalibration or redevelopment,
as appropriate.
Management judgemental adjustments made in estimating the
reported ECL at 30 June 2022 are set out in the following
table.
Management judgemental adjustments
to ECL at 30 June 2022(1)
Retail Wholesale Total
GBPm GBPm GBPm
------------------------- -------------------- ------------------- --------------------
Banks, sovereigns
and government entities - (30) (30)
------------------------- -------------------- ------------------- --------------------
Corporate lending
adjustments - 78 78
------------------------- -------------------- ------------------- --------------------
Inflation-related
adjustments 2 - 2
------------------------- -------------------- ------------------- --------------------
Macroeconomic-related
adjustments 12 64 76
------------------------- -------------------- ------------------- --------------------
Pandemic-related
economic recovery
adjustments - - -
------------------------- -------------------- ------------------- --------------------
Other retail lending
adjustments 8 - 8
------------------------- -------------------- ------------------- --------------------
Total 22 112 134
------------------------- -------------------- ------------------- --------------------
Management judgemental adjustments
to ECL at 31 December 2021(1)
Retail Wholesale Total
GBPm GBPm GBPm
------------------------- --------------------- ------------------- ---------------------
Banks, sovereigns
and government entities - (4) (4)
------------------------- --------------------- ------------------- ---------------------
Corporate lending
adjustments - 31 31
Macroeconomic related
adjustments 17 - 17
------------------------- --------------------- ------------------- ---------------------
Pandemic-related
economic recovery
adjustments 3 - 3
------------------------- --------------------- ------------------- ---------------------
Other retail lending - - -
adjustments
------------------------- --------------------- ------------------- ---------------------
Total 20 27 47
------------------------- --------------------- ------------------- ---------------------
1 Management judgemental adjustments presented in the table
reflect increases or (decreases) to ECL, respectively.
Adjustments to expected credit loss ('ECL') allowances on
wholesale credit risk exposures added GBP112m to allowances at 30
June 2022 (31 December 2021: GBP27m). These adjustments include the
outcome of management judgements on high-risk and vulnerable
sectors in some of our key markets and on geopolitical risk and
macroeconomic uncertainty in Europe, supported by quantitative
analyses and benchmarks, and by internal credit experts'
assessments of risks. Considerations included potential default
suppression in some sectors due to continued government
intervention as well as relevant idiosyncratic factors such as the
Russia-Ukraine conflict, rising inflation, gas supply-chain
squeeze, and geopolitical risk in Europe.
Net adjustments of GBP112m (31 December 2021: GBP27m) comprise
GBP208m (31 December 2021: GBP131m) management judgements, notably
a GBP80m (31 December 2021: GBP131m) adjustment on high-risk and
vulnerable sectors, a GBP64m (31 December 2021: nil) adjustment as
a result of the Russia-Ukraine conflict and a GBP64m (31 December
2021: nil) adjustment to reflect heightened macroeconomic
uncertainty across Europe. These were offset by GBP96m (31 December
2021: GBP104m) other adjustments that reduced allowances, notably
those to reflect export credit agency guarantees that mitigate
credit risk.
In the retail portfolio, management judgemental adjustments were
an ECL increase of GBP22m at 30 June 2022 (30 December 2021: GBP20m
increase).
-- Inflation-related adjustments increased ECL by GBP2m (31
December 2021: nil). These adjustments addressed where
country-specific inflation risks were not fully captured by the
modelled output.
-- Macroeconomic-related adjustments increased ECL by GBP12m (31
December 2021: GBP17m). These adjustments were primarily in
relation to model oversensitivity as well as country-specific risks
related to future macroeconomic conditions.
-- Other retail lending adjustments increased ECL by GBP8m (31
December 2021: nil), reflecting those customers who remain in or
have recently exited customer support programmes and all other data
and model adjustments.
Economic scenarios sensitivity analysis of ECL estimates
Management considered the sensitivity of the ECL outcome against
the economic forecasts as part of the ECL governance process by
recalculating the ECL under each scenario described above for
selected portfolios, applying a 100% weighting to each scenario in
turn. The weighting is reflected in both the determination of a
significant increase in credit risk and the measurement of the
resulting ECL.
The ECL calculated for the Upside and Downside scenarios should
not be taken to represent the upper and lower limits of possible
ECL outcomes. The impact of defaults that might occur in the future
under different economic scenarios is captured by recalculating ECL
for loans in stages 1 and 2 at the balance sheet date. The
population of stage 3 loans (in default) at the balance sheet date
is unchanged in these sensitivity calculations. Stage 3 ECL would
only be sensitive to changes in forecasts of future economic
conditions if the loss-given default of a particular portfolio was
sensitive to these changes.
There is a particularly high degree of estimation uncertainty in
numbers representing tail risk scenarios when assigned a 100%
weighting.
For wholesale credit risk exposures, the sensitivity analysis
excludes ECL for financial instruments related to defaulted
obligors because the measurement of ECL is relatively more
sensitive to credit factors specific to the obligor than future
economic scenarios. Therefore, it is impracticable to separate the
effect of macroeconomic factors in individual assessments.
For retail credit risk exposures, the sensitivity analysis
includes ECL for loans and advances to customers related to
defaulted obligors. This is because the retail ECL for secured
mortgage portfolios, including loans in all stages, is sensitive to
macroeconomic variables.
Wholesale and retail sensitivity
The wholesale and retail sensitivity analysis is stated
inclusive of management judgemental adjustments, as appropriate to
each scenario. The results tables exclude portfolios held by the
insurance business and small portfolios, and as such cannot be
directly compared to personal and wholesale lending presented in
other credit risk tables. Additionally, in both the wholesale and
retail analysis, the Downside 1 scenario was introduced during
first half of 2022 and therefore was not present at 31 December
2021.
Wholesale analysis
IFRS 9 ECL sensitivity to future
economic conditions(1,2)
UK France
At 30 June 2022 GBPm GBPm
---------------------------- ------------------- -------------------
Reported ECL 124 114
Consensus Central scenario
ECL 97 98
---------------------------- ------------------- -------------------
Consensus Upside scenario
ECL 81 87
---------------------------- ------------------- -------------------
Consensus Downside scenario
ECL 113 117
---------------------------- ------------------- -------------------
Downside 1 scenario ECL 175 126
---------------------------- ------------------- -------------------
Downside 2 scenario ECL 260 146
---------------------------- ------------------- -------------------
Gross carrying amount 132,466 142,094
---------------------------- ------------------- -------------------
IFRS 9 ECL sensitivity to future
economic conditions(1,2)
UK France
At 31 December 2021 GBPm GBPm
---------------------------- ------- -------
Reported ECL 104 98
Consensus Central scenario
ECL 90 89
---------------------------- ------- -------
Consensus Upside scenario
ECL 71 78
---------------------------- ------- -------
Consensus Downside scenario
ECL 109 120
---------------------------- ------- -------
Downside 2 scenario ECL 189 138
Gross carrying amount 142,450 120,955
---------------------------- ------- -------
1 ECL sensitivity includes off-balance sheet financial
instruments that are subject to significant measurement
uncertainty.
2 Includes low credit-risk financial instruments such as debt
instruments at FVOCI, which have high carrying amounts but low ECL
under all the above scenarios.
At 30 June 2022, the most significant level of 100% weighted ECL
was observed in the UK. This higher sensitivity was largely driven
by significant exposure and downside risks of specific sectors.
Retail analysis
IFRS 9 ECL sensitivity to future
economic conditions(1)
UK France
At 30 June 2022 GBPm GBPm
Reported ECL 6 88
Consensus Central scenario
ECL 5 87
---------------------------- --------------------- -------------------
Consensus Upside scenario
ECL 5 87
---------------------------- --------------------- -------------------
Consensus Downside scenario
ECL 6 88
---------------------------- --------------------- -------------------
Downside 1 scenario ECL 7 89
---------------------------- --------------------- -------------------
Downside 2 scenario ECL 9 90
---------------------------- --------------------- -------------------
Gross carrying amount 2,061 18,759
---------------------------- --------------------- -------------------
IFRS 9 ECL sensitivity to future
economic conditions(1)
UK France
At 31 December 2021 GBPm GBPm
Reported ECL 5 91
Consensus Central scenario
ECL 4 91
---------------------------- ---------------------- --------------------
Consensus Upside scenario
ECL 4 91
---------------------------- ---------------------- --------------------
Consensus Downside scenario
ECL 5 92
---------------------------- ---------------------- --------------------
Downside 2 scenario ECL 10 93
Gross carrying amount 2,007 18,295
---------------------------- ---------------------- --------------------
1 ECL sensitivities exclude portfolios utilising less complex modelling approaches.
Reconciliation of changes in gross carrying/nominal amount and
allowances for loans and advances to banks and customers including
loan commitments and financial guarantees
The following disclosure provides a reconciliation by stage of
the group's gross carrying/nominal amount and allowances for loans
and advances to banks and customers, including loan commitments and
financial guarantees. Movements are calculated on a quarterly basis
and therefore fully capture stage movements between quarters. If
movements were calculated on a year-to-date basis they would only
reflect the opening and closing position of the financial
instrument.
The transfers of financial instruments represent the impact of
stage transfers upon the gross carrying/nominal amount and
associated allowance for ECL.
The net remeasurement of ECL arising from stage transfers
represents the increase or decrease due to these transfers, for
example, moving from a 12-month (stage 1) to a lifetime (stage 2)
ECL measurement basis. Net remeasurement excludes the underlying
customer risk rating ('CRR')/probability of default ('PD')
movements of the financial instruments transferring stage.
This is captured, along with other credit quality movements in
the 'changes in risk parameters - credit quality' line item.
Changes in 'New financial assets originated or purchased',
'assets derecognised (including final repayments)' and 'changes to
risk parameters - further lending/repayments' represent the impact
from volume movements within the group's lending portfolio.
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees(1)
Non-credit impaired Credit impaired
------------------------------------------------------------------------------------ -------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Total
------------------------------------------ ---------------------------------------- ---------------------------------------- ------------------------------------------- ------------------------------------------
Gross Gross Gross
Gross Allowance carrying/ carrying/ Allowance carrying/ Allowance Gross Allowance
carrying/nominal for nominal Allowance nominal for nominal for carrying/nominal for
amount ECL amount for ECL amount ECL amount ECL amount ECL
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
At 1 Jan 2022 179,612 (118) 17,471 (188) 2,779 (923) 2 (2) 199,864 (1,231)
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
Transfers of
financial
instruments: (8,451) (12) 8,209 30 242 (18) - - - -
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
- transfers from
stage 1 to stage
2 (12,948) 8 12,948 (8) - - - - - -
-------------------
- transfers from
stage 2 to stage
1 4,490 (19) (4,490) 19 - - - - - -
-------------------
- transfers to
stage
3 (64) - (275) 20 339 (20) - - - -
-------------------
- transfers from
stage 3 71 (1) 26 (1) (97) 2 - - - -
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- --------------------
Net remeasurement
of ECL arising
from
transfer of stage - 11 - (10) - - - - - 1
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
New financial
assets
originated or
purchased 25,703 (16) - - - - 1 (1) 25,704 (17)
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
Asset derecognised
(including final
repayments) (11,795) 2 (1,273) 7 (152) 20 - - (13,220) 29
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
Changes to risk
parameters -
further
lending/repayments (9,703) 22 (2,959) (23) (56) 40 (1) 1 (12,719) 40
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
Changes to risk
parameters -
credit
quality - (4) - (130) - (125) - - - (259)
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
Changes to model
used for ECL
calculation - - - - - - - - - -
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
Assets written off - - - - (34) 34 - - (34) 34
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
Credit-related
modifications
that resulted in
derecognition - - - - (1) 1 - - (1) 1
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
Foreign exchange 2,604 (1) 308 (5) 41 (14) - - 2,953 (20)
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
Others(2,3) 5,820 4 (368) 49 (112) 36 - - 5,340 89
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
At 30 Jun 2022 183,790 (112) 21,388 (270) 2,707 (949) 2 (2) 207,887 (1,333)
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
ECL income
statement
change for the
period 15 (156) (65) - (206)
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
Add: Recoveries 1
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
Add: Others 21
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
Total ECL income
statement change
for the period (184)
------------------- -------------------- -------------------- ---------------- ---------------------- ------------------ -------------------- -------------------- --------------------- -------------------- --------------------
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees(1) (continued)
Half-year
ended 30 Jun
At 30 Jun 2022 2022
------------------------------------------------------------------------------------------------- ------------------------------------------------
Gross carrying/ Allowance ECL
nominal amount for ECL release/(charge)
GBPm GBPm GBPm
---------------- ----------------------------------------------- ------------------------------------------------ ------------------------------------------------
As above 207,887 (1,333) (184)
---------------- ----------------------------------------------- ------------------------------------------------ ------------------------------------------------
Other financial 253,869 (113) (2)
assets measured
at
amortised cost
---------------- ----------------------------------------------- ------------------------------------------------ ------------------------------------------------
Non-trading 42,732 - -
reverse purchase
agreement
commitments
---------------- ----------------------------------------------- ------------------------------------------------ ------------------------------------------------
Performance and
other guarantee
not
considered for
IFRS 9 - - 4
---------------- ----------------------------------------------- ------------------------------------------------ ------------------------------------------------
Summary of
financial
instruments to
which the
impairment
requirements in
IFRS 9 are
applied/Summary
consolidated
income
statement 504,488 (1,446) (182)
---------------- ----------------------------------------------- ------------------------------------------------ ------------------------------------------------
Debt instruments 37,077 (24) (5)
measured at
FVOCI
---------------- ----------------------------------------------- ------------------------------------------------ ------------------------------------------------
Total allowance
for ECL/total
income
statement ECL
change for the
period N/A (1,470) (187)
---------------- ----------------------------------------------- ------------------------------------------------ ------------------------------------------------
1 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
2 Includes the period on period movement in exposures relating
to other HSBC Group companies. At 30 June 2022, these amounted to
GBP3.4bn and were classified as stage 1 with no ECL. Further, total
includes GBP1.3bn of gross carrying loans and advances to customers
and banks, which were classified to assets held for sale and a
corresponding allowance for ECL of GBP101m, reflecting business
disposals as disclosed in Note 11 'Business disposals' on page
75.
3 Includes GBP3.2bn of gross carrying amounts of stage 1 loans
and advances to banks, representing the balance maintained with the
Bank of England to support Bacs along with Faster Payments and the
cheque-processing Image Clearing System in the UK. This balance was
previously reported under 'Cash and balances at central banks'.
Comparatives have not been represented.
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees(1) (continued)
Non-credit impaired Credit Impaired
------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Total
-------------------------------------------- --------------------------------------- --------------------------------------- ------------------------------------------- ----------------------------------------
Gross Gross Gross
Gross Allowance carrying/ Allowance carrying/ Allowance carrying/ Allowance Gross Allowance
carrying/nominal for nominal for nominal for nominal for carrying/nominal for
amount ECL amount ECL amount ECL amount ECL amount ECL
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
At 1 Jan 2021 184,715 (180) 31,726 (378) 3,352 (1,050) 40 (12) 219,833 (1,620)
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
Transfers of
financial
instruments: 5,245 (66) (5,617) 90 372 (24) - - - -
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
- transfers from
stage 1 to stage
2 (8,431) 14 8,431 (14) - - - - - -
-------------------
- transfers from
stage 2 to stage
1 13,714 (78) (13,714) 78 - - - - - -
-------------------
- transfers to
stage
3 (93) - (401) 28 494 (28) - - - -
-------------------
- transfers from
stage 3 55 (2) 67 (2) (122) 4 - - - -
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------
Net remeasurement
of ECL arising
from
transfer of stage - 43 - (22) - (5) - - - 16
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
New financial
assets
originated or
purchased 72,348 (55) - - - - - - 72,348 (55)
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
Asset derecognised
(including final
repayments) (57,098) 6 (3,481) 32 (454) 95 (3) 2 (61,036) 135
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
Changes to risk
parameters -
further
lending/repayments (16,766) 76 (3,927) 62 (213) 40 (29) 2 (20,935) 180
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
Changes to risk
parameters -
credit
quality - 54 - 7 - (176) - - - (115)
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
Changes to model
used for ECL
calculation - 2 - 9 - - - - - 11
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
Assets written off - - - - (152) 152 (5) 5 (157) 157
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
Credit related
modifications
that resulted in
derecognition - - - - - - - - - -
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
Foreign exchange (7,512) 2 (1,060) 10 (126) 46 (1) 1 (8,699) 59
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
Others(2) (1,320) - (170) 2 - (1) - - (1,490) 1
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
At 31 Dec 2021 179,612 (118) 17,471 (188) 2,779 (923) 2 (2) 199,864 (1,231)
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
ECL income
statement
change for the
period 126 88 (46) 4 172
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
Add: Recoveries 3
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
Less: Others (23)
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
Total ECL income
statement change
for the period 152
------------------- --------------------- --------------------- ----------------- -------------------- ---------------- --------------------- -------------------- --------------------- ------------------ --------------------
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees(1) (continued)
12 months
ended 31 Dec
At 31 Dec 2021 2021
-------------------------------------------------------------------------------------------------- -----------------------------------------------
Gross carrying/nominal Allowance ECL
amount for ECL release/(charge)
GBPm GBPm GBPm
---------------- ----------------------------------------------- ------------------------------------------------- -----------------------------------------------
As above 199,864 (1,231) 152
---------------- ----------------------------------------------- ------------------------------------------------- -----------------------------------------------
Other financial 202,137 (9) (1)
assets measured
at
amortised cost
---------------- ----------------------------------------------- ------------------------------------------------- -----------------------------------------------
Non-trading 30,005 - -
reverse purchase
agreement
commitments
---------------- ----------------------------------------------- ------------------------------------------------- -----------------------------------------------
Performance and
other
guarantees not
considered for
IFRS 9 - - 18
---------------- ----------------------------------------------- ------------------------------------------------- -----------------------------------------------
Summary of
financial
instruments to
which the
impairment
requirements in
IFRS 9 are
applied/Summary
consolidated
income
statement 432,006 (1,240) 169
---------------- ----------------------------------------------- ------------------------------------------------- -----------------------------------------------
Debt instruments 41,188 (19) 5
measured at
FVOCI
---------------- ----------------------------------------------- ------------------------------------------------- -----------------------------------------------
Total allowance (1,259) 174
for ECL/total
income
statement ECL
change for the
period N/A
---------------- ----------------------------------------------- ------------------------------------------------- -----------------------------------------------
1 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
2 Includes the period on period movement in exposures relating
to other HSBC Group companies. At 31 December 2021, these amounted
to GBP(1)bn and were classified as stage 1 with no ECL.
Treasury risk
Overview
Treasury risk is the risk of having insufficient capital,
liquidity or funding resources to meet financial obligations and
satisfy regulatory requirements, together with the financial risks
arising from the provision of pensions and other post-employment
benefits to staff and their dependants. Treasury risk also includes
the risk to our earnings or capital due to non-trading book foreign
exchange exposures and changes in market interest rates.
Treasury risk arises from changes to the respective resources
and risk profiles driven by customer behaviour, management
decisions or the external environment.
Approach and policy
Our objective in the management of treasury risk is to maintain
appropriate levels of capital, liquidity, funding, foreign exchange
and market risk to support our business strategy, and meet our
regulatory and stress testing-related requirements.
Our approach to treasury management is driven by our strategic
and organisational requirements, taking into account the
regulatory, economic and commercial environment. We aim to maintain
a strong capital and liquidity base to support the risks inherent
in our business and invest in accordance with our strategy, meeting
regulatory requirements at all times.
Our policy is supported by our risk management framework, our
internal capital adequacy assessment process ('ICAAP') and our
internal liquidity adequacy assessment process ('ILAAP').
The risk framework incorporates a number of measures aligned to
our assessment of risks for both internal and regulatory
purposes.
These risks include credit, market, operational, pensions,
non-trading book foreign exchange risk and interest rate risk in
the banking book.
A summary of our current policies and practices regarding the
management of treasury risk is set out on pages 70 to 72 of the
Annual Report and Accounts 2021.
Treasury risk management
Key developments in the first half of 2022
-- Our CET1 ratio fell from 17.3% at 31 December 2021 to 14.7%
at 30 June 2022, as a result of a GBP16.7bn increase in
risk-weighted assets ('RWAs') and a GBP0.2bn reduction in CET1
capital. The RWA increase was driven mainly by an increase in asset
size, changes in methodology and policy, and movements in FX rates.
The reduction in CET1 was driven mainly by a GBP0.4bn decrease in
the FVOCI reserve, a GBP0.1bn increase in non-performing loans
('NPL'), partially offset by a GBP0.4bn increase in the FX
reserve.
-- The mark-to-market movement in financial instruments that
impacted our capital ratio arose from the portfolio of high quality
liquid assets ('HQLA') held by our Markets Treasury business line
as economic hedges of net interest income, and to manage liquidity
risk. This portfolio is accounted for at FVOCI, together with any
derivative hedges held to offset the duration risk of the assets.
During the first half of 2022, we took steps to reduce the duration
risk of this portfolio in order to reduce the immediate capital
impact from higher interest rates. The impact of this risk
reduction can be seen in the reduction of the
Hold-to-Collect-and-Sell ('HTC&S') stressed VaR exposure from
GBP532m at the end of 2021 to GBP272m as at the end of the first
half of 2022.
-- Our portfolio of hold-to-collect-and-sell assets forms a
material part of our liquid asset buffer, and the duration risk of
the portfolio acts as a hedge to our structural interest rate risk.
We have recently approved a new hold-to-collect business model,
which is currently being implemented at legal entity level, and
certain new purchases of securities will be booked under this
model. In future, this portfolio of assets will also form a more
material part of our structural interest rate hedging. This will
allow more flexibility in managing the market risk of the current
hold-to-collect-and-sell portfolio to optimise returns from market
movements while still safeguarding our capital and future
earnings.
-- There have been limited direct capital or liquidity impacts
from the inflationary pressures and increased uncertainty on the
forward economic outlook exacerbated by the Russia-Ukraine war,
although we continue to monitor developments closely.
-- We continued to improve global consistency and control
standards across a number of our processes. We are keeping the PRA
and other relevant regulators informed of adverse findings from
external and internal reviews.
-- We continued to build our recovery and resolution
capabilities in line with the Group's preferred resolution strategy
to meet requirements from the BoE under its Resolvability
Assessment Framework ('RAF'). We met our compliance deadline of 1
January 2022 to develop RAF capabilities. We publicly disclosed a
summary of our preparedness for resolution on 10 June 2022, thereby
completing the first RAF cycle. We will continue to enhance our
capabilities during the second half of 2022 in discussion with the
BoE.
For quantitative disclosures on capital ratios, own funds and
RWAs, see pages 33 to 36.
Capital, liquidity and funding risk management processes
Assessment and risk appetite
Our capital management policy is underpinned by a global capital
management framework and our ICAAP. The framework incorporates key
capital risk appetites including CET1, total capital, minimum
requirements for own funds and eligible liabilities ('MREL'), and
leverage ratio. The ICAAP is an assessment of the bank's capital
position, outlining both regulatory and internal capital resources
and requirements resulting from our business model, strategy, risk
profile and management, performance and planning, risks to capital,
and the implications of stress testing. Our assessment of capital
adequacy is driven by an assessment of risks. These risks include
credit, market, operational, pensions, insurance, structural
foreign exchange and interest rate risk in the banking book.
Climate risk is also considered as part of the ICAAP, and we are
continuing to develop our approach. The ICAAP supports the
determination of our capital risk appetite and target ratios, as
well as enables the assessment and determination of capital
requirements by our regulator. Certain subsidiaries prepare ICAAPs
in line with global guidance, while considering their local
regulatory regimes to determine their own risk appetites and
ratios.
We aim to ensure that management has oversight of our liquidity
and funding risks by maintaining comprehensive policies, metrics
and controls. The Group manages liquidity and funding risk at an
operating entity level to make sure that obligations can be met in
the jurisdiction where they fall due, generally without reliance on
other parts of the Group.
HSBC Bank plc is required to meet internal minimum requirements
and any applicable regulatory requirements at all times. These
requirements are assessed through the ILAAP, which ensures that we
have robust strategies, policies, processes and systems for the
identification, measurement, management and monitoring of liquidity
risk over an appropriate set of time horizons, including intra-day.
The ILAAP informs the validation of risk tolerance and the setting
of risk appetite. These metrics are set and managed locally but are
subject to robust global review and challenge to ensure consistency
of approach and application of the Group's policies and
controls.
Planning and performance
Capital and RWA plans form part of the annual financial resource
plan that is approved by the Board. Capital and RWA forecasts are
reviewed at the Asset and Liability Management Committee ('ALCO')
on a regular basis, and capital and RWAs are monitored and managed
against the plan.
Through our internal governance processes, we seek to strengthen
discipline over our investment and capital allocation decisions,
and to ensure that returns on investment meet management's
objectives. Our strategy is to allocate capital to businesses and
entities to support growth objectives where returns above internal
hurdle levels have been identified, and in order to meet their
regulatory and economic capital needs. We evaluate and manage
business returns by using a return on average tangible equity
measure.
Funding and liquidity plans form part of the financial resource
plan that is approved by the Board. The Board-level appetite
measures are the LCR and net stable funding ratio ('NSFR'),
together with internal liquidity and funding metrics. In addition,
we use a wider set of measures to manage an appropriate funding and
liquidity profile, including depositor concentration limits,
wholesale funding concentration limits, intra-day liquidity and
other key measures.
Risks to capital and liquidity
Outside the stress testing framework, other risks may be
identified that have the potential to affect our RWAs, capital
and/or liquidity position. We closely monitor future regulatory
changes, and continue to evaluate the impact of these upon our
capital and
liquidity requirements, particularly those related to the UK's
implementation of the outstanding measures to be implemented from
the Basel III reforms ('Basel 3.1')
Regulatory developments
Our capital adequacy ratios have been affected by regulatory
developments in 2022, including changes to internal-ratings based
('IRB') modelling requirements and the UK's implementation of the
revisions to the Capital Requirements Regulation and Directive
('CRR II').
Future changes to our ratios will occur with the implementation
of Basel 3.1; the PRA is expected to consult on the UK's
implementation in the last quarter of 2022, with an effective date
of 1 January 2025. The RWA output floor under Basel 3.1 is expected
to be subject to a five-year transitional provision. Any impact
from the output floor would be towards the end of the transition
period.
Planned sale of the retail banking business in France
In relation to the sale of our retail banking business in
France, we anticipate an estimated reduction in our CET1 ratio of
0.95%, of which 1.50% will occur in the second half of 2022 when
the business is classified as held for sale, partly offset by the
reduction in RWAs upon the estimated completion in 2023.
Regulatory reporting processes and controls
The quality of regulatory reporting remains a key priority for
management and regulators. We are progressing with a comprehensive
programme to strengthen our processes, improve consistency, and
enhance controls on various aspects of regulatory reporting. We
have commissioned a number of independent external reviews, some at
the request of our regulators, including one on our credit risk
RWA-reporting process, which is currently ongoing. These reviews so
far resulted in higher RWAs through improvements in reporting
accuracy. There may be further impacts on some of our regulatory
ratios, such as the CET1 and LCR.
Stress testing and recovery and resolution planning
We use stress testing to evaluate the robustness of plans and
risk portfolios including the impact of ECL, and to meet the stress
testing requirements set by supervisors. Stress testing also
informs the ICAAP and ILAAP and supports recovery planning in many
jurisdictions. It is an important output used to evaluate how much
capital and liquidity we require in setting risk appetite for
capital and liquidity risk. It is also used to re-evaluate business
plans where analysis shows capital, liquidity and/or returns do not
meet their target.
In addition to a range of internal stress tests, we are subject
to supervisory stress testing in many jurisdictions. These include
the programmes of the BoE, the European Banking Authority ('EBA'),
and the European Central Bank. The results of regulatory stress
testing and our internal stress tests are used when assessing our
internal capital requirements through the ICAAP. The outcomes of
stress testing exercises carried out by the PRA and other
regulators may feed into the setting of regulatory minimum ratios
and buffers.
The Group and certain subsidiaries have established recovery
plans, which set out potential options management could take in a
range of stress scenarios that could result in a breach of risk
appetite and regulatory minimum levels. This is to help ensure that
our capital and liquidity position can be recovered even in an
extreme stress event. We monitor triggers related to internal and
external variables that could threaten our capital, liquidity or
funding positions.
Overall, recovery and resolution plans form part of the
framework safeguarding the Group's financial stability. We are
committed to developing its recovery and resolution capabilities
further, including in relation to the BoE's Resolvability
Assessment Framework.
Measurement of interest rate risk in the banking book
processes
Assessment and risk appetite
Interest rate risk in the banking book is the risk of an adverse
impact to earnings or capital due to changes in market interest
rates. It is generated by our non-traded assets and liabilities,
specifically loans, deposits and financial instruments that are not
held for trading intent or held in order to hedge positions held
with trading intent. Interest rate risk that can be economically
hedged may be transferred to the Markets Treasury business.
Hedging is generally executed through interest rate derivatives
or fixed-rate government bonds. Any interest rate risk that Markets
Treasury cannot economically hedge is not transferred and will
remain within the global business where the risks originate.
The Asset, Liability and Capital Management ('ALCM') function
uses a number of measures to monitor and control interest rate risk
in the banking book, including:
-- net interest income sensitivity;
-- economic value of equity sensitivity; and
-- hold-to-collect-and-sell stressed value at risk.
Net interest income sensitivity
A principal part of our management of non-traded interest rate
risk is to monitor the sensitivity of expected net interest income
('NII') under varying interest rate scenarios (i.e. simulation
modelling), where all other economic variables are held constant.
This monitoring is undertaken at an entity level by the ALCO, where
one-year and five-year NII sensitivities are forecast across a
range of interest rate scenarios.
Projected NII sensitivity figures represent the effect of pro
forma movements in projected yield curves based on a static balance
sheet size and structure. The exception to this is where the size
of the balances or repricing is deemed interest rate sensitive,
for
example, non-interest-bearing current account migration and
fixed-rate loan early prepayment. These sensitivity calculations do
not incorporate actions that would be taken by Markets Treasury or
in the business that originates the risk to mitigate the effect of
interest rate movements. The NII sensitivity calculations assume
that interest rates of all maturities move by the same amount in
the 'up-shock' scenario. The sensitivity calculations in the
'down-shock' scenarios reflect no floors to the shocked market
rates. However, customer product-specific interest rate floors are
recognised where applicable.
Economic value of equity sensitivity
Economic value of equity ('EVE') represents the present value of
the future banking book cash flows that could be distributed to
equity providers under a managed run-off scenario. This equates to
the current book value of equity plus the present value of future
NII in this scenario. EVE can be used to assess the economic
capital required to support interest rate risk in the banking book.
An EVE sensitivity represents the expected movement in EVE due to
pre-specified interest rate shocks, where all other economic
variables are held constant. EVE sensitivities are monitored as a
percentage of capital resources.
Hold-to-collect-and-sell stressed value at risk
Hold-to-collect-and-sell stressed value at risk ('VaR') is a
quantification of the potential losses to a 99% confidence level of
the portfolio of securities held under a held-to-collect-and-sell
business model in the Markets Treasury business. The portfolio is
accounted for at fair value through other comprehensive income
together with the derivatives held in designated hedging
relationships with these securities. This is quantified based on
the worst losses over a one-year period going back to the beginning
of 2007 and the assumed holding period is 60 days.
Hold-to-collect-and-sell stressed VaR uses the same models as
those used for trading book capitalisation and covers only the
portfolio managed by Markets Treasury under this business
model.
Capital risk in the first half of 2022
Capital overview
Capital adequacy metrics
At
30 Jun 31 Dec
2022 2021
--------------------------------------------- ------- -------
Risk-weighted assets ('RWAs') (GBPm)
--------------------------------------------- ------- -------
Credit risk 75,856 67,540
--------------------------------------------- ------- -------
Counterparty credit risk 20,270 16,434
--------------------------------------------- ------- -------
Market risk 14,180 9,828
--------------------------------------------- ------- -------
Operational risk 10,671 10,512
--------------------------------------------- ------- -------
Total RWAs 120,977 104,314
--------------------------------------------- ------- -------
Capital on a transitional basis (GBPm)
--------------------------------------------- ------- -------
Common equity tier 1 ('CET1') capital 17,776 18,007
--------------------------------------------- ------- -------
Tier 1 capital 21,668 21,869
--------------------------------------------- ------- -------
Total capital 34,147 33,036
--------------------------------------------- ------- -------
Capital ratios on a transitional basis (%)
--------------------------------------------- ------- -------
Common equity tier 1 14.7 17.3
--------------------------------------------- ------- -------
Tier 1 17.9 21.0
--------------------------------------------- ------- -------
Total capital ratio 28.2 31.7
Leverage ratio (fully phased-in)
--------------------------------------------- ------- -------
Tier 1 capital (GBPm) 21,668 21,696
--------------------------------------------- ------- -------
Total leverage ratio exposure measure (GBPm) 446,841 535,562
--------------------------------------------- ------- -------
Leverage ratio (%) 4.8 4.1
--------------------------------------------- ------- -------
Capital figures and ratios in the table above are calculated in
accordance with the revised Capital Requirements Regulation and
Directive, as implemented ('CRR II'). Leverage ratios are
calculated using the end point definition of capital and the IFRS 9
regulatory transitional arrangements.
At 30 June 2022, our common equity tier 1 ('CET1') capital ratio
decreased to 14.7% from 17.3% at 31 December 2021, mainly due
to the increase in RWAs. The key drivers for the increase in
RWAs were the implementation of CRR II rules and the increase in
business across GBM and CMB.
Throughout the first half of 2022, we complied with the
Prudential Regulation Authority's ('PRA') regulatory capital
adequacy requirements.
Regulatory developments
Capital buffers
In July 2022, the Bank of England's Financial Policy Committee
('FPC') confirmed that it is increasing the UK's countercyclical
capital buffer ('CCyB') rate from 1% to 2%. This is the CCyB rate
that the FPC judges to be suitable for a standard risk environment
and will come into effect on 5 July 2023, in line with the usual
12-month implementation period. While the FPC understands the
economic outlook since December 2021 has significantly
deteriorated, when the 2% rate was calibrated, its view is that
some of the risks that can amplify the shocks to the economy remain
broadly at pre-pandemic level.
When the standard risk level was calibrated in December 2019,
the 'PRA proposed a reduction to Pillar 2A to ensure that the
overall loss-absorbing levels in the system remained unchanged. In
March 2020, following the outbreak of the pandemic, the FPC cut the
CCyB to 0%. At that time, the PRA announced a temporary increase to
the PRA buffer for all firms that received a Pillar 2A reduction.
In June, the PRA announced that this increase will be removed with
effect from the end of December 2022.
Basel 3.1
In July 2020, the Basel Committee on Banking Supervision
('Basel') completed the reforms to Basel III ('Basel 3.1') when it
published the final revisions to the credit valuation adjustment
('CVA') framework. In the UK, a two-stage approach to
implementation has been adopted for these changes.
The amendments to the UK's Capital Requirements Regulation ('UK
CRR II') represented the first tranche of changes to implement
Basel 3.1, including the changes to the market risk RWA rules under
the Fundamental Review of the Trading Book, the standardised
approach for measuring counterparty risk, the equity investments in
funds rules, the amendments to the large exposures rules, the new
leverage ratio rules and the implementation of the net stable
funding ratio. With the exception of the changes to the market risk
framework, the UK CRR II was implemented on 1 January 2022. The
market risk changes will be implemented with the remainder of Basel
3.1.
The remaining elements of Basel 3.1 will be implemented as a
second tranche of changes. This includes the changes to the RWA
rules on credit risk, operational risk and CVA and the
implementation of the output floor. In March 2022, the PRA
confirmed that it expects to consult on these changes in the fourth
quarter, with a proposed implementation date of 1 January 2025. In
formulating this proposal, the PRA has taken into consideration the
timing of implementation in other major jurisdictions, such as the
EU and the US.
We currently do not foresee a material net impact on initial
implementation of the remainder of Basel 3.1. The RWA output floor
will be subject to a five-year transitional provision. Any impact
from the output floor would be towards the end of the transition
period.
The UK's withdrawal from the EU
In 2020, the PRA granted transitional provisions that allowed
firms to delay the effect of any rule changes arising from the UK's
withdrawal from the EU, with limited exceptions. These transitional
provisions ceased to apply in March 2022.
Credit risk
In order to address concerns about the variability and
comparability of RWAs under the IRB approach, the EU developed a
series of amendments to the framework, known as the IRB repair
package. The majority of these were developed and finalised while
the UK was a member of the EU and therefore were implemented in the
UK by the PRA on 1 January 2022.
However, there were some elements of the EU's package that were
not in force when the UK ceased to be subject to EU law. These
include the EU's technical standards on economic downturns, the
European Banking Authority's ('EBA') guidelines on credit risk
mitigation for the advanced IRB ('A-IRB') approach, and the EU's
final technical standards on risk weighting specialised lending
exposures.
The PRA has confirmed that it will not implement the technical
standards on specialised lending. Similarly, it will not implement
the EU's guidelines on credit risk mitigation in the A-IRB approach
in 2022, although it may consider reflecting the guidelines as part
of its implementation of Basel 3.1.
Environmental, social and governance ('ESG') risk
Globally, regulators and standard setters continue to publish
multiple proposals and papers on ESG topics.
In March 2022, the International Sustainability Standards Board
published a consultation on its first IFRS Sustainability Draft
Standards, which propose requirements for disclosures about
significant sustainability-related risks and opportunities,
including specific requirements for the disclosure of
climate-related financial information. The Standards build upon the
recommendations of the Task Force on Climate-related Financial
Disclosures ('TCFD') and extend them to sustainability-related
risks and opportunities beyond those related to climate. Any
finalised guidance would be through national implementation. Also
in March, the US Securities and Exchange Commission published a
consultation on proposals to publish climate-related disclosures
required for both domestic and foreign private issuers. The
proposed disclosure requirements are largely aligned to TCFD, and
cover the broad areas of governance, strategy, risk management and
metrics and targets.
In May 2022, the Bank of England published the results of the
2021 climate biennial exploratory scenario exercise. A key finding
was that, while financial institutions operating in the UK had made
good progress in some aspects of climate risk management, more work
was required to understand and manage their exposures to climate
risk.
In June 2022, Basel published final principles for the effective
management and supervision of climate-related financial risks aimed
at improving both banks' risk management and supervisors' practices
related to climate-related financial risks.
Previously, Her Majesty's Treasury had published a roadmap
setting out the UK government's path to achieving its long-term
ambition to make the financial system more environmentally
sustainable and align it with the UK's net zero commitment. As part
of this, it will implement a green taxonomy, specifying the
criteria that economic activities must meet to be considered
environmentally sustainable, which will be subject to consultation
in the second half of 2022.
Key metrics (KM1/IFRS9-FL)
At
30 Jun 31 Mar 31 Dec 30 Jun
Ref* 2022 2022 2021 2021
------- ------- ------- -------
Available capital (GBPm)
------ ------------------------------------------------- ------- ------- ------- -------
1 Common equity tier 1 ('CET1') capital (^) 17,776 17,577 18,007 17,835
------ ------------------------------------------------- ------- ------- ------- -------
CET1 capital as if IFRS 9 transitional
arrangements had not been applied 17,758 17,556 17,971 17,798
------ ------------------------------------------------- ------- ------- ------- -------
2 Tier 1 capital (^) 21,668 21,473 21,869 21,742
------ ------------------------------------------------- ------- ------- ------- -------
Tier 1 capital as if IFRS 9 transitional
arrangements had not been applied 21,651 21,452 21,833 21,705
------ ------------------------------------------------- ------- ------- ------- -------
3 Total capital (^) 34,147 33,005 33,036 33,444
------ ------------------------------------------------- ------- ------- ------- -------
Total capital as if IFRS 9 transitional
arrangements had not been applied 34,129 32,984 33,000 33,407
------ ------------------------------------------------- ------- ------- ------- -------
Risk-weighted assets ('RWAs') (GBPm)
------ ------------------------------------------------- ------- ------- ------- -------
4 Total RWAs 120,977 112,991 104,314 110,769
------ ------------------------------------------------- ------- ------- ------- -------
Total RWAs as if IFRS 9 transitional arrangements
had not been applied 120,960 112,971 104,281 110,737
------ ------------------------------------------------- ------- ------- ------- -------
Capital ratios (%)(1)
------ ------------------------------------------------- ------- ------- ------- -------
5 CET1 (^) 14.7 15.6 17.3 16.1
------ ------------------------------------------------- ------- ------- ------- -------
CET1 as if IFRS 9 transitional arrangements
had not been applied 14.7 15.5 17.2 16.1
------ ------------------------------------------------- ------- ------- ------- -------
6 Total tier 1 (^) 17.9 19.0 21.0 19.6
------ ------------------------------------------------- ------- ------- ------- -------
Tier 1 as if IFRS 9 transitional arrangements
had not been applied 17.9 19.0 20.9 19.6
------ ------------------------------------------------- ------- ------- ------- -------
7 Total capital (^) 28.2 29.2 31.7 30.2
------ ------------------------------------------------- ------- ------- ------- -------
Total capital as if IFRS 9 transitional
arrangements had not been applied 28.2 29.2 31.6 30.2
------ ------------------------------------------------- ------- ------- ------- -------
Additional own funds requirements based
on SREP as a percentage of RWAs (%)
UK-7d Total SREP own funds requirements 8.0 8.0 N/A N/A
------ ------------------------------------------------- ------- ------- ------- -------
Combined buffer requirement as a percentage
of RWAs (%)
------ ------------------------------------------------- ------- ------- ------- -------
8 Capital conservation buffer requirement 2.5 2.5 N/A N/A
9 Institution specific countercyclical capital 0.0 0.0 N/A N/A
buffer
11 Combined buffer requirement 2.5 2.5 N/A N/A
------ ------------------------------------------------- ------- ------- ------- -------
UK-11a Overall capital requirements 10.5 10.5 N/A N/A
------ ------------------------------------------------- ------- ------- ------- -------
CET1 available after meeting the total
12 SREP own funds requirements 10.2 11.1 N/A N/A
------ ------------------------------------------------- ------- ------- ------- -------
Leverage ratio(2)
------ ------------------------------------------------- ------- ------- ------- -------
Total exposure measure excluding claims
13 on central banks (GBPm)(^) 446,841 423,892 N/A N/A
------ ------------------------------------------------- ------- ------- ------- -------
14 Leverage ratio excluding claims on central 4.8 5.1 N/A N/A
banks (%)(^)
Leverage ratio (under Capital Requirements
Regulation)(^,3)
------ ------------------------------------------------- ------- ------- ------- -------
Total leverage ratio exposure measure (GBPm) N/A N/A 535,562 560,264
------ ------------------------------------------------- ------- ------- ------- -------
Leverage ratio (%) N/A N/A 4.1 3.8
------ ------------------------------------------------- ------- ------- ------- -------
Liquidity coverage ratio ('LCR')(4,6)
------ ------------------------------------------------- ------- ------- ------- -------
15 Total high-quality liquid assets (GBPm) 103,389 102,541 N/A N/A
------ ------------------------------------------------- ------- ------- ------- -------
UK16a Cash outflows - Total weighted value 112,046 108,705 N/A N/A
------ ------------------------------------------------- ------- ------- ------- -------
UK16b Cash inflows - Total weighted value 42,534 39,853 N/A N/A
------ ------------------------------------------------- ------- ------- ------- -------
16 Total net cash outflow (GBPm) 69,512 68,852 N/A N/A
------ ------------------------------------------------- ------- ------- ------- -------
17 LCR ratio (%) 149.0 149.0 N/A N/A
------ ------------------------------------------------- ------- ------- ------- -------
Net Stable Funding Ratio ('NSFR')(5,6)
------ ------------------------------------------------- ------- ------- ------- -------
18 Total available stable funding 105,549 102,367 N/A N/A
------ ------------------------------------------------- ------- ------- ------- -------
19 Total required stable funding 91,458 92,179 N/A N/A
------ ------------------------------------------------- ------- ------- ------- -------
20 NSFR ratio (%) 115.0 111.1 N/A N/A
====== ================================================= ======= ======= ======= =======
* The references identify the lines prescribed in the template
that are applicable and where there is a value.
^ Figures have been prepared on an IFRS 9 transitional basis.
1 Capital figures and ratios are reported using CRR II
transitional basis for capital instruments.
2 These disclosures have been implemented from 1 January 2022
and are based on the PRA's disclosure templates and instructions
which came into force at that time. N/A in prior periods indicates
that the disclosure is new or changed and no comparatives are
provided.
3 Leverage ratio is calculated using the CRR II end point basis
for capital. The comparative leverage exposures and ratios are
separately reported based on the Capital Requirements Regulation
rules in force at that time and include claims on central
banks.
4 LCR disclosure is calculated based on 12 month-end averages
ending March 2022 and June 2022 respectively.
5 NSFR is calculated in line with PRA guidance which came into
effect on 1 January 2022. The disclosure for June 2022 is based on
2 quarter-end average ending March 2022 and June 2022.
6 These LCR and NSFR amounts relate to HSBC Bank plc as a single
entity and are not produced on a consolidated basis.
Regulatory transitional arrangements for IFRS 9 'Financial
Instruments'
We have adopted the regulatory transitional arrangements in CRR
II for IFRS 9, including paragraph four of article 473a. Our
capital and ratios are presented under these arrangements
throughout the tables in this section.
The IFRS 9 regulatory transitional arrangements allow banks to
add back to their capital base a proportion of the impact that IFRS
9 has upon their loan loss allowances during the first five years
of use.
The impact is defined as:
-- the increase in loan loss allowances on day one of IFRS 9 adoption; and
-- any subsequent increase in ECL in the non-credit-impaired book thereafter.
Any add-back must be tax affected and accompanied by a
recalculation of deferred tax, exposure and RWAs. The impact is
calculated separately for portfolios using the standardised ('STD')
and internal ratings-based ('IRB') approaches. For IRB portfolios,
there is no add-back to capital unless loan loss allowances exceed
regulatory 12-month expected losses.
At 30 June 2022, the add-back to CET1 capital amounted to GBP24m
under the standardised approach with a tax impact of GBP(6)m. As a
result, our CET1 ratio would remain 14.7% without these
arrangements.
Own funds
Composition of regulatory own funds (UK CC1) (continued)
At
------------------------------------------------------
30 Jun 31 Dec
2022 2021
Ref* Ref GBPm GBPm
------ ------------------------------------------------- --- ------------------------- ---------------------------
Common equity tier 1 capital: instruments and
reserves
------ ------------------------------------------------- --- ------------------------- ---------------------------
Capital instruments and related share premium
1 accounts 797 797
------ ------------------------------------------------- --- ------------------------- ---------------------------
* ordinary shares a 797 797
------ ------------------------------------------------- --- -------------------------
2 Retained earnings(2) b 16,178 15,511
------ ------------------------------------------------- --- ------------------------- ---------------------------
3 Accumulated other comprehensive income (and other c 1,852 1,975
reserves)(2)
5 Minority interests (amount allowed in d 61 57
consolidated
common equity tier 1)
------ ------------------------------------------------- --- ------------------------- ---------------------------
5a Independently reviewed interim net profits net b 83 625
of any foreseeable charge or dividend
------ ------------------------------------------------- --- ------------------------- ---------------------------
6 Common equity tier 1 capital before regulatory 18,971 18,965
adjustments
------ ------------------------------------------------- --- ------------------------- ---------------------------
Common equity tier 1 capital: regulatory
adjustments
------ ------------------------------------------------- --- ------------------------- ---------------------------
7 Additional value adjustments(1) (651) (584)
------ ------------------------------------------------- --- ------------------------- ---------------------------
8 Intangible assets (net of related deferred tax e (72) (53)
liability)
------ ------------------------------------------------- --- ------------------------- ---------------------------
10 Deferred tax assets that rely on future
profitability
excluding those arising from temporary
differences
(net of related tax liability) f (133) (68)
------ ------------------------------------------------- --- ------------------------- ---------------------------
11 Fair value reserves related to gains or losses g
on cash flow hedges of financial instruments that
are not valued at fair value 389 (25)
------ ------------------------------------------------- --- ------------------------- ---------------------------
12 Negative amounts resulting from the calculation h (208) (306)
of expected loss amounts
------ ------------------------------------------------- --- ------------------------- ---------------------------
14 Gains or losses on liabilities at fair value i (245) 98
resulting
from changes in own credit standing(2)
------ ------------------------------------------------- --- ------------------------- ---------------------------
15 Defined benefit pension fund assets j (100) (54)
------ ------------------------------------------------- --- ------------------------- ---------------------------
27a Other regulatory adjustments to CET1 capital k (175) 34
(including
IFRS 9 transitional adjustments when relevant)(2)
------ ------------------------------------------------- --- ------------------------- ---------------------------
28 Total regulatory adjustments to common equity (1,195) (958)
tier 1
------ ------------------------------------------------- --- ------------------------- ---------------------------
29 Common Equity Tier 1 ('CET1') capital 17,776 18,007
------ ------------------------------------------------- --- ------------------------- ---------------------------
Additional tier 1 ('AT1') capital: instruments
------ ------------------------------------------------- --- ------------------------- ---------------------------
30 Capital instruments and related share premium 3,930 3,722
accounts
------ ------------------------------------------------- --- ------------------------- ---------------------------
31 * classified as equity under IFRSs l 3,930 3,722
33 Amount of qualifying items and related share - 173
premium
accounts subject to phase out from AT1
------ ------------------------------------------------- --- ------------------------- ---------------------------
34 Qualifying tier 1 capital included in
consolidated
AT1 capital (including minority interests not
included in CET1) issued by subsidiaries and held
by third parties m 11 11
------ ------------------------------------------------- --- ------------------------- ---------------------------
36 Additional tier 1 capital before regulatory 3,941 3,906
adjustments
------ ------------------------------------------------- --- ------------------------- ---------------------------
Additional tier 1 capital: regulatory adjustments
------ ------------------------------------------------- --- ------------------------- ---------------------------
37 Direct and indirect holdings of own AT1 (49) (44)
instruments(3)
------ ------------------------------------------------- --- ------------------------- ---------------------------
43 Total regulatory adjustments to additional tier (49) (44)
1 capital
------ ------------------------------------------------- --- ------------------------- ---------------------------
44 Additional tier 1 capital 3,892 3,862
------ ------------------------------------------------- --- ------------------------- ---------------------------
45 Tier 1 capital (T1 = CET1 + AT1) 21,668 21,869
------ ------------------------------------------------- --- ------------------------- ---------------------------
Tier 2 capital: instruments and provisions
------ ------------------------------------------------- --- ------------------------- ---------------------------
46 Capital instruments and related share premium n 11,319 9,881
accounts(2)
47 Amount of qualifying items referred to in Article
484 (5) CRR and the related share premium
accounts
subject to phase out from T2 as described in
Article
486(4) CRR - 220
Amount of qualifying items referred to in Article
UK-47b 494b (2) CRR subject to phase out from T2(2) o 1,414 1,293
------ ------------------------------------------------- --- ------------------------- ---------------------------
48 Qualifying own funds instruments included in
consolidated
T2 capital (including minority interests and AT1
instruments not included in CET1 or AT1) issued p,
by subsidiaries and held by third parties q 182 197
- of which: instruments issued by subsidiaries
grandfathered under CRR II q 23 34
------ ------------------------------------------------- --- ------------------------- ---------------------------
51 Tier 2 capital before regulatory adjustments 12,915 11,591
------ ------------------------------------------------- --- ------------------------- ---------------------------
Tier 2 capital: regulatory adjustments
------ ------------------------------------------------- --- ------------------------- ---------------------------
52 Direct, indirect and synthetic holdings by an
institution of own T2 instruments and
subordinated
loans (negative amount)(3) (33) (29)
------ ------------------------------------------------- --- ------------------------- ---------------------------
55 Direct and indirect holdings by the institution
of T2 instruments and subordinated loans of
financial
sector entities where the institution has a
significant
investment in those entities (net of eligible
short positions) r (403) (395)
------ ------------------------------------------------- --- ------------------------- ---------------------------
57 Total regulatory adjustments to tier 2 capital (436) (424)
------ ------------------------------------------------- --- ------------------------- ---------------------------
58 Tier 2 capital 12,479 11,167
------ ------------------------------------------------- --- ------------------------- ---------------------------
59 Total capital (TC = T1 + T2) 34,147 33,036
------ ------------------------------------------------- --- ------------------------- ---------------------------
60 Total risk-weighted assets 120,977 104,314
------ ------------------------------------------------- --- ------------------------- ---------------------------
Capital ratios and buffers (%)
------ ------------------------------------------------- --- ------------------------- ---------------------------
61 Common equity tier 1 14.7 17.3
------ ------------------------------------------------- --- ------------------------- ---------------------------
62 Tier 1 17.9 21.0
------ ------------------------------------------------- --- ------------------------- ---------------------------
63 Total capital 28.2 31.7
------ ------------------------------------------------- --- ------------------------- ---------------------------
64 Institution CET1 overall capital requirement (per
Art 92 (1) CRR, plus additional requirement in
accordance with point (a) of Article 104(1) CRD,
and combined buffer requirement in accordance
with Article 128(6) CRD) expressed as a
percentage
of risk exposure amount)(2) 7.03 2.53
------ ------------------------------------------------- --- ------------------------- ---------------------------
65 - capital conservation buffer requirement 2.5 2.5
------ ------------------------------------------------- ---
66 - countercyclical buffer requirement 0.03 0.03
------ ------------------------------------------------- --- -------------------------
68 Common equity tier 1 available to meet buffers 10.19 12.8
------ ------------------------------------------------- --- ------------------------- ---------------------------
Amounts below the threshold for deduction (before
risk weighting)
------ ------------------------------------------------- --- ------------------------- ---------------------------
72 Direct and indirect holdings of own funds and
eligible liabilities of financial sector entities
where the institution does not have a significant
investment in those entities (amount below 10%
threshold and net of eligible short positions) 1,228 1,182
------ ------------------------------------------------- --- ------------------------- ---------------------------
73 Direct and indirect holdings by the institution
of the CET1 instruments of financial sector
entities
where the institution has a significant
investment
in those entities (amount below 17.65% threshold
and net of eligible short positions) 681 668
------ ------------------------------------------------- --- ------------------------- ---------------------------
75 Deferred tax assets arising from temporary
differences
(amount below 17.65% threshold, net of related
tax liability where the conditions in Article
38 (3) CRR are met) 559 675
Applicable caps on the inclusion of provisions
in tier 2
------ ------------------------------------------------- --- ------------------------- ---------------------------
77 Cap on inclusion of credit risk adjustments in 292 245
T2 under standardised approach
------ ------------------------------------------------- --- ------------------------- ---------------------------
79 Cap for inclusion of credit risk adjustments in 386 341
T2 under internal ratings-based approach
------ ------------------------------------------------- --- ------------------------- ---------------------------
Capital instruments subject to phase-out
arrangements
(only applicable between
1 Jan 2014 and 1 Jan 2022)
------ ------------------------------------------------- --- ------------------------- ---------------------------
82 Current cap on AT1 instruments subject to - 188
phase-out
arrangements
------ ------------------------------------------------- --- ------------------------- ---------------------------
83 Amount excluded from AT1 due to cap (excess over - 527
cap after redemptions and maturities)
------ ------------------------------------------------- --- ------------------------- ---------------------------
84 Current cap on T2 instruments subject to - 252
phase-out
arrangements
------ ------------------------------------------------- --- ------------------------- ---------------------------
85 Amount excluded from T2 due to cap (excess over - 689
cap after redemptions and maturities)
------ ------------------------------------------------- --- ------------------------- ---------------------------
* The references identify the lines prescribed in the template
that are applicable and where there is a value.
The references (a)-(r) identify balance sheet components on page
41 that are used in the calculation of regulatory capital. This
table shows how they contribute to the regulatory capital
calculation. Their contribution may differ from their accounting
value in table 'reconciliation of balance sheets - financial
accounts to regulatory scope of consolidation' as a result of
adjustment or analysis to apply regulatory definitions of
capital.
1 Additional value adjustments are calculated on all assets
measured at fair value and subsequently deducted from CET1.
2 These disclosures are based on updated rules implemented from
1 January 2022 including the PRA's disclosure templates and
instructions which came into force at that time. The presentation
of comparatives has been amended only for CRR II grandfathered
instruments to align to the updated template's rows and
instructions.
3 The minimum deductions for holdings of own AT1 and T2 instruments are set by the PRA.
The main features of HSBC Group's capital instruments, including
those of the bank, are published on the Group's website,
https://www.hsbc.com/investors/fixed-income-investors/regulatory-capital-securities
Risk-weighted assets
RWA movement by key driver
Total
RWAs
GBPm
RWAs at 1 Jan 2022 104,314
Asset size 9,245
-------------------------- -------
Asset quality 753
-------------------------- -------
Model updates (1,478)
Methodology and policy 2,320
Foreign exchange movement 5,823
Total RWA movement 16,663
-------------------------- -------
RWAs at 30 Jun 2022 120,977
-------------------------- -------
Asset size
Credit risk RWAs rose by GBP9.2bn, driven by increases in
corporate lending and other financial assets. Market risk RWAs
increased by GBP3.1bn as a result of higher markets volatility
observed over the period (due to the current geopolitical
situation) coupled with increased inventories of hard equity
commitments in France.
Asset quality
The Asset quality increase of GBP0.8bn is primarily driven by
the downgrade of Russian counterparts including the Central Bank of
Russia.
Model updates
The GBP1.5bn decrease in RWAs is mainly due to counterparty
credit risk driven by the Equity model pricer update which resulted
in the portfolio moving from Standardized to Internal Models.
Methodology and policy
The GBP2.3bn increase is primarily driven by implementation of
CRR II rules and changes in our treatment of small and medium
enterprises. This is partially offset by risk parameter
refinements.
Overview of risk-weighted exposure amounts (UK OV1)
At
---------------------------------------------------------------------------------------
30 Jun 31 Mar 30 Jun
2022 2022 2022
Capital
RWAs RWAs requirement(1)
GBPm GBPm GBPm
------ ----------------------- -------------------------- --------------------------- ------------------------------
1 Credit risk (excluding 72,161 65,086 5,773
counterparty credit
risk()
------ ----------------------- -------------------------- --------------------------- ------------------------------
- standardised
2 approach(4,5,6) 20,949 17,010 1,676
------ -----------------------
- foundation IRB
3 approach 19,467 18,289 1,557
------ -----------------------
4 - slotting approach 1,811 1,579 145
------ -----------------------
UK-4a - equities under the -
simple risk-weighted
approach
------ -----------------------
5 - advanced IRB approach 29,934 28,208 2,395
------ ----------------------- -------------------------- ---------------------------
Counterparty credit
6 risk ('CCR') 19,962 18,132 1,598
------ ----------------------- -------------------------- --------------------------- ------------------------------
7 - standardised approach 5,295 4,467 424
------ -----------------------
- internal model method
8 ('IMM') 7,335 7,164 587
------ -----------------------
- risk exposure amount
for contributions to
the default fund of a
UK-8a central counterparty 284 265 23
------ -----------------------
- credit valuation
UK-8b adjustment 2,015 1,598 161
------ -----------------------
- other counterparty
9 credit risk 5,033 4,638 403
15 Settlement risk 308 120 25
------ ----------------------- -------------------------- --------------------------- ------------------------------
16 Securitisation 3,695 3,761 296
exposures in the
non-trading
book
------ ----------------------- -------------------------- --------------------------- ------------------------------
17 - internal 333 332 27
ratings-based approach
('SEC-IRBA')
------ -----------------------
18 - external 2,532 2,678 203
ratings-based approach
('SEC-ERBA')
(including internal
assessment approach
('IAA'))
------ -----------------------
- standardised approach
19 ('SEC-SA') 717 638 57
------ -----------------------
UK-19a - 1250% deduction 113 113 9
------ ----------------------- -------------------------- ---------------------------
20 Position, foreign 14,180 12,068 1,134
exchange and
commodities
risks (market risk)
------ ----------------------- -------------------------- --------------------------- ------------------------------
21 - standardised approach 2,303 2,198 184
------ -----------------------
- internal models
22 approach 11,877 9,870 950
23 Operational risk 10,671 10,556 854
UK-23b - standardised approach 10,671 10,556 854
29 Total 120,977 109,723 9,680
------ ----------------------- -------------------------- --------------------------- ------------------------------
24 Amounts below the 3,103 3,268 248
thresholds for
deduction
(subject to 250% risk
weight)(4)
------ ----------------------- -------------------------- --------------------------- ------------------------------
1 'Capital requirement' in this and subsequent tables represents
the minimum capital charge set at 8% of RWAs by article 92 of the
Capital Requirements Regulation.
2 External ratings-based approach ('SEC-ERBA') includes internal assessment approach ('IAA').
3 Other CCR includes RWAs on securities financing transactions and free deliveries.
4 It is non additive in total. Balances are included in credit
risk and standardised approach and comparatives are
represented.
5 These balance include capital requirements for underlying
equity exposures within CIUs calculated under the look-through
approach using the IRB simple risk-weight method.
6 These balances include capital requirements for underlying
equity exposures within CIUs calculated under the look-through
approach using the IRB simple risk-weight method.
RWA flow statements of credit risk exposures under the IRB approach
(CR8)
Quarter ended
-------------------------------------------------------------------
30 Jun 31 Mar
2022 2022
Ref GBPm GBPm
--- -------------------------- -------------------------------- ---------------------------------
1 RWAs at opening period(1) 47,207 44,748
--- -------------------------- -------------------------------- ---------------------------------
2 Asset size 2,040 1,400
--- -------------------------- -------------------------------- ---------------------------------
3 Asset quality (139) 896
--- -------------------------- -------------------------------- ---------------------------------
4 Model updates 140 -
--- -------------------------- -------------------------------- ---------------------------------
5 Methodology and policy (869) (91)
--- -------------------------- -------------------------------- ---------------------------------
6 Acquisitions and disposals - -
--- -------------------------- -------------------------------- ---------------------------------
7 Foreign exchange movement 1,166 254
--- -------------------------- -------------------------------- ---------------------------------
8 Write-offs - -
--- -------------------------- -------------------------------- ---------------------------------
9 RWAs at end of period(1) 49,545 47,207
--- -------------------------- -------------------------------- ---------------------------------
1 Securitisation positions and NCOAs are not included in this
table. Free deliveries are included.
RWA flow statements of CCR exposures under IMM (CCR7)
Quarter ended
--------------------------------------------------------------------
30 Jun 31 Mar
2022 2022
Ref GBPm GBPm
--- -------------------------- --------------------------------- ---------------------------------
1 RWAs at opening period 7,164 6,074
--- -------------------------- --------------------------------- ---------------------------------
2 Asset size 207 985
--- -------------------------- --------------------------------- ---------------------------------
3 Asset quality (76) 98
--- -------------------------- --------------------------------- ---------------------------------
4 Model updates - 221
--- -------------------------- --------------------------------- ---------------------------------
5 Methodology and policy 53 (246)
--- -------------------------- --------------------------------- ---------------------------------
6 Acquisitions and disposals - -
--- -------------------------- --------------------------------- ---------------------------------
7 Foreign exchange movement (13) 32
--- -------------------------- --------------------------------- ---------------------------------
8 Write-offs - -
--- -------------------------- --------------------------------- ---------------------------------
9 RWAs at end of period 7,335 7,164
--- -------------------------- --------------------------------- ---------------------------------
RWA flow statements of market risk exposures under IMA (MR2-B)
Incremental Total
Stressed risk charge Total own fund
VaR VaR ('IRC') Other RWAs requirements
Ref GBPm GBPm GBPm GBPm GBPm GBPm
--- --------------- -------------------------------- ------------------------------ ------------------------------- ------------------------------ ------------------------------ --------------------------------
RWAs at 1 Apr
1 2022 2,864 5,202 904 900 9,870 789
--- --------------- -------------------------------- ------------------------------ ------------------------------- ------------------------------ ------------------------------ --------------------------------
Movement in
2 risk levels 1,935 (385) 604 (123) 2,032 163
--- --------------- -------------------------------- ------------------------------ ------------------------------- ------------------------------ ------------------------------ --------------------------------
Model - - - - - -
3 updates/changes
--- --------------- -------------------------------- ------------------------------ ------------------------------- ------------------------------ ------------------------------ --------------------------------
Methodology and
4 policy - - - (25) (25) (2)
RWAs at 30 Jun
8 2022 4,799 4,817 1,508 752 11,877 950
--- --------------- -------------------------------- ------------------------------ ------------------------------- ------------------------------ ------------------------------ --------------------------------
RWAs at 1 Jan
1 2022 2,765 3,776 1,000 837 8,378 670
--- --------------- -------------------------------- ------------------------------ ------------------------------- ------------------------------ ------------------------------ --------------------------------
Movement in
2 risk levels 96 1,415 (96) 63 1,478 118
--- --------------- -------------------------------- ------------------------------ ------------------------------- ------------------------------ ------------------------------ --------------------------------
Model
3 updates/changes - - - - - -
--- --------------- -------------------------------- ------------------------------ ------------------------------- ------------------------------ ------------------------------ --------------------------------
Methodology and
4 policy 3 11 - - 14 1
RWAs at 31 Mar
8 2022 2,864 5,202 904 900 9,870 789
--- --------------- -------------------------------- ------------------------------ ------------------------------- ------------------------------ ------------------------------ --------------------------------
Leverage
The leverage ratio was introduced into the Basel III framework
as a non-risk-based limit, to supplement risk-based capital
requirements. It aims to constrain the build-up of excess leverage
in the banking sector, introducing additional safeguards against
model risk and measurement errors.
From 1 January 2022, HSBC Bank plc manages its leverage in line
with the PRA UK leverage framework, rather than the EU leverage
framework. The full PRA UK leverage framework will be applicable to
the bank from 1 January 2023, until this time we are only bound
by limited reporting and disclosure requirements. The detailed
reporting and disclosure requirements apply only at the highest
level of UK consolidation. For HSBC, this is at the Group
consolidated level and not at the HSBC Bank plc level. Although
there is currently no applicable minimum regulatory leverage ratio
requirement, we manage the risk of excess leverage as part of our
risk appetite framework and monitor it within our Risk Appetite
Statement ('RAS'). The leverage risk appetite profile is presented
monthly to the Asset, Liability and Capital Management Committee
('ALCO') and to the Risk Management Meeting ('RMM').
Summary reconciliation of accounting assets and leverage ratio exposures
(UK LR1 - LRSum)
At
---------
30 Jun
2022
Ref* GBPm
------ --------------------------------------------------------------- ---------
1 Total assets as per published financial statements 709,701
Adjustment for entities which are consolidated for accounting
2 purposes but are outside the scope of prudential consolidation (22,443)
4 (Adjustment for exemption of exposures to central banks) (126,506)
Adjustment for regular-way purchases and sales of financial (14,645)
6 assets subject to trade date accounting
7 Adjustment for eligible cash pooling transactions (5,154)
------
8 Adjustment for derivative financial instruments (149,968)
------
9 Adjustment for securities financing transactions ('SFTs') 8,014
------
Adjustment for off-balance sheet items (i.e. conversion
10 to credit equivalent amounts of off-balance sheet exposures) 46,166
------
(Adjustment for prudent valuation adjustments and specific
and general provisions which have reduced tier 1 capital
11 (leverage)) (687)
------
(Adjustment for exposures excluded from the total exposure
measure in accordance with point (c) of Article 429a(1)
UK-11a of the CRR) (275)
12 Other adjustments 2,638
13 Total leverage ratio exposure 446,841
Leverage ratio common disclosure (UK LR2 - LRCom)
At
30 Jun
2022
Ref* GBPm
------------------------
On-balance sheet exposures (excluding derivatives and SFTs)
------ ------------------------
1 On-balance sheet items (excluding derivatives, SFTs and 393,490
fiduciary assets, but including collateral)
------ ------------------------
2 Gross-up for derivatives collateral provided, where deducted 5,957
from the balance sheet assets pursuant to the applicable
accounting framework
------ ------------------------
3 (Deductions of receivables assets for cash variation margin (35,415)
provided in derivatives transactions)
6 (Asset amounts deducted in determining tier 1 capital) (687)
------ ------------------------
7 Total on-balance sheet exposures (excluding derivatives, 363,345
SFTs and fiduciary assets)
------ ------------------------
Derivative exposures
------
8 Replacement cost associated with SA-CCR derivatives transactions 30,045
(i.e. net of eligible cash variation margin)
9 Add-on amounts for potential future exposure associated
with SA-CCR derivatives transactions (mark-to-market method) 63,335
10 (Exempted CCP leg of client-cleared trade exposures) (SA-CCR) (14,135)
11 Adjusted effective notional amount of written credit derivatives 73,888
------ ------------------------
12 (Adjusted effective notional offsets and add-on deductions (71,219)
for written credit derivatives)
------ ------------------------
13 Total derivative exposures 81,914
------ ------------------------
SFT exposures
------
14 Gross SFT assets (with no recognition of netting), after 172,695
adjusting for sales accounting transactions
------ ------------------------
15 (Netted amounts of cash payables and cash receivables of (95,395)
gross SFT assets)
------ ------------------------
16 Counterparty credit risk exposure for SFT assets 4,897
18 Total securities financing transaction exposures 82,197
------ ------------------------
Other off-balance sheet exposures
------
19 Off-balance sheet exposures at gross notional amount 117,273
------ ------------------------
20 (Adjustments for conversion to credit equivalent amounts) (71,107)
22 Total off-balance sheet exposures 46,166
------ ------------------------
Excluded exposures
------
(Exposures excluded from the total exposure measure in accordance
UK-22a with point (c) of Article 429a(1) of the CRR) (275)
UK-22k (Total exempted exposures) (275)
------ ------------------------
Capital and total exposures measure
------
23 Tier 1 capital (leverage) 21,668
------ ------------------------
24 Total exposure measure including claims on central banks 573,347
------ ------------------------
UK-24a (-) Claims on central banks excluded (126,506)
------ ------------------------
UK-24b Total exposure measure excluding claims on central banks 446,841
------ ------------------------
Leverage ratios
------
25 Leverage ratio excluding claims on central banks (%) 4.85
------ ------------------------
Fully loaded ECL accounting model leverage ratio excluding
UK-25a claims on central banks (%) 4.85
------ ------------------------
Leverage ratio excluding central bank reserves as if the
temporary treatment of unrealised gains and losses measured
at fair value through other comprehensive income had not
UK-25b been applied (%) 4.85
UK-25c Leverage ratio including claims on central banks (%) 3.78
------ ------------------------
26 Regulatory minimum leverage ratio requirement (%) 3.25
------ ------------------------
Leverage ratio - Split of on-balance sheet exposures (excluding derivatives,
SFTs and exempted exposures) (UK LR3 - LRSpl)
At
30 Jun 31 Dec
2022 2021
Ref* GBPm GBPm
Total on-balance sheet exposures
(excluding derivatives,
SFTs and exempted exposures) of
UK-1 which:(1) 231,328 338,073
UK-2 - trading book exposures 60,698 71,861
UK-3 - banking book exposures, - of which: 170,630 266,212
UK-5 exposures treated as sovereigns 41,635 147,550
UK-7 institutions 12,428 8,341
secured by mortgages of immovable
UK-8 properties 23,707 23,053
UK-9 retail exposures 3,214 3,542
UK-10 corporate 53,530 60,844
UK-11 exposures in default 1,583 1,465
other exposures (e.g. equity,
securitisations
UK-12 and other non-credit obligation assets) 34,533 21,417
1 This calculation is in line with the UK leverage rules that
were implemented on 1 January 2022, and excludes central bank
claims and cash pooling benefit. Comparatives for 2021 are reported
based on the disclosure rules in force at that time, and include
claims on central banks and without cash pooling benefit.
Regulatory balance sheet
Structure of the regulatory group
Assets, liabilities and post-acquisition reserves of
subsidiaries engaged in insurance activities are excluded from the
regulatory consolidation. Our investments in these insurance
subsidiaries are recorded at cost and deducted from CET1 capital,
subject to thresholds. The regulatory consolidation also excludes
special purpose entities ('SPEs') where significant risk has been
transferred to third parties.
Exposures to these SPEs are risk weighted as securitisation
positions for regulatory purposes. Participating interests in
banking associates are proportionally consolidated for regulatory
purposes by including our share of assets, liabilities, profits and
losses, and RWAs in accordance with the PRA's application of EU
legislation. Non-participating significant investments are deducted
from capital, subject to thresholds.
Reconciliation of regulatory own funds to accounting balance sheet
(UK CC2)
Deconsolidation
Accounting of insurance/ Consolidation Regulatory
balance other of banking balance
sheet entities associates sheet
Ref GBPm GBPm GBPm GBPm
---- -------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Assets
----
Cash and balances at
central banks 126,759 - 76 126,835
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Items in the course of
collection
from other banks 801 - - 801
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Trading assets 78,072 - - 78,072
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Financial assets
designated and
otherwise mandatorily
measured
at fair value through
profit or
loss 16,380 (12,584) 616 4,412
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
- of which: debt
securities
eligible
as tier 2
issued by group
FSEs
that are
outside the
regulatory
scope of
consolidation r - 403 - 403
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Derivatives 202,510 (86) - 202,424
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Loans and
advances to
banks k 16,349 (338) - 16,011
Loans and
advances to
customers k 94,840 (205) - 94,635
----
- of which:
expected credit
losses
on IRB
portfolios h (999) - - (999)
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Reverse repurchase
agreements -
non-trading 57,996 - - 57,996
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Financial investments 38,743 (8,076) - 30,667
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Capital invested in
insurance and
other entities - 603 - 603
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Prepayments, accrued
income and
other assets 74,305 (939) 31 73,397
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
- of which:
retirement
benefit
assets j 100 - - 100
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Current tax assets 512 (6) - 506
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Interests in
associates and joint
ventures 710 - (679) 31
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Goodwill and
intangible
assets e 1,058 (986) - 72
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Deferred tax
assets f 666 130 - 796
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Total assets at 30 Jun
2022 709,701 (22,487) 44 687,258
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Liabilities and
equity
----
Liabilities
----
Deposits by banks 38,623 (8) - 38,615
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Customer accounts 224,991 271 - 225,262
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Repurchase agreements
- non-trading 34,446 - - 34,446
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Items in the course of
transmission
to other banks 879 - - 879
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Trading liabilities 43,636 - - 43,636
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Financial liabilities
designated
at fair value 30,358 (41) - 30,317
- of which:
included in n,
tier 2 i 1,121 - - 1,121
----
Derivatives 193,956 (25) - 193,931
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
- of which:
debit valuation
adjustment k 51 - - 51
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Debt securities in
issue 8,650 (472) - 8,178
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Accruals, deferred
income and other
liabilities 74,934 (938) 42 74,038
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Current tax
liabilities 129 (22) - 107
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Liabilities under
insurance contracts 20,136 (20,136) - -
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Provisions 358 (4) - 354
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
- of which:
credit-related
contingent
liabilities and
contractual
commitments
on IRB
portfolios h 70 - - 70
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Deferred tax
liabilities 98 (81) 2 19
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Subordinated
liabilities 14,515 - - 14,515
n,
of which: o,
included in p,
tier 2 q 13,815 - - 13,815
----
Total liabilities at
30 Jun 2022 685,709 (21,456) 44 664,297
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Equity
----
Called up share
capital a 797 - - 797
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Other equity
instruments l 3,930 - - 3,930
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
b,
c,
Other reserves g (6,188) 58 - (6,130)
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Retained b,
earnings c 25,323 (1,080) - 24,243
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Total shareholders'
equity 23,862 (1,022) - 22,840
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
Non-controlling d,
interests m 130 (9) - 121
Total equity at 30 Jun
2022 23,992 (1,031) - 22,961
Total liabilities and
equity at
30 Jun 2022 709,701 (22,487) 44 687,258
-------------------------------- ---------------------------------- ---------------------------------- --------------------------------
The references (a)-(r) identify balance sheet components which
are used in the calculation of regulatory capital on pages 36 and
37.
Credit quality of assets
Performing and non-performing exposures and related provisions (CR1)
Accumulated impairment, Collaterals
accumulated negative changes and financial
Gross carrying amount/nominal in fair value due to credit guarantees
amount risk and provisions received
Non-performing Non-performing
Performing exposures exposures Performing exposures exposures
of of of of of of
which: which: which: which: which: which
stage stage stage stage stage stage On perfor-ming On non-perfor-ming
1 2 3 1 2 3 expo-sures expo-sures
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ----------------- ------------------ ------------------ ------------------ ------------------ ------------------
At 30
Jun 2022
----------------- ----------------- ------------------ ------------------ ------------------ ------------------ ------------------ --------------------
Loans
1 and advances 318,630 301,374 15,304 2,470 2,470 (320) (95) (225) (932) (932) 103,083 540
----------------- ----------------- ------------------ ------------------ ------------------ ------------------ ------------------ --------------------
Central
2 banks 135,336 135,323 13 65 65 - - - (16) (16) 2,506 -
General
3 governments 2,913 2,770 143 28 28 - - - - - 201 -
Credit
4 institutions 38,418 38,342 76 - - (19) (1) (18) - - 19,337 -
Other
financial
5 corporations 63,683 61,282 501 249 249 (9) (3) (6) (65) (65) 35,694 -
Non-financial
6 corporations 52,866 39,675 13,139 1,804 1,804 (251) (77) (174) (766) (766) 21,100 381
- of
which:
7 SMEs 2,047 1,672 375 187 187 (13) (4) (9) (104) (104) 1,353 54
8 Households 25,414 23,982 1,432 324 324 (41) (14) (27) (85) (85) 24,245 159
----------------- ----------------- ------------------ ------------------ ------------------ ------------------ ------------------ --------------------
Debt
9 securities 31,112 30,350 255 - - (24) (14) (10) - - 2,270 -
----------------- ----------------- ------------------ ------------------ ------------------ ------------------ ------------------ --------------------
Central
10 banks 36 36 - - - - - - - - - -
General
11 governments 20,137 20,137 - - - (1) (1) - - - 1,028 -
Credit
12 institutions 6,612 6,558 54 - - - - - - - 1,242 -
Other
financial
13 corporations 3,655 3,236 188 - - (10) - (10) - - - -
Non-financial
14 corporations 672 383 13 - - (13) (13) - - - - -
----------------- ------------------ ------------------ ------------------ ------------------ ------------------
Off-balance-sheet
15 exposures 157,901 133,306 6,078 359 245 (66) (17) (37) (29) (19) 1,214 2
Central
16 banks 783 778 - - - (1) - - - - - -
General
17 governments 2,530 1,974 12 - - - - - - - - -
Credit
18 institutions 7,794 5,583 105 - - (2) - - - - - -
Other
financial
19 corporations 62,811 61,224 448 3 3 (3) - (3) (1) (1) 184 -
Non-financial
20 corporations 81,493 61,358 5,450 350 236 (60) (17) (34) (28) (18) 948 2
21 Households 2,490 2,389 63 6 6 - - - - - 82 -
----------------- ----------------- ------------------ ------------------ ------------------ ------------------ ------------------ --------------------
22 Total 507,643 465,030 21,637 2,829 2,715 (410) (126) (272) (961) (951) 106,567 542
----------------- ----------------- ------------------ ------------------ ------------------ ------------------ ------------------ --------------------
Performing and non-performing exposures and related provisions (CR1)
(continued)
Accumulated impairment, Collaterals
accumulated negative changes and financial
Gross carrying amount/nominal in fair value due to credit guarantees
amount risk and provisions received
Non-performing Non-performing
Performing exposures exposures Performing exposures exposures
of of of of of of
which: which: which: which: which: which On perfor-
stage stage stage stage stage stage ming On non-performing
1 2 3 1 2 3 expo-sures exposures
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-----------------
At 31
Dec 2021
------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ----------------------
Loans
1 and advances 270,721 258,648 9,163 2,487 2,487 (242) (91) (151) (910) (910) 97,102 626
Central
2 banks 113,919 113,907 13 - - - - - - - 2,552 -
General
3 governments 1,540 1,318 222 - - - - - - - 224 -
Credit
4 institutions 29,621 29,595 26 - - (6) (5) (1) - - 17,849 -
Other
financial
5 corporations 48,353 45,188 369 243 243 (9) (6) (3) (16) (16) 32,713 -
Non-financial
6 corporations 52,347 44,385 7,847 1,791 1,791 (189) (58) (131) (769) (769) 20,213 381
- of
which:
7 SMEs 1,929 1,535 394 200 200 (22) (7) (15) (107) (107) 1,294 58
8 Households 24,941 24,255 686 453 453 (38) (22) (16) (125) (125) 23,551 245
9 Debt securities 32,676 31,482 644 1 1 (19) (2) (17) (1) (1) 1,763 -
Central
10 banks 106 106 - - - - - - - - - -
General
11 governments 22,361 22,361 - - - (1) (1) - - - 281 -
Credit
12 institutions 6,612 6,218 394 - - (2) (1) (1) - - 1,482 -
Other
financial
13 corporations 2,822 2,373 216 - - (10) - (10) - - - -
Non-financial
14 corporations 775 424 34 1 1 (6) - (6) (1) (1) - -
Off-balance-sheet
15 exposures 144,287 119,893 8,311 416 300 (67) (27) (30) (35) (15) 1,540 9
Central
16 banks 11 2 - - - - - - - - - -
General
17 governments 1,543 1,148 23 - - - - - - - - -
Credit
18 institutions(1) 5,998 3,789 249 - - (9) (3) (1) - - - -
Other
financial
19 corporations(1) 49,951 48,248 557 1 1 (2) (1) (1) - - 232 -
Non-financial
20 corporations 84,473 64,530 7,366 410 295 (55) (23) (28) (35) (15) 1,167 9
21 Households 2,311 2,176 116 5 4 (1) - - - - 141 -
22 Total 447,684 410,023 18,118 2,904 2,788 (328) (120) (198) (946) (926) 100,405 635
1 GBP28bn in off balance sheet exposures were reclassified as at
December 2021 from 'Credit institution' to 'Other financial
corporations' following a customer classification change.
Maturity of exposures (CR1-A)
Net exposure value
> 1 year
On <= 1 <= 5 No stated
demand year years > 5 years maturity Total
GBPm GBPm GBPm GBPm GBPm GBPm
Loans and
1 advances 34,197 114,363 85,407 39,842 7 273,816
-------------------------- --------------------- -------------------- --------------------- --------------------------- --------------------
Debt
2 securities - 7,332 14,183 8,029 - 29,544
-------------------------- --------------------- -------------------- --------------------- --------------------------- --------------------
Total at
30 Jun
3 2022 34,197 121,695 99,590 47,871 7 303,360
-------------------------- --------------------- -------------------- --------------------- --------------------------- --------------------
1 The table above includes reverse repos and excludes assets
held for sale and cash balances with central banks and other demand
deposits.
Non-performing loans
Credit quality of forborne exposures (UK CQ1)
Accumulated impairment,
accumulated negative Collateral received
changes in fair and financial
Gross carrying amount/nominal value due to credit guarantees received
amount risk and provisions on forborne exposures
Non-performing
forborne
of which:
of of On performing On non-performing forborne
Performing which: which: forborne forborne non-performing
forborne Total defaulted impaired exposures exposures Total exposures
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- -------------------- --------------------
At 30 Jun
2022
005 Cash balances
at central
banks
and other
demand
deposits
Loans and
010 advances 1,907 690 690 690 (42) (242) 264 131
-------------------- -------------------- -------------------- --------------------------------- -------------------------------- ------------------------------ ------------------------------
020 Central banks - - - - - - - -
030 General - - - - - - - -
governments
040 Credit - - - - - - - -
institutions
Other
financial
050 corporations 27 4 4 4 (1) (1) - -
Non-financial
060 corporations 1,839 618 618 618 (38) (233) 168 72
070 Households 41 68 68 68 (3) (8) 96 59
-------------------- -------------------- --------------------
080 Debt - - - - - - - -
securities
-------------------- -------------------- -------------------- --------------------------------- -------------------------------- ------------------------------ ------------------------------
090 Loan - - - - - - - -
commitments
given
-------------------- -------------------- -------------------- --------------------------------- -------------------------------- ------------------------------ ------------------------------
100 Total 1,907 690 690 690 (42) (242) 264 131
-------------------- -------------------- -------------------- --------------------------------- -------------------------------- ------------------------------ ------------------------------
At 31 Dec
2021
005 Cash balances
at central
banks
and other
demand
deposits
-------------------- -------------------- --------------------
Loans and
010 advances 67 838 838 838 (3) (235) 212 207
--------------------------------- --------------------------------
020 Central banks - - - - - - - -
030 General - - - - - - - -
governments
040 Credit - - - - - - - -
institutions
Other
financial
050 corporations 6 4 4 4 - - - -
Non-financial
060 corporations 61 704 704 704 (3) (220) 127 122
070 Households - 130 130 130 - (15) 85 85
080 Debt - - - - - - - -
securities
--------------------------------- --------------------------------
090 Loan - - - - - - - -
commitments
given
--------------------------------- --------------------------------
100 Total 67 838 838 838 (3) (235) 212 207
--------------------------------- --------------------------------
Collateral obtained by taking possession and execution processes (UK
CQ7)
At 30 Jun 2022 At 31 Dec 2021
--------------------------------------------------------
Collateral
obtained by Collateral obtained
taking possession by taking possession
Value Accumulated Value Accumulated
at initial negative at initial negative
recognition changes recognition changes
GBPm GBPm GBPm GBPm
--------------------------- -------------------------- ---------------------------- --------------------------
010 Property,
plant and
equipment
('PP&E') - - - -
--------------------------- -------------------------- ---------------------------- --------------------------
Other than
020 ('PP&E') 6 - 5 -
--------------------------- -------------------------- ---------------------------- --------------------------
Residential
immovable
030 property 2 - 2 -
--------------------------- -------------------------- ---------------------------- --------------------------
Commercial
immovable
040 property 4 - 3 -
--------------------------- -------------------------- ---------------------------- --------------------------
050 Movable
property
(auto,
shipping,
etc.) - - - -
--------------------------- -------------------------- ---------------------------- --------------------------
060 Equity and
debt
instruments - - - -
--------------------------- -------------------------- ---------------------------- --------------------------
070 Other
collateral - - - -
--------------------------- -------------------------- ---------------------------- --------------------------
080 Total 6 - 5 -
--------------------------- -------------------------- ---------------------------- --------------------------
Quality of non-performing exposures by geography (UK CQ4)
Gross carrying/
Nominal amount
Provisions
on off-balance Accumulated
sheet commit- negative changes
ments and in fair value
financial due to credit
of which: Accumulated guarantee risk on non-performing
Total defaulted impairment given exposures
GBPm GBPm GBPm GBPm GBPm
--------------------- ----------------------------------- --------------------------
010 On 212,020 2,405 (1,260) - -
balance
sheet
exposures
--------- --------------------- ----------------------------------- --------------------------
020 United 62,792 358 (256) - -
Kingdom
--------- --------------------- ----------------------------------- --------------------------
030 France 49,977 870 (520) - -
--------- --------------------- ----------------------------------- --------------------------
040 United 18,215 9 (19) - -
States
--------- --------------------- ----------------------------------- --------------------------
050 Germany 13,659 278 (80) - -
--------- --------------------- ----------------------------------- --------------------------
060 Hong Kong 2,832 - - - -
--------- --------------------- ----------------------------------- --------------------------
070 Other 64,545 890 (385) - -
countries
--------- --------------------- ----------------------------------- --------------------------
080 Off 158,261 359 - 94 -
balance
sheet
exposures
--------- --------------------- ----------------------------------- --------------------------
090 United 29,347 65 - 28 -
Kingdom
--------- --------------------- ----------------------------------- --------------------------
100 France 50,491 91 - 20 -
--------- --------------------- ----------------------------------- --------------------------
110 United 5,794 - - 3 -
States
--------- --------------------- ----------------------------------- --------------------------
120 Germany 14,803 130 - 10 -
--------- --------------------- ----------------------------------- --------------------------
130 Hong Kong 1,216 - - - -
--------- --------------------- ----------------------------------- --------------------------
140 Other 56,610 73 - 33 -
countries
--------- --------------------- ----------------------------------- --------------------------
150 Total 370,281 2,764 (1,260) 94 -
--------- --------------------- ----------------------------------- --------------------------
Credit quality of loans and advances to non-financial corporations
by industry (UK CQ5)
Gross carrying
amount
Accumulated
negative changes
in fair value
due to credit
of which: Accumulated risk on non-performing
Total defaulted impairment exposures
GBPm GBPm GBPm GBPm
--------------------------- ----------------------------
010 Agriculture, 246 50 (9) -
forestry and
fishing
--------------------------- ----------------------------
020 Mining and 974 - (1) -
quarrying
--------------------------- ----------------------------
030 Manufacturing 10,866 268 (96) -
--------------------------- ----------------------------
040 Electricity, 1,904 87 (6) -
gas, steam and
air
conditioning
supply
--------------------------- ----------------------------
050 Water supply 207 4 (5) -
--------------------------- ----------------------------
060 Construction 766 95 (55) -
--------------------------- ----------------------------
070 Wholesale and 9,141 186 (150) -
retail trade
--------------------------- ----------------------------
080 Transport and 4,996 172 (102) -
storage
--------------------------- ----------------------------
090 Accommodation 1,298 53 (25) -
and food
service
activities
--------------------------- ----------------------------
100 Information 2,860 36 (15) -
and
communication
--------------------------- ----------------------------
110 Real estate 5,705 257 (189) -
activities
--------------------------- ----------------------------
120 Financial and - - - -
insurance
actvities
--------------------------- ----------------------------
130 Professional, 3,306 194 (61) -
scientific and
technical
activities
--------------------------- ----------------------------
140 Administrative 9,989 295 (257) -
and support
service
activities
--------------------------- ----------------------------
150 Public 9 - - -
administration
and defense,
compulsory
social
security
--------------------------- ----------------------------
160 Education 35 3 (1) -
--------------------------- ----------------------------
170 Human health 317 8 (7) -
services and
social
work
activities
--------------------------- ----------------------------
180 Arts, 190 6 (5) -
entertainment
and recreation
--------------------------- ----------------------------
190 Other services 1,861 90 (32) -
--------------------------- ----------------------------
200 Total at 30 54,670 1,804 (1,016) -
Jun 2022
--------------------------- ----------------------------
Defaulted exposures
Changes in the stock of non-performing loans and advances (CR2)
Half-year
to
30 Jun
2022
Gross
carrying
value
GBPm
010 Initial stock of non-performing loans and advances 2,538
020 Inflows to non-performing portfolios 333
030 Outflows from non-performing portfolios (90)
040 Outflows due to write-offs (34)
050 Outflow due to other situations(1) (143)
060 Final stock of non-performing loans and advances 2,604
1 Other changes include foreign exchange movements and repayments.
Risk mitigation
Credit risk mitigation techniques - overview (CR3)
Exposures Exposures Exposures Exposures
unsecured: secured: Exposures secured secured
carrying carrying secured by financial by credit
amount amount by collateral guarantees derivatives
GBPm GBPm GBPm GBPm GBPm
Loans and
1 advances 216,224 103,623 76,735 26,888 -
----------------
2 Debt securities 28,826 2,270 - 2,270 -
----------------
Total at 30 Jun
3 2022 245,050 105,893 76,735 29,158 -
----------------
- of which
non-performing
4 exposures 949 540 282 258 -
5 defaulted 949 540 - - -
----------------
Standardised approach - CCF and CRM effects (CR4)
Exposures before
CCF Exposures post-CCF RWAs
and CRM and CRM and RWA density
On-balance Off-balance On-balance Off-balance
sheet sheet sheet sheet RWA
amount amount amount amount RWAs density
GBPm GBPm GBPm GBPm GBPm %
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
Asset
classes(1)
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
Central
governments
or central
1 banks 141,762 1,651 150,531 1,344 1,313 1
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
Regional
governments
or
local
2 authorities 1,740 86 3,246 24 94 3
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
Public sector
3 entities 4,055 94 206 1 45 9
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
Multilateral
development
4 banks - - - - - (8)
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
International
5 organisations 487 - 487 - - -
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
6 Institutions 3,132 1,358 3,139 619 1,177 31
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
7 Corporates 11,280 5,379 10,435 1,337 8,537 73
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
8 Retail 498 759 417 84 358 71
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
Secured by
mortgages on
immovable
9 property 4,133 17 4,133 4 2,159 52
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
Exposures in
10 default 334 39 296 14 365 118
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
Exposures
associated
with
particularly
11 high risk 107 32 106 13 179 150
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
12 Covered bonds - - - - - -
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
13 Institutions
and
corporates
with a
short-term
credit
assessment - - - - - -
Collective
investment
14 undertakings 1,713 948 1,713 474 4,181 191
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
15 Equity 1,266 - 1,266 - 2,301 182
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
16 Other items 881 - 881 - 240 27
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
Total at 30
17 Jun 2022 171,388 10,363 176,856 3,914 20,949 12
-------------------------- -------------------------- -------------------------- --------------------------- -------------------------- --------------------------
1 Securitisation positions are not included in this table.
2 These balance include capital requirements for underlying
equity exposures within CIUs calculated under the look-through
approach using the IRB simple risk-weight method.
IRB - Effect on the RWA of credit derivatives used as CRM techniques
(CR7)
At 30 Jun 2022
--------------------
Pre-credit
derivatives Actual
RWAs RWAs
GBPm GBPm
1 Exposures under FIRB 19,943 19,467
2 Central governments and central banks 6 6
3 Institutions 10 10
4 Corporates 19,927 19,451
- of which:
4.1 SMEs 70 70
4.2 Specialised lending - -
5 Exposures under AIRB(1) 29,673 29,573
6 Central governments and central banks 4,137 4,137
7 Institutions 2,180 2,171
8 Corporates 18,017 17,927
- of which:
8.1 SMEs 20 20
8.2 Specialised lending 2,404 2,404
9 Retail 5,339 5,339
- of which:
Retail - SMEs - Secured by immovable property
9.1 collateral 204 204
9.2 Retail - non-SMEs - Secured by immovable property
collateral 4,067 4,067
9.3 Retail - Qualifying revolving 59 59
9.4 Retail - SMEs - Other 245 245
9.5 Retail - Non-SMEs - Other 763 763
20 Total (including FIRB exposures and AIRB exposures) 49,616 49,040
1 Securitisation exposures, non-credit obligation assets and
equity exposures are not included in this table.
IRB approach - Disclosure of the extent of the use of CRM techniques
(CR7-A)
Credit
risk
Mitigation
Unfunded methods
credit in the
Protection calculation
Funded credit protection ('FCP') (UFCP) of RWAs
Part of exposures covered
by
Other eligible collaterals
(%)
RWA
post
Part all
Part of of CRM
Part exposures Part of exposures Part assigned
of exposures covered exposures covered of exposures to the RWA
covered by Immovable overed by Other covered obligor with
Total by Financial property by physical by Guarantees expo-sure substitution
AIRB exposures Collaterals Total collaterals receivables collateral (%) class effects
GBPm % % % % % % GBPm GBPm
--------------- ----------------
Central
governments
and central
1 banks 17,406 0.1 - - - - 0.4 4,113 4,137
--------------- ----------------
2 Institutions 11,067 21.2 0.3 0.3 - - - 2,179 2,171
-------------
3 Corporates 43,664 1.5 5.7 4.4 0.6 0.6 1.5 17,940 17,927
------------- --------------- ----------------
- of which
Corporates
3.1 - SMEs 35 - 3.6 3.6 - - 0.1 20 20
--------------- ----------------
Corporates
-
Specialised
3.2 lending 4,136 - - - - - 1.5 2,404 2,404
--------------- ----------------
Corporates
3.3 - Other 39,493 1.6 6.3 4.9 0.7 0.7 1.5 15,516 15,503
------------- --------------- ----------------
4 Retail 24,153 7.2 28.2 28.1 - - 54.0 5,338 5,338
------------- --------------- ----------------
- of which:
Retail -
Immovable
property
4.1 SMEs 312 3.4 92.3 91.0 1.3 - 0.2 204 204
---------------
Retail -
Immovable
property
4.2 non-SMEs 19,793 0.8 32.9 32.9 - - 65.7 4,067 4,067
--------------- ----------------
Retail -
Qualifying
4.3 revolving 544 - - - - - - 59 59
--------------- ----------------
Retail -
4.4 Other SMEs 989 9.7 0.9 - 0.1 0.7 3.3 245 245
--------------- ----------------
Retail -
Other non-
4.5 SMEs 2,515 59.0 - - - - 0.7 763 763
--------------- ----------------
Total at
5 30 Jun 2022 96,290 4.9 9.7 9.1 0.3 0.3 14.3 29,570 29,573
------------- ----------------
FIRB
--------------- ----------------
Central
governments
and central
1 banks - - - - - - - - 6
--------------- ----------------
2 Institutions - - - - - - - - 10
-------------
3 Corporates 51,038 25.9 2.2 1.7 0.4 0.1 - 19,470 19,451
------------- --------------- ----------------
- of which:
Corporates
3.1 - SMEs 117 15.3 7.0 7.0 - - - 70 70
--------------- ----------------
3.2 Corporates
-
Specialised
lending - - - - - - - - -
--------------- ----------------
Corporates
3.3 - Other 50,921 25.9 2.2 1.7 0.4 0.1 - 19,400 19,381
--------------- ----------------
Total at
4 30 Jun 2022 51,038 25.9 2.2 1.7 0.4 0.1 - 19,470 19,467
------------- --------------- ----------------
Specialised lending and equity exposures under the simple risk-weighted
approach (CR10)
Specialised lending: Project
finance (Slotting approach)
On-balance Off-balance
sheet sheet Risk Exposure Expected
amount amount weight amount RWAs loss
Regulatory
categories Remaining maturity GBPm GBPm % GBPm GBPm GBPm
Less than 2.5
Category 1 years 1 - 50 1 - -
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more - - 70 - - -
than 2.5 years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Category 2 Less than 2.5 - - 70 - - -
years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more
than 2.5 years 3 - 90 3 2 -
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Category 3 Less than 2.5 - - 115 - - -
years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more - - 115 - - -
than 2.5 years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Category 4 Less than 2.5 - - 250 - - -
years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more - - 250 - - -
than 2.5 years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Category 5 Less than 2.5 - - - - - -
years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more - - - - - -
than 2.5 years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Total at 30 Less than 2.5
Jun 2022 years 1 - - 1 - -
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more
than 2.5 years 3 - - 3 2 -
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Specialised lending:
Income-producing
real estate and high volatility
commercial real estate
(Slotting
approach)
On-balance Off-balance
sheet sheet Risk Exposure Expected
amount amount weight amount RWAs loss
Regulatory
categories Remaining maturity GBPm GBPm % GBPm GBPm GBPm
Less than 2.5
Category 1 years 540 3 50 542 271 -
Equal to or more
than 2.5 years 550 105 70 633 443 3
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Less than 2.5
Category 2 years 42 7 70 47 33 -
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more
than 2.5 years 10 19 90 20 18 -
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Less than 2.5
Category 3 years 85 - 115 85 97 2
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more - - 115 - - -
than 2.5 years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Category 4 Less than 2.5 - - 250 - - -
years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more - - 250 - - -
than 2.5 years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Less than 2.5
Category 5 years 2 - - 2 - 1
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more - - - - - -
than 2.5 years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Total at 30 Less than 2.5
Jun 2022 years 669 10 - 676 401 3
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more
than 2.5 years 560 124 - 653 461 3
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Specialised lending: Object
finance (Slotting approach)
On-balance Off-balance
sheet sheet Risk Exposure Expected
amount amount weight amount RWAs loss
Regulatory
categories Remaining maturity GBPm GBPm % GBPm GBPm GBPm
Less than 2.5
Category 1 years 466 23 50 483 241 -
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more
than 2.5 years 694 30 70 717 501 3
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Less than 2.5
Category 2 years 151 14 70 161 113 1
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more
than 2.5 years 101 3 90 102 92 1
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Category 3 Less than 2.5 - - 115 - - -
years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more - - 115 - - -
than 2.5 years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Category 4 Less than 2.5 - - 250 - - -
years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more - - 250 - - -
than 2.5 years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Less than 2.5
Category 5 years 7 - - 7 - 3
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more - - - - - -
than 2.5 years
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Total at 30 Less than 2.5
Jun 2022 years 624 37 - 651 354 4
--------------------------- --------------------------- ------ --------------------------- ---------------------------
Equal to or more
than 2.5 years 795 33 - 819 593 4
--------------------------- --------------------------- ------ --------------------------- ---------------------------
1 Equity exposures within CIUs are reported under STD approach,
although calculated under the look-through approach using the IRB
simple risk-weight method.
Countercyclical capital buffer
The table below discloses the geographical distribution of
credit exposures relevant to the calculation of the countercyclical
buffer ('CCyB') under Article 440 of the Regulation (EU) 575/2013.
Countries or territories that have a CCyB requirement, or have an
own funds requirement of greater than 0.7%, or that are material in
nature are disclosed below
Geographical distribution of credit exposures relevant for the calculation
of the countercyclical capital buffer (UK CCyB1)
General
credit Trading Securitis-ation
exposures book exposures exposures Own funds requirements
Relevant
credit
Total Relevant exposures
Sum Exposure credit Relevant - securitisation
of long/short value risk credit positions Own
positions for Total exposures exposures in the Risk-weighted funds
for Internal non-trading exposure - credit - market non-trading exposure require-ments CCyB
SA IRB SA models book value risk risk book Total amounts weights rate
Country GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % %
Bulgaria - 7 - - - 7 - - - - 1 0.0 0.50
------------ --------------------
Cayman
Islands 223 1,528 - 6 - 1,757 111 1 - 112 1,404 1.8 -
Czech
Republic 97 415 - 2 - 514 27 - - 27 342 0.4 0.50
----------------- -------------------- -----------------
Denmark - 1,402 - - - 1,402 61 1 - 62 773 1.0 -
----------------- -------------------- ------------ -----------------
France 3,563 43,652 46 40 1,692 48,993 1,371 8 24 1,403 17,533 22.3 -
----------------- -------------------- ------------ -----------------
Germany 764 12,302 138 44 525 13,773 506 11 5 522 6,521 8.3 -
----------------- -------------------- ------------ -----------------
Greece 303 1,958 4 8 - 2,273 118 1 - 119 1,491 1.9 -
----------------- -------------------- ------------ -----------------
Guernsey 369 728 - - - 1,097 50 - - 50 622 0.8 -
----------------- -------------------- ------------ -----------------
Hong Kong 12 397 - 3 - 412 8 - - 8 106 0.1 1.00
----------------- -------------------- ------------ -----------------
Ireland 404 3,055 437 18 352 4,266 102 13 6 121 1,515 1.9 -
----------------- -------------------- ------------ -----------------
Israel 182 836 - 33 - 1,051 42 3 - 45 556 0.7 -
--------------------
Italy 173 1,203 206 11 5 1,598 61 10 - 71 888 1.1 -
----------------- -------------------- ------------ -----------------
Jersey 192 3,294 - - - 3,486 178 - - 178 2,224 2.8 -
----------------- -------------------- ------------ -----------------
Luxembourg 945 5,243 - 38 5 6,231 278 3 - 281 3,512 4.5 0.50
----------------- -------------------- ------------ -----------------
Malta 2,684 124 - 1 - 2,809 123 - - 123 1,545 2.0 -
----------------- -------------------- ------------ -----------------
Netherlands 817 5,023 293 - 861 6,994 240 7 11 258 3,223 4.1 -
----------------- -------------------- ------------ -----------------
Norway 1 209 - 18 - 228 6 1 - 7 79 0.1 1.50
----------------- -------------------- ------------ -----------------
Poland 479 378 - 22 - 879 48 3 - 51 639 0.8 -
----------------- -------------------- ------------ -----------------
Russian
Federation 49 373 - - - 422 62 1 - 63 794 1.0 -
----------------- -------------------- ------------ -----------------
Slovakia 20 17 - 1 - 38 1 - - 1 13 0.0 1.00
----------------- -------------------- ------------ -----------------
South
Africa 306 651 - 12 - 969 51 2 - 53 664 0.8 -
----------------- -------------------- ------------ -----------------
Spain 315 1,562 44 6 120 2,047 85 3 2 90 1,112 1.4 -
----------------- -------------------- ------------ -----------------
Switzerland 109 4,578 - 9 - 4,696 115 2 - 117 1,469 1.9 -
----------------- -------------------- ------------ -----------------
United
Arab
Emirates 488 1,439 - 22 - 1,949 46 1 - 47 590 0.8 -
------------ ----------------- -------------------- ------------ -----------------
United
Kingdom 3,921 40,665 839 637 7,367 53,429 1,290 38 209 1,537 19,220 24.4 -
United
States 4,053 10,301 10 555 1,147 16,066 498 9 36 543 6,789 8.6 -
----------------- -------------------- ------------ -----------------
Other
countries 1,343 9,932 108 567 153 12,103 330 77 2 409 5,112 6.5 -
Total 21,812 151,272 2,125 2,053 12,227 189,489 5,808 195 295 6,298 78,737 100.0
------------ --------------------
Amount of Institution specific countercyclical capital buffer (UK CCyB2)
At
30 Jun
2022
Total Risk Exposure Amount (GBPm) 120,977
Institution specific countercyclical capital buffer rate (%) 0.03
Institution specific countercyclical capital buffer requirement
(GBPm) 33
Management of liquidity and funding risk
We aim to ensure that management has oversight of our liquidity
and funding risks by maintaining comprehensive policies, metrics
and controls.
Liquidity coverage ratio ('LCR')
The LCR aims to ensure that a bank has sufficient unencumbered
high-quality liquid assets ('HQLA') to meet its liquidity needs in
a
30 calendar day liquidity stress scenario. At 30 June 2022, we
were above regulatory minimum levels.
Net stable funding ratio ('NSFR')
We use NSFR as a basis for ensuring operating entities raise
sufficient stable funding to support their business activities. At
30 June 2022, we maintain sufficient stable funding relative to the
required stable funding assessed using the NSFR.
Quantitative information of LCR (UK LIQ1)(1)
Quarter ended
UK-1a 30 Jun 2022 31 Mar 2022
Total Total Total Total
unweighted weighted unweighted weighted
value value value value
GBPm GBPm GBPm GBPm
------ ------------------------------ ----------------------------- ------------------------------ ------------------------------
Number of data points used in the calculation
UK-1b of averages 12 12
------
High-quality liquid assets
1 Total high-quality liquid assets ('HQLA') 103,389 102,541
------ ----------------------------- ------------------------------
Cash outflows
2 Retail deposits and small business funding 16,147 2,187 15,827 2,255
------ ------------------------------ ----------------------------- ------------------------------ ------------------------------
- of which:
3 stable deposits 4,047 202 3,718 186
------------------------------ ----------------------------- ------------------------------ ------------------------------
4 less stable deposits 12,082 1,985 12,087 2,070
------ ------------------------------ ----------------------------- ------------------------------ ------------------------------
5 Unsecured wholesale funding 135,606 74,782 133,217 74,085
------ ------------------------------ ----------------------------- ------------------------------ ------------------------------
6
* operational deposits (all counterparties) and
deposits in networks of cooperative banks 47,174 11,745 44,981 11,186
------
7 86,008 60,613 85,566 60,220
* non-operational deposits (all counterparties)
------
8 - unsecured debt 2,424 2,424 2,669 2,669
------
9 Secured wholesale funding 4,636 4,843
------ ----------------------------- ------------------------------
10 Additional requirements 43,157 23,173 41,792 21,177
------ ------------------------------ ----------------------------- ------------------------------ ------------------------------
11
* outflows related to derivative exposures and other
collateral requirements 15,789 15,008 13,249 12,659
------
12
* outflows related to loss of funding on debt products - -
------
13 * credit and liquidity facilities 27,368 8,165 28,543 8,518
------
14 Other contractual funding obligations 22,974 6,576 21,051 5,642
------ ------------------------------ ----------------------------- ------------------------------ ------------------------------
15 Other contingent funding obligations 56,785 691 56,608 702
------ ------------------------------ ----------------------------- ------------------------------ ------------------------------
16 Total cash outflows 112,046 108,705
------ ----------------------------- ------------------------------
Cash inflows
Secured lending transactions (including
17 reverse repos) 76,143 17,442 77,625 18,170
------ ------------------------------ ------------------------------
18 Inflows from fully performing exposures 9,028 8,704 8,611 8,307
------ ------------------------------ ----------------------------- ------------------------------ ------------------------------
19 Other cash inflows 33,125 16,388 29,723 13,376
------ ------------------------------ ----------------------------- ------------------------------ ------------------------------
UK-19a (Difference between total weighted inflows
and total weighted outflows arising
from transactions in third countries
where there are transfer restrictions
or which are denominated in non-convertible
currencies) -
UK-19b (Excess inflows from a related specialised
credit institution) -
------ ------------------------------
20 Total cash inflows 118,296 42,534 115,959 39,853
------ ------------------------------ ----------------------------- ------------------------------ ------------------------------
UK-20a Fully exempt inflows - -
------ ------------------------------ ------------------------------
UK-20b Inflows subject to 90% cap - -
------ ------------------------------ ------------------------------
UK-20c Inflows subject to 75% cap 106,221 42,534 102,564 39,853
------ ------------------------------ ----------------------------- ------------------------------ ------------------------------
Liquidity coverage ratio (adjusted value)
UK-21 Liquidity buffer 103,389 102,541
------ ----------------------------- ------------------------------
22 Total net cash outflows 69,512 68,852
------ ----------------------------- ------------------------------
23 Liquidity coverage ratio (%) 149.0 149.0
------ ----------------------------- ------------------------------
1 These amounts relate to HSBC Bank plc as a single entity and
are not produced on a consolidated basis. The LCR is reported as
specified in the PRA Rulebook effective since 1 January 2022. LCR
disclosure is calculated based on 12 month-end averages ending
March 2022 and June 2022 respectively.
Net Stable Funding Ratio (UK LIQ2)(1)
Unweighted value by residual
maturity
No maturity < 6 months 6 months >= 1yr Weighted
to < 1yr value
GBPm GBPm GBPm GBPm GBPm
------ ----------------------------------
Available stable funding ('ASF') Items
Capital items
1 and instruments 18,109 894 861 10,883 28,992
------
2 Own funds 18,109 894 861 10,497 28,606
----------------------------------
Other capital
3 instruments 386 386
4 Retail deposits 16,678 - - 15,192
----------------------------------
5 Stable deposits 3,634 - - 3,452
----------------------------------
Less stable
6 deposits 13,044 - - 11,740
----------------------------------
Wholesale
7 funding: 185,624 6,233 9,545 61,366
----------------------------------
Operational
8 deposits 49,019 - - 24,509
----------------------------------
Other wholesale
9 funding 136,605 6,233 9,545 36,856
----------------------------------
Interdependent
10 liabilities 3,314 - - -
----------------------------------
Other
11 liabilities: 413 43,126 - - -
----------------------------------
NSFR derivative
12 liabilities 413
All other
liabilities and
capital
instruments not
included
in the above
13 categories 43,126 - - -
Total available
stable funding
14 ('ASF') 105,549
Required stable funding ('RSF') Items
Total
high-quality
liquid
15 assets ('HQLA') 119,520 10,177
------
Assets
encumbered for
more
than 12months
UK-15a in cover pool
16 Deposits held
at other
financial
institutions
for operational
purposes
Performing
loans and
17 securities: 85,207 9,709 45,530 56,414
----------------------------------
Performing
securities
financing
transactions
with financial
customers
collateralised
by
Level 1 HQLA
subject to 0%
18 haircut 31,037 4,348 1,078 5,903
Performing
securities
financing
transactions
with financial
customer
collateralised
by
other assets
and loans and
advances to
financial
19 institutions 25,694 898 541 2,353
Performing
loans to
non-financial
corporate
clients, loans
to
retail and
small business
customers, and
loans to
sovereigns,
and PSEs, of
20 which: 11,402 1,540 9,837 16,212
With a risk
weight of less
than or equal
to 35% under
the
Basel II
Standardised
Approach
21 for credit risk 113 88 1,680 1,193
Performing
residential
mortgages,
22 of which: 77 62 1,937 -
----------------------------------
23 With a risk
weight of less
than or equal
to 35% under
the
Basel II
Standardised
Approach
for credit risk - - - -
Other loans and
securities
that are not in
default and
do not qualify
as HQLA,
including
exchange-traded
equities and
trade finance
on-balance
sheet
24 products 16,998 2,861 32,137 31,946
Interdependent
25 assets - - 3,443 -
----------------------------------
26 Other assets: 53,288 - 10,912 22,780
----------------------------------
Physical traded
27 commodities 1,263 1,074
Assets posted
as initial
margin
for derivative
contracts and
contributions
to default
funds
28 of CCPs 10,046 -
NSFR derivative
29 assets 935 -
NSFR derivative
liabilities
before
deduction of
variation
30 margin posted 24,158 -
All other
assets not
included
in the above
31 categories 18,150 - 10,912 11,024
----------------------------------
Off-balance
32 sheet items - - 82,698 2,087
----------------------------------
33 Total RSF 91,458
Net Stable
Funding Ratio
34 (%) 115
1 These amounts relate to HSBC Bank plc as a single entity and
are not produced on a consolidated basis. From 1 January 2022, we
started managing funding risk based on the PRA's NSFR rules. NSFR
disclosure is calculated based on 2 quarter-end averages ending
March 2022 and June 2022.
Market risk in the first half of 2022
Market risk is the risk that movements in market factors,
including foreign exchange rates and commodity prices, interest
rates, credit spreads and equity prices will reduce the group's
income or the value of its portfolios. There were no material
changes to our policies and practices for the management of market
risk in the first half of 2022.
We managed market risk prudently in the first half of 2022.
Sensitivity exposures remained within appetite as the business
pursued its core market-making activity in support of our
customers. We continued to undertake hedging activities to protect
the business from geopolitical risk, macroeconomic uncertainty and
potential future deterioration in credit conditions. Market risk
continued to be managed using a complementary set of exposure
measures and limits, including Value At Risk ('VaR'), stress and
scenario analysis.
On the back of elevated market volatility driven by geopolitical
risk and stagflation concerns during first half of the year, the
overall risk profile of the Markets and Security Services business
remained relatively defensive during the first half of the year.
This defensive profile was mostly carried out by the FX and EQ
Business Lines as well as in the Senior Management book.
Value at risk of the trading portfolios
Trading VaR predominantly resides within the Markets and
Security Services business, and was GBP23m as of 30 June 2022, up
from GBP19m as of 31 December 2021, and down from GBP24m as of June
2021. The total trading VaR increased over the quarter peaking in
May. This increase was due to an elevated volatility in the
financial markets, owing to the geopolitical tensions with Russia,
coupled with the defensive positions across FX, Credit, and
Equity.
The group's trading VaR for the year is shown in the table
below.
Trading VaR, 99% 1 day
Foreign
exchange Credit
('FX') Interest Equity spread Portfolio
and commodity rate ('IR') ('EQ') ('CS') diversification(1) Total(2)
GBPm GBPm GBPm GBPm GBPm GBPm
Half-year
to 30 Jun
2022 7.5 10.8 10.7 14.1 (19.9) 23.2
Average 9.7 11.3 9.8 14.2 (21.4) 23.6
Maximum 21.5 14.7 13.3 22.9 - 43.6
Minimum 3.3 8.2 6.8 8.8 - 14.2
Half-year
to 30 Jun
2021 5.5 12.4 10.9 13.1 (17.7) 24.2
Average 8.3 12.7 9.8 11.7 (19.7) 22.8
Maximum 19.3 26.7 14.9 16.7 - 31.9
Minimum 4.4 9.3 6.3 9.2 - 18.8
Half-year
to 31 Dec
2021 4.5 10.0 10.5 14.9 (20.9) 19.0
Average 6.0 12.9 10.6 13.5 (21.1) 21.9
Maximum 9.9 23.1 14.8 15.8 - 27.8
Minimum 3.7 9.4 7.3 10.8 - 17.3
1 Portfolio diversification is the market risk dispersion effect
of holding a portfolio containing different risk types. It
represents the reduction in unsystematic market risk that occurs
when combining a number of different risk types, for example,
interest rate, equity and foreign exchange, together in one
portfolio. It is measured as the difference between the sum of the
VaR by individual risk type and the combined total VaR. A negative
number represents the benefit of portfolio diversification. As the
maximum occurs on different days for different risk types, it is
not meaningful to calculate a portfolio diversification benefit for
this measure.
2 The total VaR is non-additive across risk types due to
diversification effect and it includes VaR RNIV.
Back-testing
In the first half of 2022, there were three back-testing
exceptions against Actual profit and losses, and six back-testing
exceptions against Hypothetical profit and losses. The back-testing
breaches occurred in the month of February and March driven by
volatility in Equity, FX and Fixed Income markets on the back of
geopolitical and inflation risk. The capital multiplayer for the
HBEU consolidated entity has increased in first half of 2022
because of these back-testing exceptions.
Performance of the VaR model throughout the first half of 2022
was in line with expectations. Over the period, market risk
continued to be managed using a complementary set of exposure
measures and limits, including stress and scenario analysis. This
ensured that the business was prudently managed and performed well
across the period.
Non-trading portfolios
Value at risk of the non-trading portfolios
The non-trading VaR as of 30 June 2022 was GBP22.7m, driven by
interest rate risk in the banking book arising from Markets
Treasury and ALCO book positions. The reduction in VaR for
non-trading activity from GBP29.4m as at 31 December 2021 was
driven by two factors. Firstly, the VaR scenarios for the Covid-19
period (March 2020) had rolled off from the VaR time series and
secondly, there was an overall risk reduction in the banking book
portfolio. The Treasury bond yields continued to rise and steepened
considerably in the second quarter of 2022, as the markets
evaluated the rate of inflation driven by economic recovery from
Covid-19 and remains volatile with uncertainties surrounding
recession in the global economy. Markets treasury business actively
managed the interest rate risk in the portfolio throughout the
first half of 2022. Read more on the management of this portfolio
in Treasury Risk Management on page 31.
The group's non-trading VaR for the year is shown in the table
below.
Non-trading VaR, 99% 1 day
Interest Credit Portfolio
rate spread diversification(1)
('IR') ('CS') Total(2)
GBPm GBPm GBPm GBPm
Half-year
to 30 Jun
2022 19.5 5.9 (2.7) 22.7
Average 29.1 6.8 (5.1) 30.8
Maximum 37.6 11.9 - 40.5
Minimum 19.1 4.2 - 22.5
Half-year
to 30 Jun
2021 29.6 8.0 (6.6) 31.0
-----------------------------
Average 27.6 10.9 (5.7) 32.8
Maximum 34.6 12.7 - 37.8
Minimum 20.6 7.9 - 29.1
-----------------------------
Half-year
to 31 Dec
2021 28.7 9.0 (8.4) 29.4
Average 25.6 9.0 (5.5) 29.2
Maximum 33.1 10.3 - 37.3
Minimum 18.0 7.2 - 22.5
1 Portfolio diversification is the market risk dispersion effect
of holding a portfolio containing different risk types. It
represents the reduction in unsystematic market risk that occurs
when combining a number of different risk types, for example,
interest rate, equity and foreign exchange, together in one
portfolio. It is measured as the difference between the sum of the
VaR by individual risk type and the combined total VaR. A negative
number represents the benefit of portfolio diversification. As the
maximum occurs on different days for different risk types, it is
not meaningful to calculate a portfolio diversification benefit for
this measure.
2 The total VaR is non-additive across risk types due to diversification effect.
Insurance manufacturing operations risk
Overview
The key risks for our insurance manufacturing operations are
market risks, in particular interest rate, growth asset, and credit
risks, as well as insurance underwriting and operational risks.
Liquidity risk, while significant for other parts of the Group, is
relatively minor for our insurance operations.
A summary of our policies and practices regarding the risk
management of insurance operations, our insurance model and the
main contracts we manufacture is provided on page 83 of the Annual
Report and Accounts 2021.
There have been no material changes to the policies and
practices for the management of risks arising in our insurance
operations described in the Annual Report and Accounts 2021.
Insurance manufacturing operations risk profile in the first
half of 2022
The risk profile of our insurance manufacturing operations are
assessed in the Group's ICAAP based on their financial capacity to
support the risks to which they are exposed.
Capital adequacy is assessed on both the Group's economic
capital basis, and the relevant local insurance regulatory basis.
The group's economic capital basis is largely aligned to European
Solvency II regulations. Risk appetite buffers are set to ensure
that the operations are able to remain solvent on both bases
allowing for business-as-usual volatility and extreme but plausible
stress events. In addition, the insurance manufacturing operations
manage their market, liquidity, credit, underwriting and
non-financial risk exposures to Board-approved risk appetite
limits.
Equity values, which are a key risk driver for the financial
strength of the insurance operations, in general fell during the
first half of the year. This was partly offset by the impact of
rising interest rates. Overall, at 30 June 2022 the majority of the
capital and financial risk positions of our insurance operations
were within risk appetite. However, the impact of changes in market
factors, relative to the economic assumptions in place at the start
of the year, had a positive impact on reported profit before tax of
GBP87m (30 June 2021: GBP162m positive). We continue to monitor
these risks closely, in the current volatile economic climate.
The following table shows the composition of assets and
liabilities by contract type.
Balance sheet of insurance manufacturing subsidiaries by type of contract
Shareholder
With Other assets
DPF Unit-linked contracts(1) and liabilities Total
GBPm GBPm GBPm GBPm GBPm
Financial assets 17,221 2,764 208 2,408 22,601
---------------------- ------------------------ ------------------------ ------------------------ --------------------
* financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 8,823 2,755 102 1,026 12,706
- derivatives 100 - - 3 103
- financial investments - at amortised
cost 320 1 - 17 338
- financial investments - at fair value
through other comprehensive income 6,817 - 102 1,281 8,200
- other financial assets(2) 1,161 8 4 81 1,254
Reinsurance assets - 54 116 - 170
---------------------- ------------------------ ------------------------ ------------------------ --------------------
PVIF(3) - - - 985 985
---------------------- ------------------------ ------------------------ ------------------------ --------------------
Other assets and investment properties 749 1 1 58 809
---------------------- ------------------------ ------------------------ ------------------------ --------------------
Total assets at 30 Jun 2022 17,970 2,819 325 3,451 24,565
---------------------- ------------------------ ------------------------ ------------------------ --------------------
Liabilities under investment contracts
designated at fair value - 943 - - 943
---------------------- ------------------------ ------------------------ ------------------------ --------------------
Liabilities under insurance contracts 17,844 1,957 335 - 20,136
---------------------- ------------------------ ------------------------ ------------------------ --------------------
Deferred tax(4) 126 4 - 81 211
---------------------- ------------------------ ------------------------ ------------------------ --------------------
Other liabilities - - - 1,641 1,641
---------------------- ------------------------ ------------------------ ------------------------ --------------------
Total liabilities at 30 Jun 2022 17,970 2,904 335 1,722 22,931
---------------------- ------------------------ ------------------------ ------------------------ --------------------
Total equity at 30 Jun 2022 - - - 1,634 1,634
---------------------- ------------------------ ------------------------ ------------------------ --------------------
Total liabilities and equity at 30 Jun
2022 17,970 2,904 335 3,356 24,565
---------------------- ------------------------ ------------------------ ------------------------ --------------------
Financial assets 19,384 2,924 254 2,704 25,266
* financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 9,876 2,859 89 1,236 14,060
- derivatives 47 - - 1 48
- financial investments - at amortised
cost 815 - - 42 857
- financial investments - at fair value
through other comprehensive income 7,490 - 104 1,327 8,921
- other financial assets(2) 1,156 65 61 98 1,380
Reinsurance assets - 53 104 - 157
PVIF(3) - - - 811 811
Other assets and investment properties 748 1 - 59 808
Total assets at 31 Dec 2021 20,132 2,978 358 3,574 27,042
Liabilities under investment contracts
designated at fair value - 1,031 - - 1,031
Liabilities under insurance contracts 19,998 1,938 328 - 22,264
Deferred tax(4) 133 6 - 46 185
Other liabilities - - - 2,003 2,003
Total liabilities at 31 Dec 2021 20,131 2,975 328 2,049 25,483
Total equity at 31 Dec 2021 - - - 1,559 1,559
Total liabilities and equity at 31 Dec
2021 20,131 2,975 328 3,608 27,042
1 'Other contracts' includes term assurance and credit life insurance.
2 Comprise mainly loans and advances to banks, cash and
intercompany balances with other non-insurance legal entities.
3 Present value of in-force long-term insurance business.
4 'Deferred tax' includes the deferred tax liabilities arising on recognition of PVIF.
Market risk
Description and exposure
Market risk is the risk of changes in market factors affecting
the bank's capital or profit. Market factors include interest
rates, equity and growth assets and foreign exchange rates.
Our exposure varies depending on the type of contract issued.
Our most significant life insurance products are investment
contracts with discretionary participating features ('DPF') issued
in France. These products typically include some form of capital
guarantee or guaranteed return on the sums invested by the
policyholders, to which discretionary bonuses are added if allowed
by the overall performance of the funds. These funds are primarily
invested in bonds with a proportion allocated to other asset
classes, to provide customers with the potential for enhanced
returns. DPF products expose the bank to the risk of variation in
asset returns, which will impact our participation in the
investment performance. In addition, in some scenarios the asset
returns can become insufficient to cover the policyholders'
financial guarantees, in which case the shortfall has to be met by
the bank. Amounts are held against the cost of such guarantees,
calculated by stochastic modelling.
The cost of such guarantees is accounted for as a deduction from
the present value of in-force ('PVIF') asset, unless the cost of
guarantees is already explicitly allowed for within the insurance
contract liabilities.
For unit-linked contracts, market risk is substantially borne by
the policyholder, but some market risk exposure typically remains
as fees earned are related to the market value of the linked
assets.
Sensitivities
The following table illustrates the effects of selected interest
rate and equity price scenarios on our profit for the period and
the total equity of our insurance manufacturing subsidiaries.
Where appropriate, the effects of the sensitivity tests on
profit after tax and equity incorporate the impact of the stress on
the PVIF.
Due in part to the impact of the cost of guarantees and hedging
strategies which may be in place, the relationship between the
profit and total equity and the risk factors is non-linear.
Therefore, the results disclosed should not be extrapolated to
measure sensitivities to different levels of stress. For the same
reason, the impact of the stress is not necessarily symmetrical on
the upside and downside. The sensitivities are stated before
allowance for management actions which may mitigate the effect of
changes in the market environment. The sensitivities presented
allow for adverse changes in policyholder behaviour that may arise
in response to changes in market rates. The differences between the
impacts on profit after tax and equity are driven by the changes in
value of the bonds measured at fair value through other
comprehensive income, which are only accounted for in equity.
Sensitivity of the group's insurance manufacturing subsidiaries to
market risk factors
At 31 December
At 30 June 2022 2021
--------------------------------------------------------------------
Effect Effect Effect
on on Effect on
profit total on profit total
after tax equity after tax equity
GBPm GBPm GBPm GBPm
--------------------------------- ---------------------------------
+100 basis
point
parallel
shift in
yield curves 64 42 119 96
--------------------------------- --------------------------------- --------------------------------- ---------------------------------
-100 basis
point
parallel
shift in
yield curves (136) (111) (229) (203)
--------------------------------- --------------------------------- --------------------------------- ---------------------------------
10% increase
in equity
prices 52 52 46 46
--------------------------------- --------------------------------- --------------------------------- ---------------------------------
10% decrease
in equity
prices (54) (54) (49) (49)
--------------------------------- --------------------------------- --------------------------------- ---------------------------------
Statement of Directors' Responsibilities
The Directors, who are required to prepare the condensed
consolidated interim financial statements on a going concern basis
unless it is not appropriate, are satisfied that the group and bank
have the resources to continue in business for the foreseeable
future and that the financial statements continue to be prepared on
a going concern basis.
The Directors, the names of whom are set out below, confirm that
to the best of their knowledge:
-- the interim condensed financial statements have been prepared
in accordance with UK adopted International Accounting Standard 34
'Interim Financial Reporting', IAS 34 'Interim Financial Reporting'
as issued by the International Accounting Standards Board ('IASB'),
International Accounting Standard 34 'Interim Financial Reporting'
as adopted by the EU and the Disclosure Guidance and Transparency
Rules sourcebook of the UK's Financial Conduct Authority;
-- this Interim Report 2022 gives a true and fair view of the
assets, liabilities, financial position of the group and of the
profit or loss of the group for that period; and
-- this Interim Report 2022 includes a fair review of the information required by:
- DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year ending 31 December 2022
and their impact on the condensed set of financial statements;
and
- a description of the principal risks and uncertainties of the
remaining six months of the financial year.
S P O'Connor (Chairman); J F Trueman (Deputy Chairman); C W Bell
(Chief Executive Officer); D Watts (Chief Financial Officer); Y
Omura ; J A Ellis (nee Robinson) ; E W Strutz ; N Dove-Edwin and A
M Wright .
On behalf of the Board
Dave Watts
Director
1 August 2022
Registered number 00014259
Independent non-executive Director
Independent Review Report to HSBC Bank plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed HSBC Bank plc's condensed consolidated interim
financial statements (the 'interim financial statements') in the
Interim Report of HSBC Bank plc for the 6 month period ended 30
June 2022 (the 'period').
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
,
IAS 34 'Interim Financial Reporting' as issued by the
International Accounting Standards Board ('IASB'), IAS 34 'Interim
Financial Reporting' as adopted by the EU and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
The interim financial statements comprise:
-- the consolidated balance sheet as at 30 June 2022;
-- the consolidated income statement and consolidated statement
of comprehensive income for the period then ended;
-- the consolidated statement of cash flows for the period then ended;
-- the consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Report
of HSBC Bank plc have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial
Reporting', IAS 34 'Interim Financial Reporting' as issued by the
International Accounting Standards Board ('IASB'), IAS 34 'Interim
Financial Reporting' as adopted by the EU and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council for use in the
United Kingdom. A review of interim financial information consists
of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on
the review procedures performed in accordance with this ISRE.
However, future events or conditions may cause the group to cease
to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the Directors
The Interim Report, including the interim financial statements,
is the responsibility of, and has been approved by the directors.
The directors are responsible for preparing the Interim Report in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority. In
preparing the Interim Report, including the interim financial
statements, the directors are responsible for assessing the group's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Report based on our review. Our
conclusion, including our Conclusions relating to going concern, is
based on procedures that are less extensive than audit procedures,
as described in the Basis for conclusion paragraph of this report.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
1 August 2022
Condensed financial statements
Consolidated income statement
Half-year to
30 Jun 30 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
------------------------- ------------------------
Net interest income 991 860 894
------------------------
- interest income 2,105 1,559 1,590
- interest expense (1,114) (699) (696)
Net fee income 644 744 669
------------------------
- fee income 1,312 1,382 1,324
- fee expense (668) (638) (655)
Net income from financial instruments held for trading
or managed on a fair value basis 1,545 950 783
------------------------
Net (expense)/income from assets and liabilities
of insurance businesses, including related
derivatives,
measured at fair value through profit or loss (1,326) 774 440
Changes in fair value of long-term debt and related
derivatives (45) 8 (16)
------------------------
Changes in fair value of other financial instruments
mandatorily measured at fair value through profit
or loss 32 335 158
------------------------
Gains less losses from financial investments - 46 14
------------------------
Net insurance premium income 1,036 987 919
------------------------
Other operating income 12 353 241
------------------------
Total operating income 2,889 5,057 4,102
------------------------
Net insurance claims, benefits paid and movement
in liabilities to policyholders 233 (1,700) (1,339)
------------------------
Net operating income before change in expected credit
losses and other credit impairment charges(1) 3,122 3,357 2,763
------------------------
Change in expected credit losses and other credit
impairment charges (187) 71 103
------------------------
Net operating income 2,935 3,428 2,866
------------------------
Total operating expenses (2,587) (2,721) (2,741)
------------------------
* employee compensation and benefits (840) (1,076) (947)
* general and administrative expenses (1,681) (1,579) (1,686)
* depreciation and impairment of property, plant a
nd
equipment and right of use assets (44) (57) (53)
* amortisation and impairment of intangible assets (22) (9) (55)
Operating profit 348 707 125
------------------------
Share of (loss)/profit in associates and joint ventures (21) 108 83
------------------------
Profit before tax 327 815 208
------------------------
Tax (expense)/credit (86) (74) 97
------------------------
Profit for the period 241 741 305
------------------------
Profit attributable to the parent company 237 737 304
------------------------
Profit attributable to non-controlling interests 4 4 1
------------------------
1 Net operating income before change in expected credit losses
and other credit impairment charges is also referred to as
revenue.
The accompanying notes on pages 63 to 76, the 'Summary of
financial instruments to which the impairment requirements in IFRS
9 are applied', 'Summary of credit risk (excluding debt instruments
measured at FVOCI) by stage distribution and ECL coverage by
industry sector', and 'Reconciliation of changes in gross
carrying/nominal amount and allowances for loans and advances to
banks and customers including loan commitments and financial
guarantees' tables in the 'Credit risk' section form an integral
part of these condensed financial statements.
Consolidated statement of comprehensive income
Half-year to
30 Jun 30 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
------------------------- -------------------------
Profit for the period 241 741 305
------------------------
Other comprehensive income/(expense)
------------------------
Items that will be reclassified subsequently to
profit or loss when specific conditions are met:
------------------------
Debt instruments at fair value though other comprehensive
income (456) (144) (93)
------------------------
* fair value losses (643) (140) (107)
* fair value losses/(gains) transferred to the income
statement on disposal 1 (48) (15)
* expected credit losses recognised in income statement 5 (5) -
* income taxes 181 49 29
Cash flow hedges (433) (66) (99)
------------------------
* fair value (losses)/gains (614) 130 (170)
* fair value losses/(gains) reclassified to the income
statement 26 (224) 22
* income taxes 155 28 49
Exchange differences and other 366 (412) (191)
------------------------
Items that will not be reclassified subsequently
to profit or loss:
------------------------
Remeasurement of defined benefit asset/liability 64 36 8
------------------------
* before income taxes 83 49 12
* income taxes (19) (13) (4)
Equity instruments designated at fair value through
other comprehensive income 1 2 -
------------------------
* fair value gains 1 2 -
- - -
* income taxes
Changes in fair value of financial liabilities designated
at fair value upon initial recognition arising from
changes in own credit risk 365 (25) 27
* before income taxes 508 (44) 47
* income taxes (143) 19 (20)
Other comprehensive expense for the period, net
of tax (93) (609) (348)
------------------------
Total comprehensive income/(expense) for the period 148 132 (43)
------------------------
Attributable to:
------------------------
* the parent company 147 134 (41)
* non-controlling interests 1 (2) (2)
Consolidated balance sheet
At
-------------------------------------------------------
30 Jun 31 Dec
2022 2021
GBPm GBPm
------------------------------------------------------ ----------------------------
Assets
------------------------- ----------------------------
Cash and balances at central banks 126,759 108,482
------------------------- ----------------------------
Items in the course of collection from other banks 801 346
------------------------- ----------------------------
Trading assets 78,072 83,706
------------------------- ----------------------------
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 16,380 18,649
------------------------- ----------------------------
Derivatives 202,510 141,221
------------------------- ----------------------------
Loans and advances to banks 16,349 10,784
------------------------- ----------------------------
Loans and advances to customers 94,840 91,177
------------------------- ----------------------------
Reverse repurchase agreements - non-trading 57,996 54,448
------------------------- ----------------------------
Financial investments 38,743 41,300
------------------------- ----------------------------
Assets held for sale(1) 2,765 9
------------------------- ----------------------------
Prepayments, accrued income and other assets 71,540 43,118
------------------------- ----------------------------
Current tax assets 512 1,135
------------------------- ----------------------------
Interests in associates and joint ventures 710 743
------------------------- ----------------------------
Goodwill and intangible assets 1,058 894
------------------------- ----------------------------
Deferred tax assets 666 599
------------------------- ----------------------------
Total assets 709,701 596,611
------------------------- ----------------------------
Liabilities and equity
------------------------- ----------------------------
Liabilities
------------------------- ----------------------------
Deposits by banks 38,623 32,188
------------------------- ----------------------------
Customer accounts 224,991 205,241
------------------------- ----------------------------
Repurchase agreements - non-trading 34,446 27,259
------------------------- ----------------------------
Items in the course of transmission to other banks 879 489
------------------------- ----------------------------
Trading liabilities 43,636 46,433
------------------------- ----------------------------
Financial liabilities designated at fair value 30,358 33,608
------------------------- ----------------------------
Derivatives 193,956 139,368
------------------------- ----------------------------
Debt securities in issue 8,650 9,428
------------------------- ----------------------------
Liabilities of disposal groups held for sale(1) 3,054 -
------------------------- ----------------------------
Accruals, deferred income and other liabilities 71,880 43,456
------------------------- ----------------------------
Current tax liabilities 129 97
------------------------- ----------------------------
Liabilities under insurance contracts 20,136 22,264
------------------------- ----------------------------
Provisions 358 562
------------------------- ----------------------------
Deferred tax liabilities 98 15
------------------------- ----------------------------
Subordinated liabilities 14,515 12,488
------------------------- ----------------------------
Total liabilities 685,709 572,896
------------------------- ----------------------------
Equity
------------------------- ----------------------------
Total shareholders' equity 23,862 23,584
------------------------- ----------------------------
* called up share capital 797 797
* other equity instruments 3,930 3,722
* other reserves (6,188) (5,670)
* retained earnings 25,323 24,735
Non-controlling interests 130 131
------------------------- ----------------------------
Total equity 23,992 23,715
------------------------- ----------------------------
Total liabilities and equity 709,701 596,611
------------------------- ----------------------------
1 Includes businesses classified as held-for-sale as part of a
broader restructuring of our European business. Refer to Note 11
'Business disposals' on page 75.
Consolidated statement of cash flows
Half-year to
----------------------------------------------------------------------------------------
30 Jun 30 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
---------------------------- ----------------------------
Profit before tax 327 815 208
---------------------------- ---------------------------- ----------------------------
Adjustments for non-cash
items:
---------------------------- ---------------------------- ----------------------------
Depreciation, amortisation
and impairment 66 66 108
---------------------------- ---------------------------- ----------------------------
Net gain/(losses) from
investing activities 218 (47) (15)
---------------------------- ---------------------------- ----------------------------
Share of loss/(profit) in
associates and joint
ventures 21 (108) (83)
---------------------------- ---------------------------- ----------------------------
Change in expected credit
losses gross of recoveries
and other credit impairment
charges 210 (69) (102)
---------------------------- ---------------------------- ----------------------------
Provisions including
pensions 44 54 50
---------------------------- ---------------------------- ----------------------------
Share-based payment expense 11 46 50
---------------------------- ---------------------------- ----------------------------
Other non-cash items
included in profit before
tax (157) (148) (50)
---------------------------- ---------------------------- ----------------------------
Elimination of exchange
differences(1) (3,357) 3,937 989
---------------------------- ---------------------------- ----------------------------
Change in operating assets (20,113) 20,916 16,423
---------------------------- ---------------------------- ----------------------------
Change in operating
liabilities 57,305 (5,572) (21,560)
Dividends received from 7 - -
associates
---------------------------- ---------------------------- ----------------------------
Contributions paid to
defined benefit plans (6) (13) (11)
---------------------------- ---------------------------- ----------------------------
Tax credit/(paid) 750 (65) (516)
---------------------------- ---------------------------- ----------------------------
Net cash from operating
activities 35,326 19,812 (4,509)
---------------------------- ---------------------------- ----------------------------
Purchase of financial
investments (8,323) (9,956) (8,934)
---------------------------- ---------------------------- ----------------------------
Proceeds from the sale and
maturity of financial
investments 7,697 15,373 9,654
---------------------------- ---------------------------- ----------------------------
Net cash flows from the
purchase and sale of
property,
plant and equipment (16) 55 (3)
---------------------------- ---------------------------- ----------------------------
Net investment in intangible
assets (10) (14) (31)
---------------------------- ---------------------------- ----------------------------
Net cash outflow from
investment in associates
and from acquisition of
businesses and subsidiaries - (61) (24)
Net cash from investing
activities (652) 5,397 662
---------------------------- ---------------------------- ----------------------------
Issue of ordinary share 208 - -
capital and other equity
instruments
Subordinated loan capital
issued 1,847 10,628 (162)
---------------------------- ---------------------------- ----------------------------
Subordinated loan capital
repaid (582) (11,060) 158
---------------------------- ---------------------------- ----------------------------
Dividends to the parent
company (59) (58) (136)
Dividend paid to
non-controlling interests (2) (1) -
---------------------------- ---------------------------- ----------------------------
Net cash from financing
activities 1,412 (491) (140)
---------------------------- ---------------------------- ----------------------------
Net increase/(decrease) in
cash and cash equivalents 36,086 24,718 (3,987)
---------------------------- ---------------------------- ----------------------------
Cash and cash equivalents at
the beginning of the
period 140,923 125,304 146,211
---------------------------- ---------------------------- ----------------------------
Exchange differences in
respect of cash and cash
equivalents 4,264 (3,811) (1,301)
---------------------------- ---------------------------- ----------------------------
Cash and cash equivalents at
the end of the period 181,273 146,211 140,923
---------------------------- ---------------------------- ----------------------------
1 Adjustment to bring changes between opening and closing
balance sheet amounts to average rates. This is not done on a
line-by-line basis, as details cannot be determined without
unreasonable expense.
Consolidated statement of changes in equity
Other reserves
----------------------------------------------------------------------
Called Financial Cash Group Total
up Other assets flow Foreign reorgani-sation share-
share equity Retained at FVOCI hedging exchange reserve holders' Non-controlling Total
capital instruments earnings reserve reserve reserve ('GRR')(3) equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 Jan 2022 797 3,722 24,735 1,081 (7) 948 (7,692) 23,584 131 23,715
------------------------ ---------------- ------------------ ---------------------
Profit for the period - - 237 - - - - 237 4 241
------------------------ ---------------- ------------------ ---------------------
Other comprehensive
income/(expense)
(net of tax) - - 429 (450) (433) 364 - (90) (3) (93)
---------------- ------------------ ---------------------
* debt instruments at fair value through other
comprehensive income - - - (451) - - - (451) (5) (456)
* equity instruments designated at fair value through
other comprehensive income - - - 1 - - - 1 - 1
* cash flow hedges - - - - (433) - - (433) - (433)
* remeasurement of defined benefit asset/liability - - 64 - - - - 64 - 64
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(1) - - 365 - - - - 365 - 365
- exchange differences - - - - - 364 - 364 2 366
---------------- ------------------ ---------------------
Total comprehensive
income/(expense) for
the period - - 666 (450) (433) 364 - 147 1 148
---------------- ------------------ ---------------------
Capital securities
issued during the
period - 208 - - - - - 208 - 208
------------------------ ---------------- ------------------ ---------------------
Dividends paid(2) - - (59) - - - - (59) (2) (61)
---------------------
Net impact of equity-settled
share-based payments - - (3) - - - - (3) - (3)
Change in business
combinations and other
movements - - (16) 1 - - - (15) - (15)
At 30 Jun 2022 797 3,930 25,323 632 (440) 1,312 (7,692) 23,862 130 23,992
1 At 30 June 2022, the cumulative amount of change in fair value
attributable to changes in own credit risk of financial liabilities
designated at fair value was a gain of GBP320m. The cumulative
change on 31 December 2021 was a loss of GBP165m.
2 The dividends to the parent company are the coupons payment on additional tier 1 instruments.
3 The Group reorganisation reserve ('GRR') is an accounting
reserve resulting from the ring-fencing implementation. The GRR
does not form part of regulatory capital.
Other reserves
Called Financial Cash Total
up Other assets flow Foreign Group share-
share equity Retained at FVOCI hedging exchange reorgani-sation holders' Non-controlling Total
capital instruments earnings reserve reserve reserve reserve equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 Jan 2021 797 3,722 23,829 1,309 158 1,543 (7,692) 23,666 183 23,849
---------------------
Profit for the period - - 737 - - - - 737 4 741
---------------------
Other comprehensive
income/(expense)
(net of tax) - - 11 (141) (66) (407) - (603) (6) (609)
---------------- ------------------ ---------------------
* debt instruments at fair value through other
comprehensive income - - - (143) - - - (143) (1) (144)
* equity instruments designated at fair value through
other comprehensive income - - - 2 - - - 2 - 2
- cash flow hedges - - - - (66) - - (66) - (66)
* remeasurement of defined benefit asset/liability - - 36 - - - - 36 - 36
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(1) - - (25) - - - - (25) - (25)
- exchange differences - - - - - (407) - (407) (5) (412)
----------------
Total comprehensive
income/(expense) for
the period - - 748 (141) (66) (407) - 134 (2) 132
---------------- ------------------ ---------------------
Dividends paid(2) - - (58) - - - - (58) (1) (59)
---------------------
Net impact of equity-settled
share-based payments - - 2 - - - - 2 - 2
---------------- ------------------ ---------------------
Change in business
combinations and other
movements(3) - - (30) 5 - - - (25) (13) (38)
---------------- ------------------ ---------------------
At 30 Jun 2021 797 3,722 24,491 1,173 92 1,136 (7,692) 23,719 167 23,886
---------------------
1 At 30 June 2021, the cumulative amount of change in fair value
attributable to changes in own credit risk of financial liabilities
designated at fair value was a loss of of GBP209m.
2 The dividends to the parent company are the coupons payment on additional tier 1 instruments.
3 Additional shares were acquired in HSBC Trinkaus &
Burkhardt GmbH (previously HSBC Trinkaus & Burkhardt AG) in Feb
2021, increasing the group's interest from 99.33% to 100%.
Consolidated statement of changes in equity (continued)
Other reserves
Called Financial Cash Total
up Other assets flow Foreign Group share-
share equity Retained at FVOCI hedging exchange reorgani-sation holders' Non-controlling Total
capital instruments earnings reserve reserve reserve reserve equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------------------ ---------------------
At 1 Jul 2021 797 3,722 24,491 1,173 92 1,136 (7,692) 23,719 167 23,886
---------------------
Profit for the period - - 304 - - - - 304 1 305
---------------------
Other comprehensive
income
(net of tax) - - 35 (93) (99) (188) - (345) (3) (348)
---------------- ------------------ ---------------------
* debt instruments at fair value through other
comprehensive income - - - (93) - - - (93) - (93)
* equity instruments designated at fair value through
other comprehensive income - - - - - - - - - -
- cash flow hedges - - - - (99) - - (99) - (99)
* remeasurement of defined benefit asset/liability - - 8 - - - - 8 - 8
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(1) - - 27 - - - - 27 - 27
* exchange differences - - - - - (188) - (188) (3) (191)
Total comprehensive
income/(expense) for
the period - - 339 (93) (99) (188) - (41) (2) (43)
Dividends paid(2) - - (136) - - - - (136) - (136)
---------------------
Net impact of equity-settled
share-based payments - - (12) - - - - (12) - (12)
---------------- ------------------ ---------------------
Change in business
combinations and other
movements(3) - - 53 1 - - - 54 (34) 20
---------------- ------------------ ---------------------
At 31 Dec 2021 797 3,722 24,735 1,081 (7) 948 (7,692) 23,584 131 23,715
---------------------
1 At 31 December 2021, the cumulative amount of change in fair
value attributable to changes in own credit risk of financial
liabilities designated at fair value was a loss of GBP165m.
2 The dividends to the parent company are the coupons payment on additional tier 1 instruments.
3 Additional shares were acquired in HSBC Bank Armenia cjsc in
Sep 2021, increasing the group's interest from 70% to 100%.
Notes on the condensed financial statements
1 Basis of preparation and significant accounting policies
(a) Compliance with International Financial Reporting Standards
The condensed consolidated interim financial statements of HSBC
Bank plc ('the bank') and its subsidiaries (together 'the group')
have been prepared on the basis of the policies set out in the 2021
annual financial statements and in accordance with IAS 34 'Interim
Financial Reporting' as adopted by the UK, IAS 34 'Interim
Financial Reporting' as issued by the International Accounting
Standards Board ('IASB'), IAS 34 'Interim Financial Reporting' as
adopted by the EU and the Disclosure Guidance and Transparency
Rules sourcebook of the UK's Financial Conduct Authority.
Therefore, they include an explanation of events and transactions
that are significant to an understanding of the changes in the
group's financial position and performance since the end of
2021.
These financial statements should be read in conjunction with
the Annual Report and Accounts 2021 which were prepared in
accordance with UK-adopted international accounting standards in
conformity with the requirements of the Companies Act 2006 and
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union.
These financial statements were also prepared in accordance with
International Financial Reporting Standards ('IFRSs') as issued by
the IASB, including interpretations issued by the IFRS
Interpretations Committee.
At 30 June 2022, there were no unendorsed standards effective
for the half-year to 30 June 2022 affecting these financial
statements, and there was no difference between IFRSs adopted by
the UK, IFRSs as adopted by the EU and IFRSs issued by the IASB in
terms of their application to the group.
Standards applied during the half-year to 30 June 2022
There were no new standards or amendments to standards that had
an effect on these interim condensed financial statements.
(b) Use of estimates and judgements
Management believes that the group's critical accounting
estimates and judgements are those which relate to impairment of
amortised cost and FVOCI financial assets, impairment of
investments in subsidiaries, the valuation of financial
instruments, deferred tax assets, provisions for liabilities and
the present value of in-force long-term insurance business. Apart
from estimates relating to ECL impairment, there were no material
changes in the current period to any of the other critical
accounting estimates and judgements disclosed in 2021, which are
stated on pages 118 to 127 of the Annual Report and Accounts
2021.
(c) Composition of the group
There were no material changes in the composition of the group
in the half-year to 30 June 2022. For further details of future
business disposals see Note 11 'Business disposals'.
(d) Future accounting developments
IFRS 17 'Insurance Contracts' was issued in May 2017, with
amendments to the standard issued in June 2020, and December 2021.
It has been adopted in its entirety for use in the UK. IFRS 17 has
been adopted by the EU subject to certain optional exemptions,
except for the December 2021 amendments which are pending
adoption.
The standard sets out the requirements that an entity should
apply in accounting for insurance contracts it issues and
reinsurance contracts it holds. Following the amendments, IFRS 17
will be effective from 1 January 2023. The Group is in the process
of implementing IFRS 17. Industry practice and interpretation of
the standard are still developing. Therefore, the likely impact of
its implementation remains uncertain. However, compared with the
Group's current accounting policy for insurance, there will be no
present value of in-force long-term insurance business ('PVIF')
asset recognised. Instead, the estimated future profit will be
included in the measurement of the insurance contract liability as
the contractual service margin and gradually recognised in revenue
as services are provided over the duration of the insurance
contract.
(e) Going concern
The financial statements are prepared on a going concern basis
as the Directors are satisfied that the group and parent company
have the resources to continue in business for the next 12 months
after the signing date and for the foreseeable future. In making
this assessment, the Directors have considered a wide range of
information relating to present and future conditions, including
future projections of profitability, cash flows, capital
requirements and capital resources. These considerations include
internal stress tests incorporating PRA scenarios, as well as
considering potential impacts from the strategic review and other
top and emerging risks and the related impact on profitability,
capital and liquidity.
(f) Accounting policies
The accounting policies applied by the group for these interim
condensed consolidated financial statements are consistent with
those described on pages 118 to 127 of the Annual Report and
Accounts 2021, as are the methods of computation.
2 Dividends
Dividends to the parent company
Half-year to
30 Jun 2022 30 Jun 2021 31 Dec 2021
GBP GBP per GBP per
per share GBPm share GBPm share GBPm
Dividends on
preference
shares
classified as
equity
----------------------- ----------------------
Dividend on - - - - 0.001 -
HSBC Bank plc
non-cumulative
third dollar
preference
shares(1)
----------------------- ----------------------
Total - - - - 0.001 -
----------------------- ----------------------
Total coupons on capital securities
classified as equity 59 58 - 136
----------------------
Dividends to parent 59 58 - 136
----------------------
1 In 2021, the liquidation value of USD third dollar preference
shares reduced to $0.01 per share.
No dividend was declared on ordinary share capital in respect of
2022 and 2021.
Total coupons on capital securities classified as equity
Half-year to
30 Jun 30 Jun 31 Dec
2022 2021 2021
First
call date GBPm GBPm GBPm
--------------------------- ------------------------ ------------------------
Undated Subordinated
Additional Tier 1
instruments
--------------------------- ----------- ------------------------ ------------------------ ------------------------
- EUR1,900m Undated
Subordinated Resettable
Additional Tier 1
instrument 2015 Dec 2020 - - 84
--------------------------- ------------------------
- EUR235m Undated
Subordinated Resettable
Additional Tier 1
instrument 2016 Jan 2022 11 11 1
--------------------------- ------------------------
- EUR300m Undated
Subordinated Resettable
Additional Tier 1
instrument 2018 Mar 2023 10 10 -
--------------------------- ------------------------
- GBP555m Undated
Subordinated Resettable
Additional Tier 1
instrument 2018 Mar 2023 28 28 -
--------------------------- ------------------------
- GBP500m Undated
Subordinated Resettable
Additional Tier 1
instrument 2019 Nov 2024 - - 24
--------------------------- ------------------------
- EUR250m Undated
Subordinated Resettable
Additional Tier 1
instrument 2019 Nov 2024 - - 7
--------------------------- ------------------------
- GBP431m Undated
Subordinated Resettable
Additional Tier 1
instrument 2019 Dec 2024 - - 20
--------------------------- ------------------------
- EUR200m Undated
Subordinated Resettable
Additional Tier 1
instrument 2019 Jan 2025 8 9 -
--------------------------- ------------------------
- EUR250m Undated Mar 2027 2 - -
Subordinated Resettable
Additional Tier 1
instrument 2022
--------------------------- ------------------------
Total 59 58 136
---------------------------------------- ------------------------
3 Segmental analysis
The Chief Executive, supported by the rest of the Executive
Committee, is considered the Chief Operating Decision Maker
('CODM') for the purposes of identifying the group's reportable
segments. Business results are assessed by the CODM on the basis of
adjusted performance that removes the effects of significant items
from reported results. We therefore present a reconciliation
between reported and adjusted results as required by IFRSs.
Our operations are closely integrated and, accordingly, the
presentation of data includes internal allocations of certain items
of income and expense. These allocations include the costs of
certain support services and functions to the extent that they can
be meaningfully attributed to businesses and countries. While such
allocations have been made on a systematic and consistent basis,
they necessarily involve a degree of subjectivity. Costs that are
not allocated to businesses are included in Corporate Centre.
Where relevant, income and expense amounts presented include the
results of inter-segment funding along with inter-company and
inter-business line transactions. All such transactions are
undertaken on arm's length terms. The intra-group elimination items
for the businesses are presented in Corporate Centre.
Our global businesses
HSBC provides a comprehensive range of banking and related
financial services to its customers through its global businesses.
The products and services offered to customers are organised by
these global businesses.
Our operating model has the following material segments: a GBM
business which is further split into three reportable segments;
MSS, GB and GBM Other (as defined in our global businesses
segment), CMB, WPB and a Corporate Centre. These segments are
supported by Digital Business Services and eleven global functions,
including Risk, Finance, Compliance, Legal, Marketing and Human
Resources. These business segments are our reportable segments
under IFRS 8 'Operating Segments'.
By operating segment:
Adjusted profit/(loss) before tax
Half-year to 30 Jun 2022
GBM Corporate
MSS GB Other CMB WPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net operating
income/(expense)
before change
in expected
credit losses
and other credit
impairment
charges(1) 1,254 734 110 626 654 (69) 3,309
- of which: net
interest
income/(expense) (69) 351 75 387 294 (47) 991
Change in
expected credit
losses and other
credit
impairment
charges 1 (159) - (23) (5) (1) (187)
--------------------
Net operating
income/(expense) 1,255 575 110 603 649 (70) 3,122
--------------------
Total operating
expenses (970) (456) (145) (296) (465) (59) (2,391)
--------------------
Operating
profit/(loss) 285 119 (35) 307 184 (129) 731
--------------------
Share of loss in
associates and
joint ventures - - - - - (21) (21)
--------------------
Adjusted
profit/(loss)
before tax 285 119 (35) 307 184 (150) 710
--------------------
% % % % % %
Adjusted cost
efficiency ratio 77.3 62.2 131.2 47.3 71.1 72.3
Half-year to 30 Jun 2021
Net operating
income before
change in
expected
credit losses
and other credit
impairment
charges(1) 1,124 678 330 555 713 - 3,400
- of which: net
interest
income/(expense) (106) 275 95 317 293 (14) 860
Change in
expected credit
losses and other
credit
impairment
charges 2 58 5 (1) 9 (2) 71
Net operating
income/(expense) 1,126 736 335 554 722 (2) 3,471
Total operating
expenses (1,051) (462) (194) (343) (503) (36) (2,589)
Operating
profit/(loss) 75 274 141 211 219 (38) 882
Share of profit
in associates
and joint
ventures - - - - - 108 108
Adjusted profit
before tax 75 274 141 211 219 70 990
%% %% % %
Adjusted cost
efficiency ratio 93.5 68.2 58.6 61.8 70.5 76.1
Half-year to 31 Dec 2021
Net operating
income/(expense)
before change
in expected
credit losses
and other credit
impairment
charges(1) 931 689 249 540 562 (41) 2,930
- of which: net
interest
income/(expense) (126) 293 129 332 274 (8) 894
Change in
expected credit
losses and other
credit
impairment
charges (1) 82 - 8 14 - 103
Net operating
income/(expense) 930 771 249 548 576 (41) 3,033
Total operating
expenses (1,013) (456) (291) (269) (472) (28) (2,529)
Operating
(loss)/profit (83) 315 (42) 279 104 (69) 504
Share of profit
in associates
and joint
ventures - - - - - 83 83
Adjusted
(loss)/profit
before tax (83) 315 (42) 279 104 14 587
%% %% % %
Adjusted cost
efficiency ratio 108.8 66.2 116.9 49.8 84.0 86.3
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
Reported external net operating income is attributed to
countries on the basis of the location of the branch responsible
for reporting the results or advancing the funds:
Half-year to
30 Jun 30 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
Reported external net operating income by
country(1) 3,122 3,357 2,763
----------------------
- United Kingdom 1,639 1,634 1,303
- France 919 941 736
- Germany 373 490 397
- Other countries 191 292 327
Adjusted results reconciliation
Half-year to
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
30 Jun 30 Jun 31 Dec
2022 2021 2021
Significant Significant Significant
Adjusted items Reported Adjusted items Reported Adjusted items Reported
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------
Revenue(1) 3,309 (187) 3,122 3,400 (43) 3,357 2,930 (167) 2,763
------------------
ECL (187) - (187) 71 - 71 103 - 103
------------------
Operating
expenses (2,391) (196) (2,587) (2,589) (132) (2,721) (2,529) (212) (2,741)
------------------
Share of
profit/(loss)
in associates
and joint
ventures (21) - (21) 108 - 108 83 - 83
Profit/(loss)
before
tax 710 (383) 327 990 (175) 815 587 (379) 208
------------------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
Adjusted profit reconciliation
Half-year to
30 Jun 30 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
Adjusted profit before tax 710 990 587
Significant items (383) (175) (379)
- fair value movements on financial
instruments(1) 49 (4) (1)
- European restructurings (256) (12) (11)
- restructuring and other related costs (176) (159) (367)
Reported profit before tax 327 815 208
1 Includes fair value movements on non-qualifying hedges and
debit valuation adjustments on derivatives.
Balance sheet by business
GBM Corporate
MSS GB Other CMB WPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
30 Jun
2022
Loans and
advances
to
customers 3,042 36,611 140 25,107 29,648 292 94,840
-------------------
Customer
accounts 43,993 79,888 2,803 52,971 45,144 192 224,991
-------------------
31 Dec 2021
Loans and
advances
to
customers 2,016 37,685 197 23,529 27,574 176 91,177
Customer
accounts 34,243 74,179 4,355 50,297 41,939 228 205,241
-------------------
4 Net fee income
Half-year to
30 Jun 30 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
------------------------ ------------------------
Net fee income by product
------------------------ ------------------------ ------------------------
Account services 142 136 135
------------------------
Funds under management 219 225 240
------------------------
Cards 27 19 25
------------------------
Credit facilities 117 127 119
------------------------
Broking income 192 194 174
------------------------
Unit trusts 2 2 3
------------------------
Underwriting 92 183 103
------------------------
Imports/exports 21 20 20
------------------------
Remittances 45 31 53
------------------------
Global custody 97 99 101
------------------------
Insurance agency commission 7 9 8
------------------------
Other 351 337 343
------------------------
Fee income 1,312 1,382 1,324
------------------------
Less: fee expense (668) (638) (655)
------------------------
Net fee income 644 744 669
------------------------
Net fee income by global business
GBM Corporate
MSS GB Other CMB WPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------
Half-year
to 30 Jun
2022
--------------------------- ------------------------- ----------------------- -------------------------- -----------------------
Fee income 664 416 20 210 302 (300) 1,312
--------------------------- ------------------------- --------------------- ----------------------- -------------------------- -----------------------
Less: fee
expense (705) (86) (33) (14) (126) 296 (668)
--------------------------- ------------------------- --------------------- ----------------------- -------------------------- -----------------------
Net fee
income (41) 330 (13) 196 176 (4) 644
--------------------------- ------------------------- --------------------- ----------------------- -------------------------- -----------------------
Half-year
to 30 Jun
2021
Fee income 649 440 29 205 316 (257) 1,382
----------------------------- --------------------------- ---------------------
Less: fee
expense (599) (85) (51) (28) (127) 252 (638)
----------------------------- --------------------------- ---------------------
Net fee
income 50 355 (22) 177 189 (5) 744
----------------------------- --------------------------- ---------------------
Half-year
to 31 Dec
2021
Fee income 602 421 60 210 317 (286) 1,324
----------------------------- --------------------------- ---------------------
Less: fee
expense (646) (103) (32) (26) (128) 280 (655)
----------------------------- --------------------------- ---------------------
Net fee
income (44) 318 28 184 189 (6) 669
----------------------------- --------------------------- ---------------------
5 Fair values of financial instruments carried at fair value
The accounting policies, control framework, and the hierarchy
used to determine fair values are consistent with those applied for
the Annual Report and Accounts 2021.
Financial instruments carried at fair value and bases of valuation
At 30 Jun 2022 At 31 Dec 2021
With With
Quoted Using significant Quoted Using significant
market observable un-observable market observable un-observable
price inputs inputs price inputs inputs
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ --------------- ------------------ -------------- ---------------- ----------------- ------------------- ---------------
Recurring
fair value
measurements
---------------- ----------------- ------------------- ---------------
Assets
---------------- ----------------- ------------------- ---------------
Trading
assets 49,282 27,051 1,739 78,072 59,813 22,549 1,344 83,706
------------------ --------------- ------------------ -------------- ---------------- ----------------- ------------------- ---------------
Financial
assets
designated
and
otherwise
mandatorily
measured at
fair value
through
profit or
loss 5,717 7,201 3,462 16,380 6,332 9,146 3,171 18,649
------------------ --------------- ------------------ -------------- ---------------- ----------------- ------------------- ---------------
Derivatives 1,994 198,691 1,825 202,510 1,987 137,418 1,816 141,221
------------------ --------------- ------------------ -------------- ---------------- ----------------- ------------------- ---------------
Financial
investments 26,108 9,845 1,227 37,180 29,669 10,235 1,387 41,291
------------------ --------------- ------------------ -------------- ---------------- ----------------- ------------------- ---------------
Liabilities
Trading
liabilities 31,405 11,925 306 43,636 32,886 12,967 580 46,433
------------------ --------------- ------------------ -------------- ---------------- ----------------- ------------------- ---------------
Financial
liabilities
designated
at fair
value 933 26,868 2,557 30,358 1,020 30,467 2,121 33,608
------------------ --------------- ------------------ -------------- ---------------- ----------------- ------------------- ---------------
Derivatives 1,942 190,078 1,936 193,956 1,105 135,809 2,454 139,368
------------------ --------------- ------------------ -------------- ---------------- ----------------- ------------------- ---------------
Fair value adjustments
At 30 Jun At 31 Dec
2022 2021
Corporate Corporate
MSS Centre MSS Centre
GBPm GBPm GBPm GBPm
Type of adjustment
Risk-related 538 23 505 31
----------------------
- bid-offer 203 - 190 -
- uncertainty 46 1 37 1
- credit valuation
adjustment 137 17 99 26
- debit valuation
adjustment (68) - (27) -
- funding fair value
adjustment 220 5 206 4
- other - - - -
----------------------
Model-related 13 - 19 -
----------------------
- model limitation 13 - 19 -
- other - - - -
----------------------
Inception profit (Day 1
P&L reserves) 59 - 65 -
----------------------
610 23 589 31
----------------------
We continue to observe losses on disposal of certain
uncollateralised over-the-counter ('OTC') derivatives as part of
our commitments to reduce RWAs in GBM, as set out in the Group's
business update in February 2020. Based on our analysis, these
losses are not considered to give rise to an adjustment within the
IFRS 13 'Fair Value Measurement' framework. We will continue to
monitor and analyse disposals as they occur.
Transfers between Level 1 and Level 2 fair values
Assets Liabilities
Designated
and otherwise
mandatorily
measured at
fair value Designated
Financial Trading through profit Trading at fair
investments assets or loss Derivatives liabilities value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ----------------------------------------------
At 30 Jun
2022
-------------------------- -------------------------- -------------------------- --------------------------
Transfers 47 737 - - 34 - -
from Level
1 to Level
2
------------------- ---------------------------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Transfers 28 427 - - 27 - -
from Level
2 to Level
1
Full year
to 31 Dec
2021
------------------- -------------------------- -------------------------- -------------------------- --------------------------
Transfers
from
Level
1 to
Level 2 366 1,731 757 - 27 - -
------------------- ---------------------------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Transfers 244 990 399 - 91 - -
from
Level
2 to
Level 1
------------------- ---------------------------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Transfers between levels of the fair value hierarchy are deemed
to occur at the end of each quarterly reporting period. Transfers
into and out of levels of the fair value hierarchy are normally
attributable to observability of valuation inputs and price
transparency.
Fair value valuation bases
Financial instruments measured at fair value using a valuation technique
with significant unobservable inputs - Level 3
Assets Liabilities
Designated
and otherwise
mandatorily
measured at
Held fair value Held Designated
Financial for through profit for at fair
investments trading or loss Derivatives Total trading value Derivatives Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ---------------------------------------------- -------------------- -------------------- --------------------
Private
equity
including
strategic
investments 80 88 3,238 - 3,406 91 - - 91
---------------------------------------------- -------------------- -------------------- -------------------- --------------
Asset-backed 291 94 23 - 408 - - - -
securities
Structured
notes - - - - - - 2,557 - 2,557
-------------------- -------------------- ------------------------ --------------------
Derivatives - - - 1,825 1,825 - - 1,936 1,936
Other 856 1,557 201 - 2,614 215 - - 215
portfolios
-------------------- -------------------- ------------------------ --------------------
At 30 Jun 1,227 1,739 3,462 1,825 8,253 306 2,557 1,936 4,799
2022
---------------------------------------------- -------------------- -------------------- ------------------------ -------------------- --------------
Private
equity
including
strategic
investments 79 1 2,898 - 2,978 7 - - 7
Asset-backed
securities 495 97 - - 592 - - - -
Structured
notes - - - - - - 2,120 - 2,120
------------------------
Derivatives - - - 1,816 1,816 - - 2,454 2,454
Other
portfolios 813 1,246 273 - 2,332 573 1 - 574
------------------------
At 31 Dec
2021 1,387 1,344 3,171 1,816 7,718 580 2,121 2,454 5,155
------------------------
Reconciliation of fair value measurements in Level 3 of the fair
value hierarchy
Movement in Level 3 financial instruments
Assets Liabilities
Designated
and otherwise
mandatorily
measured
at fair value Designated
Financial Trading through profit Trading at fair
investments assets or loss Derivatives liabilities value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ---------------------- ---------------------- ----------------------
At 1 Jan 2022 1,387 1,344 3,171 1,816 580 2,121 2,454
------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Total gains/(losses) recognised
in profit or loss (7) 51 47 531 (19) (450) 12
------------------------ ---------------------- ---------------------- ---------------------- ----------------------
* net income from financial instruments held for
trading or managed on a fair value basis - 51 - 531 (19) - 12
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 47 - - (450) -
* gains less losses from financial investments at fair
value through other comprehensive income (7) - - - - - -
Total gains or losses recognised
in other comprehensive
income (120) 6 152 2 - 10 2
(170) - - - - - -
* financial investments: fair value gains/(losses)
* exchange differences 50 6 152 2 - 10 2
---------------------- ---------------------- ----------------------
Purchases 289 579 289 - 10 - -
------------------------ ---------------------- ---------------------- ---------------------- ----------------------
New issuances - - - - 3 1,075 -
------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Sales (98) (441) (212) - (71) (18) -
------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Settlements (52) (38) (8) (369) (473) (294) (380)
------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Transfers out (198) (152) - (335) (5) (243) (414)
------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Transfers in 26 390 23 180 281 356 262
------------------------ ---------------------- ---------------------- ---------------------- ----------------------
At 30 Jun 2022 1,227 1,739 3,462 1,825 306 2,557 1,936
------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Unrealised gains/(losses)
recognised in profit or
loss relating to assets
and liabilities held at
30 Jun 2022 - - 42 748 1 78 2,992
---------------------- ---------------------- ---------------------- ----------------------
* trading income/(expense) excluding net interest
income - - - 748 1 - 2,992
* net income/(expense) from other financial instruments
designated at fair value - - 42 - - 78 -
Movement in Level 3 financial instruments (continued)
Assets Liabilities
Designated
and otherwise
mandatorily
measured
at fair value Designated
Financial Trading through profit Trading at fair
investments assets or loss Derivatives liabilities value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 Jan 2021 1,635 1,611 3,467 1,974 118 1,150 3,096
----------------------- ----------------------- ----------------------- -----------------------
Total gains/(losses) recognised
in profit or loss 4 (48) 182 101 11 (19) (5)
----------------------- ----------------------- ----------------------- -----------------------
* net income from financial instruments held for
trading or managed on a fair value basis - (48) - 101 11 - (5)
* net income from assets and liabilities of insurance
businesses, including related derivatives, measured
at fair value through profit or loss - - - - - - -
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 182 - - (19) -
* gains less losses from financial investments at fair
value through other comprehensive income 4 - - - - - -
Total gains/(losses) recognised
in other comprehensive
income ('OCI') (59) (6) (120) (5) (1) (21) (7)
- - - - - -
* financial investments: fair value gains/(losses) (17)
* exchange differences (42) (6) (120) (5) (1) (21) (7)
----------------------- ----------------------- -----------------------
Purchases 200 386 197 - 346 - -
----------------------- ----------------------- ----------------------- -----------------------
New issuances - - - - 17 1,114 -
----------------------- ----------------------- ----------------------- -----------------------
Sales (153) (93) (336) - - - -
----------------------- ----------------------- ----------------------- -----------------------
Settlements (54) (349) - (221) 1 (464) (847)
----------------------- ----------------------- ----------------------- -----------------------
Transfers out (186) (330) (29) (64) - (8) (58)
----------------------- ----------------------- ----------------------- -----------------------
Transfers in - 170 24 229 144 251 418
----------------------- ----------------------- ----------------------- -----------------------
At 30 Jun 2021 1,387 1,341 3,385 2,014 636 2,003 2,597
----------------------- ----------------------- ----------------------- -----------------------
Unrealised gains/(losses)
recognised in profit or
loss relating to assets
and liabilities held at
30 Jun 2021 - (1) 130 (55) 2 32 (24)
----------------------- ----------------------- ----------------------- -----------------------
* trading income/(expense) excluding net interest
income - (1) - (55) 2 - (24)
* net income/(expense) from other financial instruments
designated at fair value - - 130 - - 32 -
At 1 Jul 2021 1,387 1,341 3,385 2,014 636 2,003 2,597
Total gains/(losses) recognised
in profit or loss 11 (29) (34) 1,507 - (297) 1,367
---------------------- ----------------------- ----------------------- -----------------------
* net income/(expense) from financial instruments held
for trading or managed on a fair value basis - (29) - 1,507 - - 1,367
* net income/(expense) from assets and liabilities of
insurance businesses, including related derivatives,
measured at fair value through profit or loss - - - - - - -
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - (34) - - (297) -
* gains less losses from financial investments at fair
value through other comprehensive income 11 - - - - - -
Total gains/(losses) recognised
in other comprehensive
income (16) 2 (32) (1) - (11) (1)
---------------------- ----------------------- ----------------------- -----------------------
- financial investments: (10) - - - - - -
fair value gains/(losses)
- exchange differences (6) 2 (32) (1) - (11) (1)
---------------------- ----------------------- -----------------------
Purchases 355 300 346 - 396 1 -
---------------------- ----------------------- ----------------------- -----------------------
New issuances - - - - 8 1,099 -
---------------------- ----------------------- ----------------------- -----------------------
Sales (264) (116) (477) - (3) (20) -
---------------------- ----------------------- ----------------------- -----------------------
Settlements (55) (157) (5) (1,501) (505) (589) (1,496)
---------------------- ----------------------- ----------------------- -----------------------
Transfers out (32) (338) (12) (304) (5) (129) (407)
---------------------- ----------------------- ----------------------- -----------------------
Transfers in 1 341 - 101 53 64 394
---------------------- ----------------------- ----------------------- -----------------------
At 31 Dec 2021 1,387 1,344 3,171 1,816 580 2,121 2,454
---------------------- ----------------------- ----------------------- -----------------------
Unrealised gains/(losses)
recognised in profit or
loss relating to assets
and liabilities held at
31 Dec 2021 - (10) (79) 901 (2) 70 (697)
---------------------- ----------------------- ----------------------- -----------------------
- trading income/(expense)
excluding net interest
income - (10) - 901 (2) - (697)
* net income/(expense) from other financial instruments
designated at fair value - - (79) - - 70 -
Effect of changes in significant unobservable assumptions to
reasonably possible alternatives
Sensitivity of Level 3 fair values to reasonably possible alternative
assumptions
At
30 Jun 2022 31 Dec 2021
Reflected Reflected
in in
profit or Reflected profit or Reflected
loss in OCI loss in OCI
Un- Un- Un- Un-
Favourable favourable Favourable favourable Favourable favourable Favourable favourable
changes changes changes changes changes changes changes changes
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ --------------------- ------------------- ------------------- ------------------- -------------------- ------------------- --------------------
Derivatives,
trading assets
and trading
liabilities(1) 126 (99) - - 92 (70) - -
------------------ --------------------- ------------------- ------------------- ------------------- -------------------- ------------------- --------------------
Designated and
otherwise
mandatorily
measured at
fair
value through
profit or loss 338 (338) - - 247 (247) - -
------------------ --------------------- ------------------- ------------------- ------------------- -------------------- ------------------- --------------------
Financial
investments 10 (5) 79 (79) 15 (15) 51 (50)
------------------ --------------------- ------------------- ------------------- ------------------- -------------------- ------------------- --------------------
Total 474 (442) 79 (79) 354 (332) 51 (50)
------------------ --------------------- ------------------- ------------------- ------------------- -------------------- ------------------- --------------------
1 Derivatives, trading assets and trading liabilities are
presented as one category to reflect the manner in which these
instruments are risk managed.
Sensitivity of Level 3 fair values to reasonably possible alternative
assumptions by instrument type
At
30 Jun 2022 31 Dec 2021
Reflected Reflected
in in
profit or Reflected profit or Reflected
loss in OCI loss in OCI
Favourable Un-favourable Favourable Un-favourable Favourable Un-favourable Favourable Un-favourable
changes changes changes changes changes changes changes changes
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- --------------------- -------------------- --------------------- --------------------- --------------------- --------------------- ---------------------
Private
equity
including
strategic
investments 316 (317) 7 (7) 232 (234) 7 (7)
-------------------- --------------------- -------------------- --------------------- --------------------- --------------------- --------------------- ---------------------
Asset-backed
securities 32 (9) 5 (5) 39 (20) 1 -
Structured
notes 9 (9) - - 6 (6) - -
--------------------- --------------------- --------------------- ---------------------
Derivatives 51 (54) - - 29 (34) - -
Other
portfolios 66 (53) 67 (67) 48 (38) 43 (43)
--------------------- --------------------- --------------------- ---------------------
Total 474 (442) 79 (79) 354 (332) 51 (50)
-------------------- --------------------- -------------------- --------------------- --------------------- --------------------- --------------------- ---------------------
The sensitivity analysis aims to measure a range of fair values
consistent with the application of a 95% confidence interval.
Methodologies take account of the nature of the valuation technique
employed, as well as the availability and reliability of observable
proxy and historical data. When the fair value of a financial
instrument is affected by more than one unobservable assumption,
the above table reflects the most favourable or the most
unfavourable change from varying the assumptions individually.
Key unobservable inputs to Level 3 financial instruments
Quantitative information about significant unobservable inputs in Level
3 valuations
At
30 Jun 2022 31 Dec
2021
Fair value
Key
Valuation unobservable Full range Full range
Assets Liabilities techniques inputs of inputs of inputs
GBPm GBPm Lower Higher Lower Higher
-----------
Private equity including
strategic investments 3,406 91 See notes(1) See notes(1) N/A N/A N/A N/A
------------------- ------------------- ----------- ------ -----------
Asset-backed securities 408 -
------------------- ------------------- ------
* CLO/CDO(2) 20 - Market proxy Bid quotes - 98 - 100
* other ABSs 388 - Market proxy Bid quotes - 97 - 100
Structured notes - 2,557
------
Model-Option Equity
- 2,122 model volatility 6% 95% 6% 124%
Model-Option Equity
* equity-linked notes model correlation 30% 98% 34% 99%
Model-Option FX
* FX-linked notes - 11 model volatility 7% 40% 3% 99%
* other - 424
------
Derivatives 1,825 1,936
Interest rate derivatives: 391 522
------
Constant
Model-Discounted Prepayment
* securitisation swaps 214 301 cash flow rate 5% 10% 5% 50%
Model-Option IR
* long-dated swaptions 26 41 model volatility 10% 42% 15% 35%
* other 151 180
------
FX derivatives: 323 357
------------------- ------------------- ------
Model-Option FX
* FX options 50 48 model volatility 3% 40% 2% 99%
* FX other 273 309
------
Equity derivatives: 991 875
------------------- ------------------- ------
Model-Option Equity
* long-dated single stock options 435 527 model volatility 6% 124% 4% 138%
* other 556 348
------
Credit derivatives 120 182
Other portfolios: 2,614 215
------
Model-Discounted
* repurchase agreements 571 192 cash flow IR Curve -1% 5% 1% 5%
* other 2,043 23
At 30 Jun 8,253 4,799
------------------- ------------------- ------
1 See notes on page 147 of the Annual Report and Accounts 2021.
2 Collateralised loan obligation/collateralised debt obligation.
6 Fair values of financial instruments not carried at fair value
The bases for measuring the fair values of loans and advances to
banks and customers, financial investments, deposits by banks,
customer accounts, debt securities in issue, subordinated
liabilities, non-trading repurchase and reverse repurchase
agreements are consistent with those detailed in the Annual Report
and Accounts 2021.
Fair values of financial instruments not carried at fair value on the
balance sheet
At 30 Jun 2022 At 31 Dec 2021
Carrying Fair value Carrying Fair value
amount amount
GBPm GBPm GBPm GBPm
Assets
Loans and
advances to
banks 16,349 16,352 10,784 10,786
Loans and
advances to
customers 94,840 94,866 91,177 91,276
Reverse
repurchase
agreements -
non-trading 57,996 57,996 54,448 54,448
Financial
investments
- at
amortised
cost 1,563 1,574 10 10
Liabilities
Deposits by
banks 38,623 38,530 32,188 32,102
Customer
accounts 224,991 224,988 205,241 205,236
Repurchase
agreements -
non-trading 34,446 34,446 27,259 27,259
Debt
securities
in issue 8,650 8,642 9,428 9,430
Subordinated
liabilities 14,515 14,220 12,488 13,118
Other financial instruments not carried at fair value are
typically short term in nature and reprice to current market rates
frequently. Accordingly, their carrying amount is a reasonable
approximation of fair value. They include cash and balances at
central banks and items in the course of collection from and
transmission to other banks, all of which are measured at amortised
cost.
7 Goodwill and intangible assets
At
30 Jun 31 Dec
2022 2021
GBPm GBPm
Present value of in-force long-term insurance
business 985 811
Other intangible assets(1) 73 83
-------------------------------- ---------------------------------
Intangible assets 1,058 894
-------------------------------- ---------------------------------
1 Included within the group's other intangible assets is
internally generated software with a net carrying value of GBP68m
(2021: GBP77m). During the year, capitalisation of internally
generated software was GBP22m (2021: GBP46m), amortisation and
impairment of other intangible assets totalled GBP(20)m for the
group (2021: GBP(60)m).
8 Provisions
Legal proceedings
Restructuring and regulatory Customer Other
costs matters remediation provisions Total
GBPm GBPm GBPm GBPm GBPm
Provisions
(excluding
contractual
commitments)
At 1 Jan 2022 164 175 21 99 459
Additions 23 2 - 32 57
Amounts
utilised (60) (149) (2) (15) (226)
Unused amounts
reversed (15) (3) (3) (8) (29)
Exchange and
other
movements 2 1 - - 3
At 30 Jun 2022 114 26 16 108 264
Contractual
commitments(1)
At 1 Jan 2022 103
Net change in
expected
credit loss
provisions (9)
At 30 Jun 2022 94
Total
provisions
At 31 Dec 2021 562
At 30 Jun 2022 358
1 The contractual commitments provision includes off-balance
sheet loan commitments and guarantees, for which expected credit
losses are provided under IFRS 9. Further analysis of the movement
in the expected credit loss is disclosed within the 'Reconciliation
of changes in gross carrying/nominal amount and allowances for
loans and advances to banks and customers including loan
commitments and financial guarantees' table on page 29.
Legal proceedings and regulatory matters
Further details of legal proceedings and regulatory matters are
set out in Note 10. Legal proceedings include civil court,
arbitration or tribunal proceedings brought against HSBC companies
(whether by way of claim or counterclaim), or civil disputes that
may, if not settled, result in court, arbitration or tribunal
proceedings. Regulatory matters refer to investigations, reviews
and other actions carried out by, or in response to the actions of,
regulatory or law enforcement agencies in connection with alleged
wrongdoing.
9 Contingent liabilities, contractual commitments and guarantees
At
30 Jun 31 Dec
2022 2021
GBPm GBPm
Guarantees and other contingent liabilities:
- financial guarantees 3,942 11,054
- performance and other guarantees 15,559 15,833
- other contingent liabilities 377 367
At the end of the period 19,878 27,254
Commitments:(1)
- documentary credits and short-term
trade-related
transactions 2,429 1,928
- forward asset purchases and forward
deposits placed 42,732 30,005
- standby facilities, credit lines and other
commitments
to lend 91,764 87,543
At the end of the period 136,925 119,476
1 Includes GBP134,227m of commitments (2021: GBP115,695m), to
which the impairment requirements in IFRS 9 are applied where the
group has become party to an irrevocable commitment.
The above table discloses the nominal principal amounts, which
represents the maximum amounts at risk should the contracts be
fully drawn upon and clients default. As a significant portion of
guarantees and commitments is expected to expire without being
drawn upon, the total of the nominal principal amounts is not
indicative of future liquidity requirements.
In December 2017, HM Revenue & Customs ('HMRC') challenged
the VAT status of certain UK branches of HSBC overseas entities.
HMRC has also issued notices of assessment covering the period from
1 October 2013 to 31 December 2017 totalling GBP262m, with interest
to be determined. No provision has been recognised in respect of
these notices. In first quarter of 2019, HMRC reaffirmed its
assessment that the UK branches are ineligible to be members of the
UK VAT group and, consequently, HSBC paid HMRC the sum of GBP262m
and filed appeals. In February 2022, the Upper Tribunal issued a
judgement addressing several preliminary legal issues, which was
partially in favour of HMRC and partially in favour of HSBC. HSBC
has applied for permission to appeal to the Court of Appeal and is
awaiting the Court's decision. If permission is denied, the case
will be further heard by the First Tier Tax Tribunal. Since January
2018, HSBC's returns have been prepared on the basis that the UK
branches are not in the UK VAT group. In the event that HSBC's
appeals are successful, HSBC will seek a refund of this VAT, of
which GBP135m is estimated to be attributable to HSBC Bank plc.
Contingent liabilities arising from legal proceedings,
regulatory and other matters against group companies are disclosed
in Note 10. The expected credit loss provisions relating to
guarantees and commitments under IFRS 9 are disclosed in Note
8.
10 Legal proceedings and regulatory matters
The group is party to legal proceedings and regulatory matters
in a number of jurisdictions arising out of its normal business
operations. Apart from the matters described below, the group
considers that none of these matters are material. The recognition
of provisions is determined in accordance with the accounting
policies set out in Note 1 of the Annual Report and Accounts 2021.
While the outcomes of legal proceedings and regulatory matters are
inherently uncertain, management believes that, based on the
information available to it, appropriate provisions have been made
in respect of these matters as at 30 June 2022 (see Note 8). Where
an individual provision is material, the fact that a provision has
been made is stated and quantified, except to the extent that doing
so would be seriously prejudicial. Any provision recognised does
not constitute an admission of wrongdoing or legal liability. It is
not practicable to provide an aggregate estimate of potential
liability for our legal proceedings and regulatory matters as a
class of contingent liabilities.
Bernard L. Madoff Investment Securities LLC
Various non-US HSBC companies provided custodial, administration
and similar services to a number of funds incorporated outside the
US whose assets were invested with Bernard L. Madoff Investment
Securities LLC ('Madoff Securities'). Based on information provided
by Madoff Securities as at 30 November 2008, the purported
aggregate value of these funds was $8.4bn, including fictitious
profits reported by Madoff. Based on information available to HSBC,
the funds' actual transfers to Madoff Securities minus their actual
withdrawals from Madoff Securities during the time HSBC serviced
the funds are estimated to have totalled approximately $4bn.
Various HSBC companies have been named as defendants in lawsuits
arising out of Madoff Securities' fraud.
US litigation: The Madoff Securities Trustee has brought
lawsuits against various HSBC companies and others in the US
Bankruptcy Court for the Southern District of New York (the 'US
Bankruptcy Court'), seeking recovery of transfers from Madoff
Securities to HSBC in an amount not yet pleaded or determined.
Following an initial dismissal of certain claims, which was later
reversed on appeal, the cases were remanded to the US Bankruptcy
Court, where they are now pending.
Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield
Lambda Limited (together, 'Fairfield') (in liquidation since July
2009) have brought a lawsuit in the US against fund shareholders,
including HSBC companies that acted as nominees for clients,
seeking restitution of redemption payments. In December 2018, the
US Bankruptcy Court dismissed certain claims by the Fairfield
liquidators and granted a motion by the liquidators to file amended
complaints. In May 2019, the liquidators appealed certain issues
from the US Bankruptcy Court to the US District Court for the
Southern District of New York (the 'New York District Court'), and
these appeals remain pending.
In January 2020, the Fairfield liquidators filed amended
complaints on the claims remaining in the US Bankruptcy Court. In
December 2020, the US Bankruptcy Court dismissed the majority of
those claims. In March 2021, the liquidators and defendants
appealed the US Bankruptcy Court's decision to the New York
District Court, and these appeals are currently pending. Meanwhile,
proceedings before the US Bankruptcy Court with respect to the
remaining claims that were not dismissed are ongoing.
UK litigation: The Madoff Securities Trustee has filed a claim
against various HSBC companies in the High Court of England and
Wales, seeking recovery of transfers from Madoff Securities to HSBC
in an amount not yet pleaded or determined. The deadline for
service of the claim has been extended to September 2022 for
UK-based defendants and November 2022 for all other defendants.
Cayman Islands litigation: In February 2013, Primeo Fund
('Primeo') (in liquidation since April 2009) brought an action
against HSBC Securities Services Luxembourg ('HSSL') and Bank of
Bermuda (Cayman) Limited (now known as HSBC Cayman Limited),
alleging breach of contract and breach of fiduciary duty and
claiming damages and equitable compensation. The trial concluded in
February 2017 and, in August 2017, the court dismissed all claims
against the defendants. In September 2017, Primeo appealed to the
Court of Appeal of the Cayman Islands and, in June 2019, the Court
of Appeal of the Cayman Islands dismissed Primeo's appeal. In
August 2019, Primeo filed a notice of appeal to the UK Privy
Council. Two hearings before the UK Privy Council took place during
2021. Judgment was given against HSBC in respect of the first
hearing and judgment is pending in respect of the second
hearing.
Luxembourg litigation: In April 2009, Herald Fund SPC ('Herald')
(in liquidation since July 2013) brought an action against HSSL
before the Luxembourg District Court, seeking restitution of cash
and securities that Herald purportedly lost because of Madoff
Securities' fraud, or money damages. The Luxembourg District Court
dismissed Herald's securities restitution claim, but reserved
Herald's cash restitution and money damages claims. Herald has
appealed this judgment to the Luxembourg Court of Appeal, where the
matter is pending. In late 2018, Herald brought additional claims
against HSSL and HSBC Bank plc before the Luxembourg District
Court, seeking further restitution and damages.
In October 2009, Alpha Prime Fund Limited ('Alpha Prime')
brought an action against HSSL before the Luxembourg District
Court, seeking the restitution of securities, or the cash
equivalent, or money damages. In December 2018, Alpha Prime brought
additional claims before the Luxembourg District Court seeking
damages against various HSBC companies. These matters are currently
pending before the Luxembourg District Court.
In December 2014, Senator Fund SPC ('Senator') brought an action
against HSSL before the Luxembourg District Court, seeking
restitution of securities, or the cash equivalent, or money
damages. In April 2015, Senator commenced a separate action against
the Luxembourg branch of HSBC Bank plc asserting identical claims
before the Luxembourg District Court. In December 2018, Senator
brought additional claims against HSSL and HSBC Bank plc Luxembourg
branch before the Luxembourg District Court, seeking restitution of
Senator's securities or money damages. These matters are currently
pending before the Luxembourg District Court.
There are many factors that may affect the range of possible
outcomes, and any resulting financial impact, of the various
Madoff-related proceedings described above, including but not
limited to the multiple jurisdictions in which the proceedings have
been brought.
Based upon the information currently available, management's
estimate of the possible aggregate damages that might arise as a
result of all claims in the various Madoff-related proceedings is
around $600m, excluding costs and interest. Due to uncertainties
and limitations of this estimate, any possible damages that might
ultimately arise could differ significantly from this amount.
Anti-money laundering and sanctions-related matters
In December 2012, HSBC Holdings plc ('HSBC Holdings') entered
into a number of agreements, including an undertaking with the UK
Financial Services Authority (replaced with a Direction issued by
the UK Financial Conduct Authority ('FCA') in 2013 and again in
2020) as well as a cease-and-desist order with the US Federal
Reserve Board ('FRB'), both of which contained certain
forward-looking anti-money laundering ('AML') and sanctions-related
obligations. For several years thereafter, HSBC retained a Skilled
Person under section 166 of the Financial Services and Markets Act
and an Independent Consultant under the FRB cease-and-desist order
to produce periodic assessments of the Group's AML and sanctions
compliance programme. The Skilled Person completed its engagement
in the second quarter of 2021, and the FCA determined that no
further Skilled Person work is required. Separately, the
Independent Consultant has completed its latest review pursuant to
the FRB cease-and-desist order, which remains in place. The roles
of each of the FCA Skilled Person and the FRB Independent
Consultant are discussed on page 83 of the Annual Report and
Accounts 2021.
Since November 2014, a number of lawsuits have been filed in
federal courts in the US against various HSBC companies and others
on behalf of plaintiffs who are, or are related to, victims of
terrorist attacks in the Middle East. In each case, it is alleged
that the defendants aided and abetted the unlawful conduct of
various sanctioned parties in violation of the US Anti-Terrorism
Act. Currently, nine actions against HSBC Bank plc remain pending
in federal courts in New York or the District of Columbia. The
courts have granted HSBC Bank plc's motions to dismiss in five of
these cases; appeals remain pending in two cases, and the remaining
three dismissals are also subject to appeal. The four remaining
actions are at an early stage.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, which could be
significant.
London interbank offered rates, European interbank offered rates
and other benchmark interest rate investigations and litigation
Euro interest rate derivatives: In December 2016, the European
Commission ('EC') issued a decision finding that HSBC, among other
banks, engaged in anti-competitive practices in connection with the
pricing of euro interest rate derivatives in early 2007. The EC
imposed a fine on HSBC based on a one-month infringement. In
September 2019, the General Court of the European Union (the
'General Court') issued a decision largely upholding the EC's
findings on liability but annulling the fine. HSBC and the EC both
appealed the General Court's decision to the European Court of
Justice (the 'Court of Justice'). In June 2021, the EC adopted a
new fining decision for an amount that was 5% less than the
previously annulled fine, and subsequently withdrew its appeal to
the Court of Justice. HSBC has appealed the EC's June 2021 fining
decision to the General Court, and its appeal to the Court of
Justice on liability also remains pending.
US dollar Libor: Beginning in 2011, HSBC and other panel banks
have been named as defendants in a number of private lawsuits filed
in the US with respect to the setting of US dollar Libor. The
complaints assert claims under various US laws, including US
antitrust and racketeering laws, the US Commodity Exchange Act ('US
CEA') and state law. The lawsuits include individual and putative
class actions, most of which have been transferred and/or
consolidated for pre-trial purposes before the New York District
Court. HSBC has reached class settlements with five groups of
plaintiffs, and the court has approved these settlements. HSBC has
also resolved several of the individual actions, although a number
of other US dollar Libor-related actions remain pending against
HSBC in the New York District Court.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, which could be
significant.
Foreign exchange-related investigations and litigation
In December 2021, the EC issued a settlement decision finding
that a number of banks, including HSBC, had engaged in
anti-competitive practices in an online chatroom between 2011 and
2012 in the foreign exchange spot market. The EC imposed a
EUR174.3m fine on HSBC in connection with this matter, which has
been paid.
In June 2020, the Competition Commission of South Africa, having
initially referred a complaint for proceedings before the South
African Competition Tribunal in February 2017, filed a revised
complaint against 28 financial institutions, including HSBC Bank
plc, for alleged anti-competitive behaviour in the South African
foreign exchange market. In December 2021, a hearing on HSBC Bank
plc's application to dismiss the revised complaint took place
before the South African Competition Tribunal, where a decision
remains pending.
Beginning in 2013, various HSBC companies and other banks have
been named as defendants in a number of putative class actions
filed in, or transferred to, the New York District Court arising
from allegations that the defendants conspired to manipulate
foreign exchange rates. HSBC has reached class settlements with two
groups of plaintiffs, including direct and indirect purchasers of
foreign exchange products, and the court has granted final approval
of these settlements.
In November and December 2018, complaints alleging foreign
exchange-related misconduct were filed in the New York District
Court and the High Court of England and Wales against HSBC and
other defendants by certain plaintiffs that opted out of the direct
purchaser class action settlement in the US. The High Court claim
has since been transferred to the Competition Appeals Tribunal and
these matters remain pending. Additionally, lawsuits alleging
foreign exchange-related misconduct remain pending against HSBC and
other banks in courts in Brazil and Israel. It is possible that
additional civil actions will be initiated against HSBC in relation
to its historical foreign exchange activities.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, which could be
significant.
Precious metals fix-related litigation
Gold: Beginning in March 2014, numerous putative class actions
were filed in the New York District Court and the US District
Courts for the District of New Jersey and the Northern District of
California, naming HSBC and other members of The London Gold Market
Fixing Limited as defendants. The complaints, which were
consolidated in the New York District Court, allege that, from
January 2004 to June 2013, the defendants conspired to manipulate
the price of gold and gold derivatives for their collective benefit
in violation of US antitrust laws, the US CEA and New York state
law. In October 2020, HSBC reached a settlement with the plaintiffs
to resolve the consolidated action, and the court granted final
approval of the settlement in May 2022.
Beginning in December 2015, numerous putative class actions
under Canadian law were filed in the Ontario and Quebec Superior
Courts of Justice against various HSBC companies and other
financial institutions. The plaintiffs allege that, among other
things, from January 2004 to March 2014, the defendants conspired
to manipulate the price of gold and gold derivatives in violation
of the Canadian Competition Act and common law. These actions are
ongoing.
Silver: Beginning in July 2014, numerous putative class actions
were filed in federal district courts in New York, naming HSBC and
other members of The London Silver Market Fixing Limited as
defendants. The complaints, which were consolidated in the New York
District Court, allege that, from January 2007 to December 2013,
the defendants conspired to manipulate the price of silver and
silver derivatives for their collective benefit in violation of US
antitrust laws, the US CEA and New York state law. In February
2022, following the conclusion of pre-class certification
discovery, the defendants filed a motion seeking to dismiss the
plaintiffs' antitrust claims, which remains pending.
In April 2016, two putative class actions under Canadian law
were filed in the Ontario and Quebec Superior Courts of Justice
against various HSBC companies and other financial institutions.
The plaintiffs in both actions allege that, from January 1999 to
August 2014, the defendants conspired to manipulate the price of
silver and silver derivatives in violation of the Canadian
Competition Act and common law. These actions are ongoing.
Platinum and palladium: Between late 2014 and early 2015,
numerous putative class actions were filed in the New York District
Court, naming HSBC and other members of The London Platinum and
Palladium Fixing Company Limited as defendants. The complaints
allege that, from January 2008 to November 2014, the defendants
conspired to manipulate the price of platinum group metals ('PGM')
and PGM-based financial products for their collective benefit in
violation of US antitrust laws and the US CEA. In March 2020, the
court granted the defendants' motion to dismiss the plaintiffs'
third amended complaint but granted the plaintiffs leave to
re-plead certain claims. The plaintiffs have filed an appeal.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, which could be
significant.
Other regulatory investigations, reviews and litigation
HSBC Bank plc and/or certain of its affiliates are subject to a
number of other investigations and reviews by various regulators
and competition and law enforcement authorities, as well as
litigation, in connection with various matters relating to the
firm's businesses and operations, including:
-- an investigation by the PRA in connection with depositor protection arrangements in the UK;
-- an investigation by the FCA in connection with collections
and recoveries operations in the UK;
-- an investigation by the UK Competition and Markets Authority
into potentially anti-competitive arrangements involving historical
trading activities relating to certain UK-based fixed income
products and related financial instruments; and
-- two group actions pending in the US courts and a claim issued
in the High Court of England and Wales in connection with HSBC Bank
plc's role as a correspondent bank to Stanford International Bank
Ltd from 2003 to 2009.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters, which could
be significant.
11 Business disposals
In 2021 and 2022, we accelerated the pace of execution on our
strategic ambition to be the preferred international financial
partner for our clients with the announcements of the planned sales
of our retail banking business in France and branch operations in
Greece. The planned sales in France and Greece are expected to
complete in 2023.
Planned sale of the retail banking business in France
On 25 November 2021, HSBC Continental Europe signed a Framework
Agreement with Promontoria MMB SAS ('My Money Group') and its
subsidiary Banque des Caraïbes SA, regarding the planned sale of
HSBC Continental Europe's retail banking business in France.
The sale, which is subject to regulatory approvals and the
satisfaction of other relevant conditions, includes: HSBC
Continental Europe's French retail banking business; the Crédit
Commercial de France ('CCF') brand; and HSBC Continental Europe's
100% ownership interest in HSBC SFH (France) and its 3% ownership
interest in Crédit Logement. The sale would generate a pre-tax loss
including related transaction costs for HSBC Continental Europe now
estimated at EUR2bn.
At 30 June 2022 a deferred tax liability of EUR0.4bn was
recognised as a consequence of the temporary difference in tax and
accounting treatment in respect of the provision for loss on
disposal, which was deductible in the French tax return in 2021 but
will be accounted for when the disposal group is classified as held
for sale in accordance with IFRS 5, at which time the deferred tax
liability will reverse. The vast majority of the estimated loss for
the write down of the disposal group to fair value less costs to
sell will also be recognised when it is classified as held for
sale. Subsequently, the disposal group will be re-measured at the
lower of carrying amount and fair value less costs to sell at each
reporting period. Any remaining gain or loss not previously
recognised shall be recognised at the date of derecognition which
is currently anticipated to be in 2023.
As at 30 June 2022, the disposal group included total assets of
EUR24.6bn.
Planned sale of the Greece branch operations
On 24 May 2022, HSBC Continental Europe signed a Sale and
Purchase Agreement ('SPA') for the sale of its branch operations in
Greece to Pancreta Bank SA. This followed the completion of the
works council consultations. Completion of the transaction is
subject to regulatory approval and is currently expected to
complete in the first half of 2023.
As at 30 June 2022, EUR2.1bn in total assets and EUR2.3bn in
total liabilities were reclassified as held for sale in accordance
with IFRS 5 and losses and impairments of EUR0.1bn were
recognised.
Planned sale of the bank in Russia
Following a strategic review of our business in Russia, HSBC
Europe BV (a wholly-owned subsidiary of HSBC Bank plc) has entered
into an agreement to sell its wholly-owned subsidiary HSBC Bank
(RR) (Limited Liability Company), subject to regulatory
approvals.
At 30 June 2022, GBP1.0bn in total assets and GBP1.1bn in total
liabilities were reclassified as held for sale and loss of GBP0.1bn
was recognised upon reclassification to held for sale in accordance
with IFRS 5.
12 Transactions with related parties
There were no other changes to the related party transactions
described in Note 33 of the Annual Report and Accounts 2021 that
have had a material effect on the financial position or performance
of the group in the half-year to 30 June 2022.
All related party transactions that took place in the half-year
to 30 June 2022 were similar in nature to those disclosed in the
Annual Report and Accounts 2021.
13 Events after the balance sheet date
In its assessment of events after the balance sheet date, the
group has considered and concluded that no material events have
occurred resulting in adjustments to the financial statements.
14 Interim Report 2022 and statutory accounts
The information in this Interim Report 2022 is unaudited and
does not constitute statutory accounts within the meaning of
section 434 of the Companies Act 2006. This Interim Report 2022 was
approved by the Board of Directors on 1 August 2022. The statutory
accounts of HSBC Bank plc for the year ended 31 December 2021 have
been delivered to the Registrar of Companies in England and Wales
in accordance with section 447 of the Companies Act 2006. The
group's auditor, PricewaterhouseCoopers LLP ('PwC'), has reported
on those accounts. Its report was unqualified, did not include a
reference to any matters to which PwC drew attention by way of
emphasis without qualifying their report, and did not contain a
statement under section 498(2) or (3) of the Companies Act
2006.
HSBC Bank plc
Incorporated in England with limited liability. Registered in
England: number 00014259
REGISTERED OFFICE
8 Canada Square, London E14 5HQ, United Kingdom
Web: www.hsbc.co.uk
(c) Copyright HSBC Bank plc 2018
All rights reserved
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END
IR EANPFEFDAEEA
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