TIDMHSBA
RNS Number : 2692H
HSBC Holdings PLC
02 August 2021
HSBC Holdings plc
Interim Report 2021
In fulfilment of its obligations under sections 4.2.2, 6.3.3(2)
and 6.3.5(1) of the Disclosure Guidance and Transparency Rules,
HSBC Holdings plc (the "Company") hereby releases the unedited full
text of its 2021 Interim Report (the "Interim Report") for the
half-year ended 30 June 2021.
The document is now available on the Company's website at:
https://www.hsbc.com/investors/results-and-announcements/all-reporting/group
HSBC Holdings plc
Interim Report 2021
Opening up a world
of opportunity
Contents
Overview
2 Highlights
4 Group Chief Executive's review
8 Our strategy
10 How we do business
12 Financial overview
16 Global businesses
23 Risk overview
Interim management report
27 Financial summary
34 Global businesses
42 Geographical regions
52 Reconciliation of alternative performance measures
55 Risk
55 - Key developments in the first half of 2021
55 - Areas of special interest
59 - Credit risk
85 - Treasury risk
93 - Market risk
95 - Insurance manufacturing operations risk
Interim condensed financial statements
97 Directors' responsibility statement
98 Independent review report to HSBC Holdings plc
99 Interim condensed financial statements
105 Notes on the interim condensed financial statements
Additional information
126 Shareholder information
131 Forward-looking statements
132 Certain defined terms
133 Abbreviations
A reminder
The currency we report in is US dollars.
Adjusted measures
We supplement our IFRSs figures with non-IFRSs measures used by
management internally that constitute alternative performance
measures under European Securities and Markets Authority guidance
and non-GAAP financial measures defined in and presented in
accordance with US Securities and Exchange Commission rules and
regulations. These measures are highlighted with the following
symbol: <>
Further explanation may be found on page 14.
In this document we use the following abbreviations to refer to
reporting periods:
1H21 First half of 2021 2Q21 Second quarter of 2021
2H20 Second half of 2020 1Q21 First quarter of 2021
1H20 First half of 2020 2Q20 Second quarter of 2020 1Q20 First
quarter of 2020
Cover image: Opening up a world of opportunity
We connect people, ideas and capital across the world, opening
up opportunities for our customers and the communities we
serve.
Our global businesses
We serve customers through three global businesses. On pages 16
to 22 we provide an overview of our performance in the first half
of 2021 for each of the global businesses, as well as our Corporate
Centre.
Wealth and Personal Banking ('WPB')
We help millions of our customers look after their day-to-day
finances and manage, protect and grow their wealth.
Commercial Banking ('CMB')
Our global reach and expertise help domestic and international
businesses around the world unlock their potential.
Global Banking and Markets ('GBM')
We provide a comprehensive range of financial services and
products to corporates, governments and institutions.
Opening up a world of opportunity
Our ambition is to be the preferred international financial
partner for our clients.
In February 2021, we refined our purpose, ambition and values to
reflect our strategy and to support our focus on execution.
Read more on our purpose and values on page 16 of our Annual
Report and Accounts 2020.
Our values
Our values help 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
For further details on how we are embedding our values, see page
10.
Key themes
Global performance
Performance demonstrated our continued strength in Asia and a
material recovery in profitability in our other regions, which
benefited from net ECL releases. All of our regions were profitable
for the first time since 1H18.
Read more on page 12.
Economic outlook
Economic forecasts have improved as countries emerge from the
Covid-19 pandemic, although uncertainties remain as countries
respond at different speeds, government support measures unwind and
new virus strains test the efficacy of vaccination programmes .
Read more on page 2.
Growth signals
While the impacts of low global interest rates and the Covid-19
pandemic are expected to provide headwinds to improved
profitability and returns, there are emerging signs of unsecured
personal lending and commercial lending growth.
Read more on page 8.
Progress in key areas
Growth and transformation
We have made good progress in areas of strength and expanded our
digital capabilities. In addition, we are improving the way we work
to energise the organisation for growth.
Read more on page 8.
Strategic transactions
We have announced the potential sale of our retail banking
business in France, as well as the exit of domestic mass market
retail banking in the US.
Read more on page 8.
Climate
We continue to make progress with our environmental, social and
governance ('ESG') agenda, including towards the climate
commitments we announced in October 2020.
Read more on page 10.
Performance in 1H21
Reported profit after tax
$8.4bn
(1H20: $3.1bn)
Basic earnings per share
$0.36
(1H20: $0.10)
Gender diversity
31.1%
Women in senior leadership roles.
Target: 35% by 2025.
(31 December 2020: 30.3%)
Sustainable finance and investments
$87.4bn
Cumulative total provided and facilitated since 1 January 2020.
Target: $750bn to $1tn by end-2030.
(31 December 2020: $44.1bn)
Read more on our financial overview on page 12.
Our data dictionary, which includes a definition of sustainable
finance and investments, can be found at
www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre
.
Highlights
Performance in the first half of 2021 reflected an improvement
in global economic conditions. While uncertainties remain, the
outlook is more positive with evidence of growth in strategic
areas.
Financial performance (1H21 vs 1H20)
-- Reported profit after tax increased by $5.3bn to $8.4bn and
reported profit before tax increased by $6.5bn to $10.8bn. A fall
in revenue reflected 2020 interest rate reductions and lower
Markets and Securities Services ('MSS') revenue relative to a
strong 1H20. This was more than offset by releases in our expected
credit losses and other credit impairment charges ('ECL'). Reported
profit in 1H20 included an impairment of software intangibles of
$1.2bn, mainly in Europe.
-- All regions profitable in 1H21, notably HSBC UK Bank plc
reported profit before tax of over $2.1bn in the period. Despite
interest rate headwinds, there was continued strength in Asia and a
material recovery in profitability in all other regions, reflecting
a net release in ECL as the economic outlook improved.
-- Reported revenue down 4% to $25.6bn, primarily reflecting
2020 interest rate reductions and lower MSS revenue in Global
Banking and Markets ('GBM'). These reductions were partly offset by
net favourable movements in market impacts in life insurance
manufacturing and valuation adjustments in GBM.
-- In 1H21, lending increased by $21.5bn on a reported basis,
reflecting growth in Wealth and Personal Banking ('WPB') and
Commercial Banking ('CMB'). Deposits grew by $26.3bn on a reported
basis, with increases in all global businesses.
-- Net interest margin ('NIM') of 1.21% in 1H21, down 22 basis
points ('bps') from 1H20. NIM in 2Q21 of 1.20% remained stable
compared with 1Q21.
-- Reported ECL were a net release of $0.7bn, compared with a
$6.9bn charge in 1H20. The net release in 1H21 primarily reflected
an improvement in the economic outlook since 2020. The reduction
also reflected low levels of stage 3 charges in 1H21, as well as
the non-recurrence of a large charge in 1H20 related to a corporate
exposure in Singapore.
-- Reported and adjusted operating expenses increased 3%,
primarily due to a higher performance-related pay accrual as
profitability improved, as well as continued investment, partly
offset by the impact of our cost-saving initiatives.
-- Return on average tangible equity ('RoTE') (annualised) of
9.4%, up 5.6 percentage points compared with 1H20.
-- Common equity tier 1 ('CET1') ratio of 15.6%, down 0.3
percentage points from 31 December 2020, reflecting an increase in
RWAs from lending growth and a decrease in CET1 capital including
the impact of foreseeable dividends.
-- The Board has announced an interim dividend for 1H21 of $0.07
per ordinary share, to be paid in cash with no scrip
alternative.
Financial performance (2Q21 vs 2Q20)
-- Reported profit after tax up $3.2bn to $3.9bn and reported
profit before tax up $4.0bn to $5.1bn. Reported revenue was down
4%, mainly due to lower revenue in MSS, as well as the impact of
lower interest rates. This was more than offset by net releases in
reported ECL and lower reported operating expenses.
Outlook for 2021
-- The execution of our strategy continues at pace, including
the announcement of transactions in relation to our retail
operations in France and mass market retail operations in the
US.
-- Despite continued revenue headwinds, notably in fixed income
markets relative to strong comparative periods, as well as low
interest rates and Covid-19 impacts, there are emerging signs of
unsecured personal lending and commercial lending growth. We expect
mid-single-digit lending growth for the full year, which is
expected to translate into low-single-digit RWA growth as we
progress with our RWA reduction actions.
-- Given current consensus economics and default experience, ECL
charges for 2021 are expected to be materially lower than our
medium-term range of 30bps to 40bps of average loans and possibly a
net release for the year. Uncertainty remains as countries emerge
from the pandemic at different speeds, government support measures
unwind and new virus strains test the efficacy of vaccination
programmes. To reflect this uncertainty, at 30 June 2021 around
$2.4bn remained of the stage 1 and stage 2 ECL allowance uplift we
made during 2020. For further details, see 'Measurement uncertainty
and sensitivity analysis of ECL estimates' on page 62.
-- Our cost reduction programme remains on track. We expect
adjusted operating expenses for 2021 to be broadly in line with
2020, excluding the benefit from a reduced bank levy. This remains
subject to final decisions on performance-related pay, which will
primarily reflect the performance of the Group.
-- The Group maintains a strong capital position and is well
placed to fund growth and step up capital returns. Reflecting the
current improved economic outlook and operating environment in many
of our markets, we now expect to move to within our target dividend
payout ratio range of 40% to 55% of reported earnings per ordinary
share in 2021.
Delivery against our financial targets
Return on average tangible equity (annualised) <>
9.4%
Target: >=10% in the medium term.
(1H20: 3.8%)
Adjusted operating expenses <>
$16.2bn
Target: <=$31bn in 2022 (based on average December 2020 FX
rates).
(1H20: $15.7bn)
Gross risk-weighted asset ('RWA') reduction
$84.5bn
Updated target: $110bn by end-2022.
CET1 capital ratio
15.6%
Target: >14%, managing in range of 14% to 14.5% in medium
term.
(31 December 2020: 15.9%)
Interim dividend per ordinary share for 1H21
$0.07
Further explanation of performance against Group financial
targets may be found on page 12.
Key financial metrics
Half-year to
---------------------------------------
Reported results 30 Jun 2021 30 Jun 2020 31 Dec 2020
------------------------------------------------- ----------- ----------- -------------
Reported revenue ($m) 25,551 26,745 23,684
------------------------------------------------- ----------- ----------- -----------
Reported profit before tax ($m) 10,839 4,318 4,459
------------------------------------------------- ----------- ----------- -----------
Reported profit after tax ($m) 8,422 3,125 2,974
------------------------------------------------- ----------- ----------- -----------
Profit attributable to the ordinary shareholders
of the parent company ($m) 7,276 1,977 1,921
------------------------------------------------- ----------- ----------- -----------
Cost efficiency ratio (%) 66.9 61.8 75.6
------------------------------------------------- ----------- ----------- -----------
Basic earnings per share ($) 0.36 0.10 0.10
------------------------------------------------- ----------- ----------- -----------
Diluted earnings per share ($) 0.36 0.10 0.09
------------------------------------------------- ----------- ----------- -----------
Net interest margin (%)(1) 1.21 1.43 1.32
------------------------------------------------- ----------- ----------- -----------
Alternative performance measures <>
------------------------------------------------- ----------- ----------- -------------
Adjusted revenue ($m) 25,797 27,597 24,523
------------------------------------------------- ----------- ----------- -----------
Adjusted profit before tax ($m) 11,950 5,654 6,680
------------------------------------------------- ----------- ----------- -----------
Adjusted cost efficiency ratio (%) 62.9 56.9 69.1
------------------------------------------------- ----------- ----------- -----------
Annualised expected credit losses and other
credit impairment charges ('ECL') as a
% of average gross loans and advances to
customers (%) (0.14) 1.34 0.38
------------------------------------------------- ----------- ----------- -----------
Return on average ordinary shareholders'
equity (annualised) (%) 8.4 2.4 2.3
------------------------------------------------- ----------- ----------- -----------
Return on average tangible equity (annualised)
(%)(1,2) 9.4 3.8 3.1
------------------------------------------------- ----------- ----------- -------------
At
Balance sheet 30 Jun 2021 30 Jun 2020 31 Dec 2020
------------------------------------------------- ----------- ----------- -------------
Total assets ($m) 2,976,005 2,922,798 2,984,164
------------------------------------------------- ----------- ----------- -----------
Net loans and advances to customers ($m) 1,059,511 1,018,681 1,037,987
------------------------------------------------- ----------- ----------- -----------
Customer accounts ($m) 1,669,091 1,532,380 1,642,780
------------------------------------------------- ----------- ----------- -----------
Average interest-earning assets ($m)(1) 2,188,991 2,034,939 2,092,900
------------------------------------------------- ----------- ----------- -----------
Loans and advances to customers as % of
customer accounts (%) 63.5 66.5 63.2
------------------------------------------------- ----------- ----------- -----------
Total shareholders' equity ($m) 198,218 187,036 196,443
------------------------------------------------- ----------- ----------- -----------
Tangible ordinary shareholders' equity
($m) 157,985 147,879 156,423
------------------------------------------------- ----------- ----------- -----------
Net asset value per ordinary share at period
end ($)(3) 8.69 8.17 8.62
------------------------------------------------- ----------- ----------- -----------
Tangible net asset value per ordinary share
at period end ($) 7.81 7.34 7.75
------------------------------------------------- ----------- ----------- -----------
Capital, leverage and liquidity
------------------------------------------------- ----------- ----------- -------------
Common equity tier 1 capital ratio (%)(4) 15.6 15.0 15.9
------------------------------------------------- ----------- ----------- -----------
Risk-weighted assets ($m)(4) 862,292 854,552 857,520
------------------------------------------------- ----------- ----------- -----------
Total capital ratio (%)(4) 21.0 20.7 21.5
------------------------------------------------- ----------- ----------- -----------
Leverage ratio (%)(4) 5.3 5.3 5.5
------------------------------------------------- ----------- ----------- -----------
High-quality liquid assets (liquidity value)
($bn) 659 654 678
------------------------------------------------- ----------- ----------- -----------
Liquidity coverage ratio (%) 134 148 139
------------------------------------------------- ----------- ----------- -----------
Share count
------------------------------------------------- ----------- ----------- -------------
Period end basic number of $0.50 ordinary
shares outstanding (millions) 20,223 20,162 20,184
------------------------------------------------- ----------- ----------- -----------
Period end basic number of $0.50 ordinary
shares outstanding and dilutive potential
ordinary shares (millions) 20,315 20,198 20,272
------------------------------------------------- ----------- ----------- -----------
Average basic number of $0.50 ordinary
shares outstanding (millions) 20,211 20,162 20,176
------------------------------------------------- ----------- ----------- -----------
Dividend per ordinary share (in respect
of the period) ($) 0.07 - 0.15
------------------------------------------------- ----------- ----------- -----------
For reconciliations of our reported results to an adjusted
basis, including lists of significant items, see page 35.
Definitions and calculation of other alternative performance
measures are included in our 'Reconciliation of alternative
performance measures' on page 52.
1 For these metrics, half-year to 31 December 2020 is calculated
on a full-year basis and not a 2H20 basis.
2 Profit attributable to ordinary shareholders, excluding
impairment of goodwill and other intangible assets and changes in
present value of in-force insurance contracts ('PVIF') (net of
tax), divided by average ordinary shareholders' equity excluding
goodwill, PVIF and other intangible assets (net of deferred
tax).
3 The definition of net asset value per ordinary share is total
shareholders' equity less non-cumulative preference shares and
capital securities, divided by the number of ordinary shares in
issue excluding shares the company has purchased and are held in
treasury.
4 Unless otherwise stated, regulatory capital ratios and
requirements are based on the transitional arrangements of the
Capital Requirements Regulation in force at the time. These include
the regulatory transitional arrangements for IFRS 9 'Financial
Instruments', which are explained further on page 88. Leverage
ratios are calculated using the end point definition of capital and
the IFRS 9 regulatory transitional arrangements. Following the end
of the transition period after the UK's withdrawal from the EU, any
reference to EU regulations and directives (including technical
standards) should be read as a reference to the version onshored
into UK law under the European Union (Withdrawal) Act 2018, as
amended.
Group Chief Executive's review
We are implementing our growth and transformation plans with
pace and purpose, building on the progress of 2020 with the aim of
delivering a world-leading service to our customers and strong
returns for our investors.
In February this year, we launched an updated purpose for HSBC.
'Opening up a world of opportunity' was the product of wide
consultation with our colleagues and customers around the world.
Since then, I have spoken with thousands of my colleagues across
HSBC to discuss how we live that purpose every day.
I have been excited by the energy of those conversations. Our
purpose and the values that underpin it - we value difference, we
succeed together, we take responsibility, and we get it done - have
resonated strongly, not just as a means of guiding our behaviour,
but in articulating what our people want us to be as a business.
Many expressed great pride in our heritage and culture, but also
belief in the need to adapt to meet present and future challenges.
Above all though, there was a strong desire to learn from and embed
the lessons of the past 18 months, which is a conviction that my
senior management team and I all share.
This spirit was evident in a good first-half performance. The
customer-centricity that characterised our response to the Covid-19
pandemic remained to the fore, driven by increased collaboration
and the benefits of our continued digital investment. This enabled
us not just to better serve our existing customers, but also to
attract new clients, win new mandates and strengthen our lending
pipelines. We also generated strong momentum behind our growth and
transformation plans, with good delivery against all four pillars -
focus on our strengths, digitise at scale, energise for growth, and
transition to net zero.
Our biggest challenge has remained the Covid-19 pandemic, which
continues to threaten our customers, colleagues and communities.
This was especially true in India, where the devastating spread of
the Delta variant was a stark reminder of the danger that the virus
continues to pose. India is both a growth market and an important
service hub for the Group, and around 39,000 of our people are
based there. While measures were already in place to enable a large
majority of these colleagues to work from home, we took urgent
steps to help them and their dependants to receive a vaccine, and
provided financial support to local organisations delivering the
relief effort on the ground. Operationally, we were able to
maintain an unbroken service due to the continuity measures in
place since March 2020. This was a testament both to the
extraordinary efforts of our people, and the resilience of our
systems and processes.
We received a strong endorsement of our recent progress in May,
through the upgrade of our MSCI ESG rating from 'average' to
'leader'. Among other things, MSCI recognised the significant
increase in our employee engagement and talent development scores
during 2020; the extensive involvement of our Board in
incorporating climate considerations into our business strategy;
our strong performance in customer complaints handling and
financial education; and our achievement of the highest possible
rating for corporate governance. We will work hard to maintain this
rating in the coming quarters.
"Our purpose and the values that underpin it have resonated
strongly, not just as a means of guiding our behaviour, but in
articulating what our people want us to be as a business."
Financial performance
Recovering economic growth in many of our main markets had a
positive impact on our first-half financial performance. The
improved economic outlook enabled us to begin releasing expected
credit losses, which was the main driver of our improved
profitability. The adverse impact of central bank interest rate
cuts in 2020 continued to flow through to our interest-rate
sensitive business lines, although our net interest income has now
stabilised. A combination of increased fee income and
cost-programme savings helped to compensate for the resulting
reduction in revenue, and we strengthened our lending pipelines in
our retail and wholesale businesses in the first half of the
year.
As a consequence, the Group delivered $10.8bn of reported profit
before tax, up 151% on the first half of 2020, and $12bn of
adjusted profits, up 111%. We were profitable in every region in
the first six months of the year.
Adjusted revenue was 7% lower than the same period last year.
This was due mainly to the impact of interest rate cuts during 2020
on our deposit franchises in all three global businesses. However,
our lending pipeline began to translate into business growth in the
second quarter and we further strengthened that pipeline during the
half-year.
Our cost reduction programmes continued to mitigate the cost of
increased technology investment, although our adjusted operating
expenses rose by 3% due to an increase in performance-related pay.
We spent around $3.0bn on technology in the first half of the year,
up 4% on the same period last year.
Our funding, liquidity and capital remain strong. We grew
deposits by $27bn on a constant currency basis, with growth in all
three global businesses. Our common equity tier one ratio was 15.6%
on 30 June 2021. As a consequence, we are able to pay an interim
dividend of $0.07 per ordinary share for the first half of the
year.
Focus on our strengths
We made good progress in restructuring our portfolio of
businesses in the first half of the year, investing in businesses
that we intend to grow and withdrawing from areas in which we lack
the scale to compete.
In particular, we took firm steps to resolve the future of our
businesses in the US and continental Europe. In the US, we entered
into agreements to sell our mass market retail business in the
country, and in continental Europe, we entered into a memorandum of
understanding with My Money Group aimed at selling our retail
banking activities in France. Both of these followed a period of
extensive strategic review, and are important milestones in the
transformation of the Group. They will help enable both our US and
continental Europe businesses to become more focused, simpler and
sustainably profitable, and to better serve the international needs
of our wholesale and wealth management customers.
In Asia, we continued to put in place the building blocks for
future growth. We further grew our Pinnacle digital wealth
management business in mainland China, recruiting more than 350 new
wealth managers and accelerating our coverage expansion to five
cities - Beijing, Shanghai, Guangzhou, Shenzhen and Hangzhou. We
also improved our ability to serve the wealth needs of customers in
Asia and the Asian diaspora by expanding our digital wealth
capabilities in Hong Kong, Malaysia and Singapore, and reorganising
our wealth businesses in continental Europe and the US to better
connect international customers to the global wealth opportunity.
The benefits of our investment in Asia wealth were evident in the
first six months of 2021 through strong customer acquisition,
increased fee income and significant growth in wealth balances.
"We are seeking to energise HSBC for growth through a strong
sense of purpose and simpler ways of working, and by equipping our
colleagues with the future skills they need."
Digitise at scale
Our technology investment continues to improve the experiences
of our customers and colleagues, and to boost efficiency while
reducing our cost base. In the first half of the year, we launched
a number of new, scalable digital capabilities for our customers
and rolled out more of our existing capabilities to new
markets.
For our personal customers, our digital Global Money Account
allows our international customers to hold, manage and send funds
in various currencies without paying any fees. Having launched this
successfully in the US in 2020, we expanded it successfully into
the UAE and Singapore in the first half of the year, with more to
follow during 2021.
For our business customers, we launched HSBC Global Wallet, a
new multi-currency digital wallet which allows businesses to hold,
send and receive cash in multiple currencies using a single global
account. Launched initially for customers in Singapore, the UK and
the US, we intend to roll out new features and currencies to the
platform in the second half of the year.
We also launched HSBC Kinetic for business customers in the UK.
Kinetic is designed to be a truly mobile-first banking service, as
opposed to a bank account with mobile features. Built on insights
from more than 3,000 small business owners, it allows customers to
manage their finances entirely through their smartphone. More than
10,000 businesses have now signed up, benefiting from online
onboarding in 15 minutes, the ability to apply for lending products
with instant lending decisions, and a number of critical insight
capabilities.
Energise for growth
We are seeking to energise HSBC for growth through a strong
sense of purpose and simpler ways of working, and by equipping our
colleagues with the future skills they need. This includes
embedding the lessons of the past 18 months to help build a
dynamic, entrepreneurial and inclusive culture.
We are moving to a hybrid working model wherever possible,
giving our people the flexibility to work in a way that suits both
them and their customers. We will need less office space as a
result, and we have plans to reduce our global office footprint by
more than 3.6 million square feet - or around 20% - by the end of
2021. We are also relocating three of our global business CEOs to
Asia on a permanent basis, taking them closer to our customers and
to the core of our business.
We continue to simplify the organisation wherever we can. In the
first half, we reduced the number of full-time equivalent employees
by around 3,500. We also announced changes to our senior leadership
bands to help ensure clarity of scope and accountability, and to
empower our leaders to make decisions to accelerate our
transformation and drive growth.
I am conscious that our current operating environment remains
challenging for many colleagues and their families. While our
employee engagement scores have remained above pre-pandemic levels,
we have continued to see a rise in fatigue and anxiety among
employees. To help tackle this, we have provided a variety of
well-being resources to support our people, including mindfulness
training. This is something that I continue to monitor closely,
particularly as our people adapt to our new hybrid working
model.
Transition to net zero
We took a number of important steps towards our net zero
ambitions in the first half of the year, and strengthened our
position as a market leader of sustainable finance.
I was particularly pleased that 99.7% of our shareholders backed
our special resolution on climate change at our AGM in May. This
was a strong endorsement of our climate strategy, which has at its
core a commitment to support our customers on their transitions to
a low-carbon future. The resolution commits us to setting out the
next steps in our transition, including through short- and
medium-term sector-based targets; to phasing out financing of coal
power and thermal coal mining by 2030 in EU and OECD countries, and
by 2040 globally; and to reporting annually on our progress. Above
all, it signals a unity of purpose between our business and our
investors, which is vital as we confront the shared challenge of
the low-carbon transition.
I have always said that partnership lies at the heart of the
low-carbon transition. Part of our approach has been to attempt to
forge new partnerships to find new solutions and accelerate
progress, whether with our customers, governments or our peers in
the banking sector. In April, we became a founding member of the
Net-Zero Banking Alliance ('NZBA'), which aims to deliver the
banking sector's ambition to align its climate commitments with the
Paris Agreement goals in a collaborative, rigorous and transparent
way. Through the NZBA, we also joined the Glasgow Financial
Alliance for Net Zero, which combines the leading initiatives
across the financial system to accelerate the transition to net
zero emissions by 2050 at the latest.
In May, we launched a five-year partnership with World Resources
Institute and WWF, backed by $100m of philanthropic funding from
HSBC. The Climate Solutions Partnership seeks to unlock barriers to
finance for companies and projects that tackle climate change,
bringing emerging climate solutions to commercial viability and
scale. By combining our resources, knowledge and insight with our
partners on the ground, we are aiming to make a real-world impact
in a targeted way, with a focus on scaling up climate innovation
and nature-based solutions, and helping to transition the energy
sector in Asia towards renewables.
We strengthened our position in the ESG bond market in the first
half, participating in more issuances than in the whole of 2020.
First-half mandates included the world's first sovereign
sustainable sukuk bond; the first sovereign green bonds issued by
the UK and Canada; and a pioneering sustainability-linked bond for
an energy company with the cost of financing tied to the reduction
of its entire carbon footprint, including the emissions of products
sold.
Our people
None of the achievements of the last six months would have been
possible without the commitment and hard work of my colleagues. I
do not underestimate the challenges that many still face as a
consequence of the Covid-19 pandemic, which remains a presence in
all of our lives. I am especially grateful to my colleagues in
parts of the world where Covid-19 remains prevalent, and who have
continued to go to extraordinary lengths for their customers and
colleagues in extremely challenging circumstances.
We have had a good start to the year, but there is much more to
do to deliver our ambitions for HSBC. We have a firm platform on
which to build over the remainder of 2021.
Noel Quinn
Group Chief Executive
2 August 2021
Our strategy
We are implementing our strategy across the four strategic
pillars aligned to our purpose, values and ambition announced in
February 2021.
Progress on our 2021 commitments
In February 2021, we refreshed our strategy, in recognition of
the fundamental shifts in the operating environment and to help
achieve our ambition to be the preferred international financial
partner for our clients. We have since made good progress across
our four strategic pillars: focus on our areas of strength;
digitise at scale to adapt our operating model for the future;
energise our organisation for growth; and support the transition to
a net zero global economy.
In the first half of 2021, we put in place strong building
blocks for future growth, primarily in Asia, in terms of the
reallocation of resources, growth in lending balances and our
client pipeline. At the same time, we have accelerated the pace of
execution of our strategy, with the announcements of the exit of
domestic mass market retail banking in the US, as well as the
potential sale of our retail banking business in France.
Focus on our strengths
In our global businesses
In each of our global businesses, we focus on delivering growth
in areas where we have distinctive capabilities and have
significant opportunities.
Wealth and Personal Banking
We expanded our Wealth franchise, with a particular focus on
Asia. In 1H21, our reported global wealth balances grew to
approximately $1.7tn, an 18% increase compared with 1H20, with
client assets and funds under management growing by 23%. In 1H21,
our Asia wealth balances reached $810bn. We recruited approximately
600 Asia wealth front-line FTEs, and our Asia affluent and high net
worth customer base grew 7%, compared with 1H20, to 1.7 million
customers. Wealth revenue in Asia increased by 26% compared with
1H20, including the benefit of $359m of insurance market impacts,
and we also rolled out Pinnacle, our digital financial planning
wealth platform, to five cities in mainland China with more
locations in the pipeline.
Commercial Banking
A strong lending pipeline and investment in digital solutions
have started to translate into growth. Customer lending grew by 2%
during 1H21 to $351bn, largely driven by an increase of 8% in Asia,
with $6.7bn of net adjusted lending growth in trade finance,
primarily in Hong Kong and mainland China. In Asia, lending
approval limits, which includes renewal and refinancing activity,
have also doubled since 2H20. Furthermore, we have invested heavily
in digital services and platforms. We introduced Global Wallet, a
digital wallet that allows businesses to hold, send and receive
cash in multiple currencies, in Singapore, the UK and the US.
Global Banking and Markets
We made good progress on capital repositioning to drive growth.
At 30 June 2021, overall reported RWAs were 8% lower than at 30
June 2020, driven by a reduction in products and domestic clients
not aligned to our strategy. In the same period, RWAs allocated to
Asia increased by 6%. This supports our focus on serving
international clients into and within these high-growth regions. In
1H21, we also delivered $184m of cost saves, as part of the
Group-wide cost reduction programme. We have increased
collaboration revenue with our other global businesses by 6%
compared with 1H20, with approximately $0.8bn generated with WPB,
and approximately $1.3bn with CMB.
Reshaping our portfolio
To help create capacity for growth, we are refocusing our US
business and HSBC Bank plc, our UK non-ring-fenced bank and Europe.
In May 2021, we announced the exit of the domestic mass market
retail business, including branches, in the US, and the potential
sale of our retail banking business in France. We have seen
rebounds in profits in both markets even as we reshape our
portfolio.
Our US business
The transformation of the US business has continued at pace,
with reported profit before tax of $0.4bn in 1H21, compared with a
loss before tax of $0.1bn in 1H20, and adjusted profit before tax
of $0.5bn in 1H21, up from $0.1bn in 1H20. We have reduced reported
RWAs by $15bn or 16% since 30 June 2020, and completed the
migration of our Fixed Income derivatives trading book from New
York to London. We also delivered approximately $100m of cost saves
in 1H21, achieving a total of $450m cost reduction since 2020, to
operate under a simpler, leaner model. Furthermore, we announced
the sale of our mass market retail banking business, subject to
regulatory approval, to focus on our international corporate and
wealth business. This sale would include approximately 1 million
clients and 90 out of our existing 148 branches.
US adjusted costs <>
$bn
HSBC Bank plc (UK non-ring-fenced bank and Europe)
We saw progress in our transformation programme, with $1.1bn of
reported profit before tax in 1H21, compared with a loss before tax
of $1.6bn in 1H20, and adjusted profit before tax of $1.4bn, an
uplift from a loss before tax of $0.6bn in 1H20. We also saw a
reduction of approximately 16% of adjusted RWAs and 3% of the
adjusted cost base compared with 1H20. We are on track to simplify
our continental European operating model into an integrated
business, and have refocused our wholesale client portfolio to
align to our ambition to be the leading international wholesale
bank in Europe, with a particular focus on the East, and to better
serve our targeted customers. We signed a memorandum of
understanding, relating to the potential sale of our retail banking
operations in France, marking a significant step in the
transformation of our European franchise.
HSBC Bank plc adjusted RWAs <>
$bn
1 Reported RWAs at 30 June 2020 were $171bn with foreign
currency translation differences of $11bn.
Digitise at scale
Investing in technology
We continued to invest in technology to help deliver excellent
customer service and improve productivity across our organisation.
In 1H21, we spent $3bn on technology, an increase of 18% since
1H18.
To improve our operational proficiency, we are increasingly
using the Cloud in our back-office functions, which helps to
increase resilience and reduce maintenance costs, through
partnerships with big technology firms such as Google and Amazon.
The number of live services processed on the Cloud has
approximately doubled from 1H20 to 1H21. For our customers, we
reduced manual intervention in our payments processing, with the
straight-through-processing rate increasing to 96.7%. We also
enhanced the First Direct customer journey by improving the account
opening speed from 10 days to 10 minutes.
During 1H21, we accelerated the roll-out of our digital
services. In 1H21, Kinetic, our digital business banking platform,
reached 10,000 customers and received a 4.8 out of 5.0 iOS app
store rating in the UK. Global Money, our multi-currency account
for retail customers, has expanded into Singapore and the UAE,
following the US launch in 4Q20. As of July 2021, Global Money
served approximately 45,000 users across the UAE and the US. We
also continue to invest in transforming our trade platform to drive
growth and improve customer experience.
Technology spend (adjusted) <>
$bn
Energise for growth
Since we launched our refreshed purpose and values in February
2021, we have been applying our values in how we work across the
organisation. Our most recent all-employee survey in June showed
employee engagement decreased slightly after significant gains in
2020, but has remained above 2019 levels. We are moving towards a
more hybrid way of working. Since the start of 2020, we have exited
or downsized 77 buildings, resulting in a 10% reduction in our
global office footprint. We are also progressing well against our
aspirational target of 35% women in senior leadership roles by
2025, reaching 31.1% in 1H21. In addition, we are the founding
member of the World Economic Forum's Partnering for Racial Justice
in Business, and a signatory to the United Nations LGBTI Standards
of Conduct for Business.
We are growing our Asia talent base and cementing our leadership
in the region to accelerate the execution of our strategy. We
commenced the relocation of key executives to Hong Kong, including
the CEOs of WPB, CMB and Asset Management, and a co-CEO of GBM. We
appointed new co-CEOs of Asia-Pacific, bringing in a breadth of
regional experience, to support our leadership's strategic focus on
geographies where we want to grow, including Greater China, the
ASEAN region and India. For recruiting plans, we hired more than
650 new graduates - comprising 52% women and representing 48
different nationalities - in 17 markets.
Transition to net zero
Becoming a net zero bank
Within the wider financial services sector, we joined various
initiatives, including the Net-Zero Banking Alliance as a founding
member, the Glasgow Financial Alliance for Net Zero, Sustainable
Markets Initiative, and the Partnership for Carbon Accounting
Financials. Within our organisation, we are developing climate
stress testing capabilities and are actively participating in the
Bank of England's climate change biennial exploratory scenario
exercise. We invited suppliers representing 60% of our total
supplier spend to participate in CDP (formerly the Carbon
Disclosure Project). For our colleagues, we expanded our network of
employee-led sustainability champions, with more than 30,000
colleagues across 70 teams, and included a sustainability module in
our mandatory learning.
Supporting our customers
Our aim is to provide $750bn to $1tn of sustainable finance and
investments by 2030 to help our customers transition to lower
carbon emissions. Since 1 January 2020, cumulatively we have
provided and facilitated $87.4bn of sustainable finance and
investments. In 1H21, we also participated in carrying out more
green, social, sustainability and sustainability-linked bonds for
clients than we did in the whole of 2020. We were named the joint
structuring adviser for the UK's and Canada's inaugural sovereign
green bond issuances, and were awarded Euromoney's Best Bank for
Sustainable Finance in Asia and the Middle East in July 2021.
Unlocking new climate solutions
In May 2021, we formed the Climate Solutions Partnership with
the World Resources Institute and WWF, backed by $100m of our
philanthropic capital to accelerate support for innovative
solutions tackling climate change. We launched our first in-market
green mortgage product in the UAE, and a lower carbon bond fund in
mainland China and Taiwan. To promote client engagement, we
launched a Business Plan for the Planet campaign globally, to help
businesses transition to a sustainable model, and published a guide
to net zero for companies in the UK.
How we do business
We conduct our business intent on opening up opportunities to
ensure the sustained success of our customers, people and other
stakeholders.
Our approach
Our purpose, 'Opening up a world of opportunity', explains why
we exist and guides us in what we do every day. In the first half
of 2021, we encouraged all our colleagues to explore what 'Opening
up a world of opportunity' meant to them personally and how it can
help us collectively contribute to delivering our strategy.
Our refreshed values define the principles that guide our
individual and organisational behaviours. They influence the way we
work together and the choices we make. We are embedding the values
throughout our organisation, and our leaders and colleagues are
regularly encouraged to reflect on what our values mean in
day-to-day actions and decisions. This was most clearly
demonstrated when many of our colleagues in India volunteered their
own time to support each other and their families during the second
wave of the Covid-19 pandemic in India (see below).
We recognise the important role we play in 'Opening up a world
of opportunity' for our customers, investors, our people and
communities, and in building a more sustainable, inclusive
world.
Fair outcomes
We continued to promote and encourage good conduct through our
people's behaviour and the decisions that we take. We also launched
our simplified conduct approach to align to the Group's new purpose
and values, in particular the value 'We take responsibility'. Our
new conduct approach encourages colleagues to recognise the impact
each of us has on our customers and the financial markets in which
we operate, and sets out a number of conduct outcomes to be
achieved. As we implement our new approach during 2021, we will
continue to enhance our existing policies, frameworks and
governance approach. Further details on our conduct approach are
available at
www.hsbc.com/who-we-are/esg-and-responsible-business/our-conduct.
Bringing together diverse people, ideas and perspectives helps
us open up opportunities and build a more inclusive company. We are
working to accelerate the development and progression of women and
ethnically diverse employees into more senior roles. We are
progressing well against our aspirational target of 35% women in
senior leadership roles by 2025. We are also building the
foundations that will help enable us to accelerate towards our goal
to at least double the number of Black senior leaders globally by
2025. In early 2021, we made it possible for 91% of our global
workforce to be able to declare their ethnicity in our HR
information system. We are now using this data to uncover areas of
largest opportunity.
Our climate ambition
The Board provided further details on our ambition to become a
net zero bank with a special resolution on climate change at our
Annual General Meeting ('AGM') in May, which was approved by 99.7%
of shareholders. The resolution commits the Group to set, disclose
and implement a strategy with short- and medium-term targets to
align its provision of finance across all sectors, starting in 2021
with oil and gas, and power and utilities, with the goals and
timelines of the Paris Agreement. We also committed to publish and
implement a policy to phase out the financing of coal-fired power
and thermal coal mining by 2030 in EU and OECD countries, and by
2040 in other markets. For the purposes of the resolution,
'finance' and 'financing' means providing project finance or direct
lending to, or underwriting capital markets transactions for,
corporate clients of our Global Banking and Commercial Banking
businesses. Our progress against our commitments will be reported
annually, including a summary of the methodology, scenarios and
core assumptions used.
We recognise the critical need for industry collaboration to
accelerate climate action and lower global emissions. As part of
our efforts, the Group Chief Executive, Noel Quinn, chairs the
Financial Services Task Force ('FSTF'), part of HRH The Prince of
Wales' Sustainable Markets Initiative. The FSTF brings together 11
of the world's largest banks to amplify and accelerate action on
climate-related initiatives.
We became a founding signatory of the Net-Zero Banking Alliance,
convened by the United Nations Environment Programme Finance
Initiative and co-launched by the FSTF. The members of the alliance
are committed to aligning their lending and investment portfolios
with net zero emissions by 2050, and setting an intermediate target
for 2030 or sooner using robust, science-based guidelines. Net-Zero
Banking Alliance is a member alliance of the Glasgow Financial
Alliance for Net Zero, which combines the leading initiatives
across the financial system to accelerate the transition to net
zero emissions by 2050. We also joined the Partnership for Carbon
Accounting Financials to help us measure our financed emissions and
provide transparent and comparable disclosures.
Living our values - We succeed together
We set up a Covid-19 taskforce to help colleagues and their
families who needed critical support during the second wave of the
pandemic in India. Many colleagues volunteered, using the
collective energy of our network to assist a wider group of people
in this time of crisis. The taskforce provided 24/7 support and
worked in collaboration with partners to mobilise resources to
provide hospital beds, oxygen and medicines. Our offices were set
up to manage vaccination drives for employees and their families.
The volunteers played a critical role, providing moral support and
counsel to colleagues during a period of anxiety and national
emergency. In addition to the actions of our people, we pledged
financial assistance of around $10m for the ongoing Covid-19 relief
efforts in India.
Delivering for our stakeholders
Having a clear purpose and strong values has never been more
important, with the pandemic testing us all in ways we could never
have anticipated. As the world changed over the course of the past
18 months, we adapted to new ways of working and 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 adjacent table, we set out how we have supported our
stakeholders - our customers, employees, investors, communities,
governments and regulators, and suppliers - during the first half
of 2021.
Customers -- Our provision of financial relief to our customers
to support them during the pandemic reduced during
the first half of 2021, as forbearance programmes began
to come to an end (for further details of our customer
relief programmes, see page 74). We have put a contact
and communications strategy in place in all of our
markets to engage with customers to help them understand
and decide on their options following the expiry of
their Covid-19 relief measures.
-- We remain committed to removing barriers to financial
services to help more people access opportunities.
In the UK, we launched a campaign to raise awareness
of our No Fixed Address service, which offers financial
support to those who are homeless, in partnership with
the charity Shelter. In Hong Kong, we launched basic
banking services for ethnic minority groups who do
not understand English or Chinese.
Employees -- Our most recent all-employee survey in June showed
employee engagement decreased slightly after significant
gains in 2020, but remained above 2019 levels. We have
continued to see a rise in fatigue and anxiety among
employees and in response, provided a variety of well-being
resources including mindfulness training. We continued
to monitor our colleagues' preferences for returning
to office and branch locations, including increasing
support for a more flexible, hybrid approach in the
future.
-- We continue to focus on managing change well for
our people, providing targeted career transition support
and a service through which in 1H21 we redeployed approximately
25% of employees who were impacted by our business
change programme.
-- In support of our programme to build skills for
the future, our learning experience platform is now
live to more than 70,000 employees and we have launched
a trial of our Talent Marketplace for 10,300 employees
in India, with plans to grow both.
Investors -- We continue to engage investors virtually, but will
endeavour to accommodate in-person meetings once it
is safe to do so. In May, we were able to offer a hybrid
AGM, with both in-person and virtual attendees.
-- We were encouraged by the constructive engagement
with ShareAction, the Investor Forum and our institutional
shareholders, to help develop our AGM resolution on
climate change, and we were extremely pleased that
99.7% of our shareholders voted in favour of the climate
change resolution.
-- We were also pleased to reinstate the $0.15 interim
dividend for 2020, paid in April 2021. We acknowledge
that dividends are important to all of our shareholders,
and announced an updated dividend policy based on a
payout ratio approach in February 2021. Reflecting
the current improved economic outlook and operating
environment in many of our markets, we now intend to
transition towards a target payout ratio of between
40% and 55% of our reported earnings per share from
2021 onwards while retaining the flexibility to adjust
for non-cash significant items. Should we achieve our
targets, the dividend is expected to progressively
increase over the coming years, in line with growth
in our earnings per share. The Board has announced
an interim dividend for the first half of 2021 of $0.07
per ordinary share.
Communities -- During 2021 we announced a donation of $10m towards
Covid-19 relief efforts in India, as well as $1.5m
to UNICEF supporting work to deliver vaccines to countries
on behalf of the Covax facility. This is in addition
to the $25m that we donated to support relief and recovery
efforts around the world during 2020.
Governments -- We continue to work closely with governments in
and regulators our major markets to ensure a sustainable economic
recovery. We have participated in a number of government-backed
Covid-19 support schemes, providing vital funds to
businesses and households affected by the pandemic.
We have also provided support to governments seeking
to raise revenue through bond issuance programmes.
We continue to engage with our regulators regarding
their supervisory and policy objectives.
Suppliers -- We invited companies representing 60% of our total
spend on suppliers to participate in the CDP (formerly
the Carbon Disclosure Project) supply chain programme,
which helps to improve our understanding of their carbon
emissions and zero carbon ambitions.
Financial overview
In assessing the Group's financial performance, management uses
a range of financial measures that focus on the delivery of
sustainable returns for our shareholders and maintaining our
financial strength.
Executive summary
Performance in the first half of 2021 benefited from the
improved economic outlook and resultant release in ECL allowances,
which significantly improved our profitability. While the low
interest-rate environment continued to impact revenue, net interest
margin remained broadly stable in the last quarter and we are
starting to see the positive impact of our strategy.
Reported profit before tax of $10.8bn increased by $6.5bn
compared with 1H20, and our annualised return on average tangible
equity ('RoTE') for 1H21 was 9.4%, compared with 3.8% in 1H20. The
increase in reported profit was driven by a net release of reported
ECL and included the non-recurrence of a $1.2bn impairment of
capitalised software in 1H20. Reported revenue fell, reflecting the
full impact of 2020 interest rate reductions, as well as lower
revenue in GBM, notably in Markets and Securities Services ('MSS'),
relative to a strong 1H20. Adjusted profit before tax of $12.0bn
increased by $6.3bn.
In 1H21, all of our regions were profitable. Despite the impact
of lower global interest rates, our operations in Asia continued to
deliver a strong performance. In addition, there was a material
recovery in profitability in all other regions, primarily
reflecting a net release in ECL following the improved economic
outlook.
The Group maintained its strong capital position, with a CET1
ratio of 15.6% at 30 June 2021, and continued to grow both lending
and deposit balances. In respect of 1H21, the Board has announced
an interim dividend of $0.07 per ordinary share.
Delivery against Group financial targets
Return on average tangible equity (%) <>
9.4%
(1H20: 3.8%)
In February 2021, we updated our reported annualised RoTE target
following the significant changes to the operating environment in
2020. The Group is now targeting a RoTE of greater than or equal to
10% in the medium term.
In 1H21, we achieved a RoTE (annualised) of 9.4%, compared with
3.8% in 1H20. The improvement in RoTE was driven by the favourable
impact of lower ECL.
Adjusted operating expenses <>
$16.2bn
(1H20: $15.7bn)
The Group is targeting an adjusted cost base of $31bn or less in
2022 (based on average December 2020 rates of foreign exchange, or
$31.5bn based on average June 2021 rates). In 1H21, adjusted
operating expenses were $16.2bn, an increase of 3% compared with
1H20, primarily due to a higher performance-related pay
accrual.
Our cost reduction programme is on track to deliver cost saves
of between $5bn and $5.5bn in the period from 2020 to 2022 and
expect to spend around $7bn in costs to achieve.
Cumulatively, our cost programmes have generated savings of
$2.0bn, with costs to achieve of $2.7bn.
Gross RWA reductions
$84.5bn
In February 2020, we announced our intention to improve our
return profile through a targeted gross RWA reduction of $100bn by
2022, mainly in low-returning parts of the Group. During 1H21, we
updated the list of clients we are remediating and also implemented
other methodology changes to better align the tracking and
reporting of reductions to how the RWA reduction programme is
managed. In line with these changes, we have also increased our
gross RWA reduction target to $110bn by 2022. We intend to update
executive scorecards accordingly.
At 30 June 2021, the Group had delivered cumulative gross RWA
reductions of $84.5bn, including accelerated saves of $9.6bn made
in 2019.
Capital and dividends
We intend to maintain a CET1 ratio in excess of 14%, managing in
the range of 14% to 14.5% in the medium term. We will seek to
manage this range down in the longer term.
At 30 June 2021, our CET1 ratio was 15.6%, down 0.3 percentage
points from 31 December 2020. This reflected an increase in RWAs
from lending growth and a decrease in CET1 capital, including the
impact of foreseeable dividends on ordinary shares of $3.5bn. This
dividend accrual, equal to 47.5% of 1H21 basic earnings per
ordinary share ('EPS') of $0.36, is not a forecast and represents
the mid-point of our target payout ratio of 40% to 55% of reported
EPS. The Group's strong capital position means it is well placed to
fund growth and step up capital returns. Our dividend policy aims
to deliver sustainable cash dividends, while retaining the
flexibility to invest and grow the business in the future,
supplemented by additional shareholder distributions, if
appropriate. Reflecting the current improved economic outlook and
operating environment in many of our markets, we now expect to move
to within our target payout ratio in 2021. In line with our
dividend policy, we will retain the flexibility to adjust EPS for
non-cash significant items. Additionally, in 2022, we intend to
adjust EPS to exclude the forecast loss on the sale of our retail
banking operations in France.
The Board has announced an interim dividend for 1H21 of $0.07
per ordinary share, to be paid in cash with no scrip
alternative.
CET1 ratio
15.6%
Interim dividend per ordinary share for 1H21
$0.07
*Medium term is three to four years; long term is five to six
years.
Reported results
Half-year to Quarter ended
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Mar
2021 2020 2020 2021 2020 2021
Reported results $m $m $m $m $m $m
-------------------------------- -------- -------- -------- ------- ------- ---------
Net operating income before
change in expected credit
losses and other credit
impairment charges ('revenue') 25,551 26,745 23,684 12,565 13,059 12,986
-------------------------------- -------- -------- -------- ------- ------- -------
ECL 719 (6,858) (1,959) 284 (3,832) 435
-------------------------------- -------- -------- -------- ------- ------- -------
Net operating income 26,270 19,887 21,725 12,849 9,227 13,421
-------------------------------- -------- -------- -------- ------- ------- -------
Total operating expenses (17,087) (16,527) (17,905) (8,560) (8,675) (8,527)
-------------------------------- -------- -------- -------- ------- ------- -------
Operating profit/(loss) 9,183 3,360 3,820 4,289 552 4,894
-------------------------------- -------- -------- -------- ------- ------- -------
Share of profit in associates
and joint ventures 1,656 958 639 771 537 885
-------------------------------- -------- -------- -------- ------- ------- -------
Profit before tax 10,839 4,318 4,459 5,060 1,089 5,779
-------------------------------- -------- -------- -------- ------- ------- -------
Tax expense (2,417) (1,193) (1,485) (1,206) (472) (1,211)
-------------------------------- -------- -------- -------- ------- ------- -------
Profit/(loss) after tax 8,422 3,125 2,974 3,854 617 4,568
-------------------------------- -------- -------- -------- ------- ------- -------
Reported performance - 1H21 vs 1H20
Reported profit
Reported profit after tax of $8.4bn in 1H21 was $5.3bn higher
than in 1H20.
Reported profit before tax of $10.8bn was $6.5bn higher than in
1H20. Reported revenue fell, reflecting the continued impact of
lower global interest rates and a decline in revenue in GBM's MSS
business following lower market volatility and client activity in
1H21, compared with a notably strong 1H20. These decreases were
partly offset by the favourable impact on certain volatile items in
WPB and GBM.
The reduction in reported revenue was more than offset by a net
release of reported ECL in 1H21 due to an improvement in the
forward economic outlook, notably in the UK, compared with the
significant build-up of stage 1 and stage 2 allowances in 1H20. In
addition, our reported share of profit from associates and joint
ventures in Corporate Centre increased. Reported operating expenses
increased, primarily from a higher performance-related pay accrual,
continued investment in our digital capabilities and higher
restructuring and other related costs, which more than offset a
reduction due to the non-recurrence of a 1H20 impairment of $1.2bn
of capitalised software related principally to businesses within
HSBC Bank plc.
In 1H21, all of our regions were profitable. Despite the impact
of lower global interest rates, our Asia business continued to
deliver a strong performance. In addition, there was a material
recovery in profitability in all other regions, primarily
reflecting a net release in ECL as the economic outlook improved,
notably in HSBC UK Bank plc, where reported profit before tax
increased to over $2.1bn .
The net favourable mark-to-market movements on certain volatile
items discussed above resulted from the following:
-- In WPB, favourable market impacts in life insurance
manufacturing of $413m compared with adverse movements in 1H20 of
$334m.
-- In GBM, MSS included favourable credit and funding valuation
adjustments of $35m (1H20: $355m adverse). In Principal
Investments, valuation gains of $237m compared with losses of $12m
in 1H20.
These were partly offset:
-- In Corporate Centre, 1H21 included adverse fair value
movements on our long-term debt and associated swaps of $54m (1H20:
$195m favourable).
IFRS 17 'Insurance Contracts' sets the requirements that an
entity should apply in accounting for insurance contracts it issues
and reinsurance contracts it holds. IFRS 17 is effective from 1
January 2023 and could have a significant impact on the revenue of
our insurance business. For further details, see 'Future accounting
developments' on page 289 of the Annual Report and Accounts
2020.
Reported revenue
Reported revenue of $25.6bn was $1.2bn or 4% lower than in 1H20.
The reduction primarily reflected a fall in net interest income as
a result of the impact of lower global interest rates, notably
affecting our deposit franchises in WPB and in Global Liquidity and
Cash Management ('GLCM') in CMB and GBM. While we grew average
interest-earning assets, interest-bearing liabilities also
increased, resulting in continued downward pressure on NIM. In
GBM's MSS business, revenue decreased in Global Foreign Exchange
and Global Debt Markets, as trading volatility and client activity
in 1H21 was lower, although activity increased in Equities and
Securities Services. There were also favourable movements in credit
and funding valuation adjustments.
The reduction in revenue was partly offset by favourable market
impacts in life insurance manufacturing, which compared with
adverse movements in 1H20, as discussed above. GBM revenue also
benefited from valuation gains in Principal Investments, compared
with small losses in 1H20.
The reduction in reported revenue also included adverse fair
value movements on financial instruments of $0.5bn, which were more
than offset by favourable foreign currency translation differences
of $1.1bn.
Reported ECL
Reported ECL were a net release of $0.7bn in 1H21, compared with
a charge of $6.9bn in 1H20. The net release in 1H21 reflected an
improvement in the economic outlook, notably in the UK. This
compared with the significant build-up of stage 1 and stage 2
allowances in 1H20 due to the worsening economic outlook at the
onset of the Covid-19 outbreak. The reduction in ECL also reflected
low levels of stage 3 charges, as well as the non-recurrence of a
significant charge in 1H20 related to a corporate exposure in
Singapore.
Given current consensus economics and default experience, ECL
charges for 2021 are expected to be materially lower than our
medium-term range of 30bps to 40bps of average loans and possibly a
net release for the year. Uncertainty remains as countries emerge
from the pandemic at different speeds, government support measures
unwind and new virus strains test the efficacy of vaccination
programmes.
For further details on the calculation of ECL, including the
measurement uncertainties and significant judgements applied to
such calculations, the impact of alternative/additional scenarios
and post-model adjustments, see pages 62 to 70.
Reported operating expenses
Reported operating expenses of $17.1bn were $0.6bn or 3% higher
than in 1H20. This primarily reflected higher performance-related
pay of $0.9bn, which is accrued based on the profile of our
expected profit performance. In addition, investment in technology,
including investments in our digital capabilities, increased by
$0.3bn. Our Asia wealth investment also rose by $0.1bn. These
increases were partly offset by a $0.9bn impact of our cost-saving
initiatives.
The increase in reported operating expenses also included
adverse foreign currency translation differences of $0.9bn and an
increase in restructuring and other related costs of $0.3bn, of
which $0.1bn related to severance payments. However, these items
were broadly offset by the non-recurrence of a $1.2bn impairment of
intangible assets in Europe in 1H20, of which $0.2bn was within
restructuring and other related costs.
Reported share of profit in associates and joint ventures
Reported share of profit in associates of $1.7bn was $0.7bn or
73% higher, primarily reflecting an increased share of profit from
Bank of Communications Co., Limited ('BoCom'), a recovery in asset
valuations of a UK associate relative to 1H20, and a higher share
of profit from The Saudi British Bank ('SABB').
In relation to BoCom, we continue to be subject to a risk of
impairment in the carrying value of our investment. For further
details of our impairment review process, see Note 10 on the
interim condensed financial statements.
Tax expense
The effective tax rate for 1H21 of 22.3% was lower than the
27.6% for 1H20. The effective tax rate for 1H21 was increased due
to the impact of substantively enacted legislation to increase the
UK statutory tax rate from 1 April 2023. The 1H20 effective tax
rate was high, due mainly to the non-recognition of deferred tax on
losses in the UK.
Reported performance - 2Q21 vs 2Q20
Reported profit
Reported profit after tax of $3.9bn in 2Q21 was $3.2bn higher
than in 2Q20.
Reported profit before tax of $5.1bn was $4.0bn higher. This
rise reflected a net release of reported ECL provisions and
included the non-recurrence of a $1.2bn impairment in 2Q20 of
capitalised software intangibles in Europe. These factors were
partly offset by lower reported revenue.
Reported revenue of $12.6bn was $0.5bn or 4% lower, driven by a
decrease in GBM, notably in MSS, reflecting lower market volatility
and client activity compared with a strong 2Q20, and a fall in
Principal Investments revenue due to the non-recurrence of
revaluation gains recognised in 2Q20. These were compounded by the
impact of interest rate reductions adversely affecting our deposit
franchises within WPB and in the GLCM business in CMB and GBM.
ECL were a net release of $0.3bn, which compared with a charge
of $3.8bn in 2Q20, as the significant build-up of stage 1 and stage
2 allowances in 2Q20 due to the worsening economic outlook at the
onset of the Covid-19 outbreak was partially released in 2Q21. In
addition, there were low levels of stage 3 charges during 2Q21.
Reported operating expenses of $8.6bn were $0.1bn or 1% lower,
reflecting the non-recurrence of a $1.2bn impairment of software
intangibles in Europe in 2Q20. This was partly offset by higher
performance-related pay and continued investment in technology, and
included adverse foreign currency translation differences of
$0.6bn.
Reported share of profit in associates and joint ventures
increased by $0.2bn, primarily reflecting an increased share of
profit from SABB.
Adjusted results
Our reported results are prepared in accordance with
International Financial Reporting Standards ('IFRSs') as detailed
in the notes on the interim condensed financial statements on page
105.
We also present alternative performance measures (non-GAAP
financial measures). These include adjusted performance, which we
use to align internal and external reporting, identify and quantify
items management believes to be significant, and provide insight
into how management assesses period-on-period performance.
Alternative performance measures are highlighted with the following
symbol: <>
To derive adjusted performance, we adjust for:
- the period-on-period effects of foreign currency translation
differences; and
- the effect of significant items that distort period-on-period
comparisons, which are excluded to improve understanding of the
underlying trends in the business.
The results of our global businesses are presented on an
adjusted basis, which is consistent with how we manage and assess
global business performance.
For reconciliations of our reported results to an adjusted
basis, including lists of significant items, see page 35.
Definitions and calculation of other alternative performance
measures are included in our 'Reconciliation of alternative
performance measures' on page 52.
Half-year to 1H21 vs 1H20
30 Jun 30 Jun 31 Dec
2021 2020 2020
Adjusted results <> $m $m $m $m %
-------- -------- -------- --------- ------
Revenue 25,797 27,597 24,523 (1,800) (7)
------------------------------ -------- -------- -------- --------- ----
ECL 719 (7,287) (2,031) 8,006 >100
------------------------------ -------- -------- -------- --------- ------
Total operating expenses (16,222) (15,705) (16,951) (517) (3)
------------------------------ -------- -------- -------- --------- ----
Operating profit 10,294 4,605 5,541 5,689 >100
------------------------------ -------- -------- -------- --------- ------
Share of profit in associates
and joint ventures 1,656 1,049 1,139 607 58
------------------------------ -------- -------- -------- --------- ----
Profit before tax 11,950 5,654 6,680 6,296 >100
------------------------------ -------- -------- -------- --------- ------
Adjusted performance - 1H21 vs 1H20
Adjusted profit before tax <>
Adjusted profit before tax of $12.0bn was $6.3bn higher than in
1H20.
Adjusted revenue fell, mainly reflecting the continued impact of
lower global interest rates and a reduction in MSS revenue in GBM
from lower market volatility and client activity, despite the
favourable impact of certain volatile items in WPB and GBM.
However, this decrease was more than offset by a net release of
adjusted ECL in 1H21 due to an improvement in the economic outlook,
notably in the UK, compared with the significant build-up of stage
1 and stage 2 allowances in 1H20. Adjusted operating expenses were
higher, while our share of profit from associates and joint
ventures increased.
Reconciliation of reported to adjusted profit before tax
Half-year to
---------------------------------------
30 Jun 2021 30 Jun 2020 31 Dec 2020
$m $m $m
----------- ----------- -------------
Reported profit before tax 10,839 4,318 4,459
----------------------------------- ----------- -----------
Currency translation - (108) 125
----------------------------------- ----------- ----------- -----------
Significant items: 1,111 1,444 2,096
- customer redress programmes
(total) (1) 24 (57)
-----------------------------------
- disposals, acquisitions
and investment in new businesses
(total) - 8 2
-----------------------------------
- fair value movements on
financial instruments 194 (299) 35
-----------------------------------
- impairment of goodwill
and other intangible assets - 1,025 65
-----------------------------------
- restructuring and other
related costs (total) 918 554 1,524
-----------------------------------
- settlements and provisions
in connection with legal
and regulatory matters - 5 7
-----------------------------------
- past service costs of guaranteed
minimum pension benefits
equalisation - - 17
-----------------------------------
- goodwill impairment (share
of profit in associates and
joint ventures) - - 462
-----------------------------------
- currency translation on
significant items - 127 41
----------------------------------- ----------- ----------- -----------
Adjusted profit before tax 11,950 5,654 6,680
----------------------------------- ----------- ----------- -----------
Adjusted revenue <>
Adjusted revenue of $25.8bn was $1.8bn or 7% lower than in 1H20.
The reduction was primarily in net interest income due to the
impact of lower global interest rates, mainly affecting our deposit
franchises within WPB and in GLCM in CMB and GBM. In GBM's MSS
business, revenue decreased in Global Foreign Exchange and Global
Debt Markets, reflecting lower market volatility and client
activity, although activity increased in Equities and Securities
Services. In addition, there was a net favourable movement in
credit and funding valuation adjustments of $411m. These decreases
were in part mitigated by net favourable movements in market
impacts in life insurance manufacturing in WPB of $764m. In
addition, GBM adjusted revenue benefited from favourable
revaluations in Principal Investments, compared with losses in
1H20.
Adjusted ECL <>
Adjusted ECL, which removes the period-on-period effects of
foreign currency translation differences, were a net release of
$0.7bn compared with a charge of $7.3bn in 1H20. These reflected
releases as a result of an improvement in the economic outlook,
notably in the UK. This compared with the significant build-up of
stage 1 and stage 2 allowances in 1H20 due to the worsening
economic outlook at the onset of the Covid-19 outbreak. The
reduction in ECL also reflected low levels of stage 3 charges in
1H21, as well as the non-recurrence of a significant charge in 1H20
related to a corporate exposure in Singapore.
Adjusted operating expenses <>
Adjusted operating expenses of $16.2bn were $0.5bn or 3% higher
than in 1H20. This primarily reflected higher performance-related
pay of $0.9bn, which is accrued based on the profile of our
expected profit performance. In addition, investment in technology,
including investments in our digital capabilities, increased by
$0.3bn. Our Asia wealth investment also rose by $0.1bn. These
increases were partly offset by a $0.9bn impact of our cost-saving
initiatives.
We expect adjusted operating expenses for 2021 to be broadly in
line with 2020, excluding the benefit from a reduced bank levy.
This remains subject to final decisions on performance-related pay,
which will primarily reflect the performance of the Group.
The number of employees expressed in full-time equivalent staff
('FTE') at 30 June 2021 was 222,550, a decrease of 3,509 compared
with 31 December 2020. The number of contractors at 30 June 2021
was 7,401, an increase of 1,709 , primarily reflecting increases
associated with our growth and transformation initiatives.
Adjusted share of profit in associates and joint
ventures<>
Adjusted share of profit from associates and joint ventures of
$1.7bn was $0.6bn or 58% higher than in 1H20, including an
increased share of profit from BoCom, a recovery in asset
valuations of a UK associate relative to 1H20, and a higher share
of profit from SABB.
Balance sheet and capital
Balance sheet strength
Total assets of $3.0tn were broadly in line with 31 December
2020. Cash balances increased as we redeployed our commercial
surplus and as customer accounts rose, which was largely offset by
adverse revaluation movements on derivative assets.
Loans and advances to customers of $1.1tn were $22bn higher, or
$23bn on a constant currency basis, as customers used short-term
borrowing to fund investments in initial public offerings, as well
as from higher mortgage balances in the UK and Hong Kong. Customer
accounts of $1.7tn increased by $26bn, or $27bn on a constant
currency basis, from reduced customer spending.
Distributable reserves
The distributable reserves of HSBC Holdings at 30 June 2021 were
$31.6bn, compared with $31.3bn at 31 December 2020. The increase
was primarily driven by profits generated of $4.2bn net of ordinary
dividend and additional tier 1 coupon payments of $3.7bn.
Capital position
We actively manage the Group's capital position to support our
business strategy and meet our regulatory requirements at all
times, including under stress, while optimising our capital
efficiency. To do this, we monitor our capital position using a
number of measures. These include our capital ratios, the impact on
our capital ratios as a result of stress, and the degree of double
leverage being run by HSBC Holdings. Double leverage is a
constraint on managing our capital position, given the complexity
of the Group's subsidiary structure and the multiple regulatory
regimes under which we operate. For further details, see page
86.
Our CET1 ratio at 30 June 2021 was 15.6%, down from 15.9% at 31
December 2020, reflecting an increase in RWAs from lending growth
and a decrease in CET1 capital including the impact of foreseeable
dividends.
Liquidity position
We actively manage the Group's liquidity and funding to support
our business strategy and meet regulatory requirements at all
times, including under stress. To do this, we monitor our position
using a number of risk appetite measures, including the liquidity
coverage ratio ('LCR') and the net stable funding ratio. During
1H21, we revised our approach to calculate the Group's LCR to
reflect the requirements of the EC Delegated Act. At 30 June 2021,
the Group's LCR was 134% and we held high-quality liquid assets of
$659bn. For further details, see page 91.
Wealth and Personal Banking
Contribution to Group 1H21 adjusted profit before
tax<>
% contribution
to Group
32%
WPB customer deposits, lending and wealth sales increased in
1H21, as markets began to emerge from the pandemic. We continued to
support customers through payment holidays, short-term credit
facilities and access to cash. Performance in 1H21 was favourably
impacted by a release of ECL provisions and strong wealth sales in
Asia, although revenue was affected by the impact of lower interest
rates, despite strong balance sheet growth. Aligned with our
strategy, we continued investing in our digital capabilities and
people to expand our Wealth franchise in Asia, and address our
customers' international needs.
We serve more than 39 million customers across the full spectrum
from retail customers to ultra high net worth individuals and their
families.
We offer locally-tailored products and services across multiple
channels for our customers' everyday banking needs, as well as
insurance, investment management, advisory and wealth solutions for
those with more sophisticated requirements. Our global presence
provides for customers with international needs.
Half-year to 1H21 vs 1H20
30 Jun 30 Jun 31 Dec
2021 2020 2020
Adjusted results
<> $m $m $m $m %
------- ------- ------- -------- ------
Net operating
income 11,401 11,694 11,019 (293) (3)
------------------- ------- ------- ------- -------- ----
ECL 52 (2,328) (685) 2,380 >100
------------------- ------- ------- ------- -------- ------
Operating expenses (7,600) (7,695) (7,871) 95 1
------------------- ------- ------- ------- -------- ----
Share of profit
in associates
and JVs 11 (8) 15 19 >100
------------------- ------- ------- ------- -------- ------
Profit before
tax 3,864 1,663 2,478 2,201 >100
------------------- ------- ------- ------- -------- ------
RoTE excluding
significant items
(annualised,
YTD) (%) 17.9 6.0 9.1
------------------- ------- ------- ------- -------- ------
During the first half of 2021, we announced the potential sale
of our retail banking business in France, as well as the exit of
domestic mass market retail banking in the US, including our
Personal and Advance propositions and retail business banking. In
1H21, the reported and adjusted profit before tax contributions of
these businesses to the WPB segment was not significant.
-- In 1H21, our retail banking business in France contributed
approximately 2% of WPB reported and adjusted revenue and
approximately 35% of France WPB reported and adjusted revenue of
$618m. At 30 June 2021, this business had loans and advances to
customers of $25.6bn (31 December 2020: $25.5bn), customer accounts
of $23.5bn (31 December 2020: $22.4bn) and RWAs of $7bn (31
December 2020: $7bn).
-- In 1H21, we entered into sale agreements with Citizens Bank
and Cathay Bank in the US. The proposed transaction contributed
approximately 1% of WPB reported and adjusted revenue and
approximately 15% of US WPB reported and adjusted revenue. At 30
June 2021, these elements had loans and advances to customers of
$2.6bn (31 December 2020: $3bn), customer accounts of $9.9bn (31
December 2020: $10bn) and RWAs of approximately $1bn (31 December
2020: approximately $1bn) relating to them. At 30 June 2021, the
loans and advances to customers and customer accounts were
classified as held for sale and reported on the Group's balance
sheet as 'other assets' and 'other liabilities'.
1H21 vs
Half-year to 1H20
30 Jun 30 Jun 31 Dec
2021 2020 2020
Management view of adjusted revenue(1)
<> $m $m $m $m %
------ ------ ------ ------- -------
Wealth 4,822 3,700 4,268 1,122 30
--------------------------------------- ------ ------ ------ ------- -----
- investment distribution 1,851 1,638 1,628 213 13
--------------------------------------- ------ ------ ------ ------- -----
- life insurance manufacturing 1,439 583 1,237 856 >100%
--------------------------------------- ------ ------ ------ ------- -------
- Global Private Banking 935 960 840 (25) (3)
--------------------------------------- ------ ------ ------ ------- -----
net interest income 320 388 303 (68) (18)
--------------------------------------- ------ ------ ------ ------- -----
non-interest income 615 572 537 43 8
--------------------------------------- ------ ------ ------ ------- -----
- asset management 597 519 563 78 15
--------------------------------------- ------ ------ ------ ------- -----
Personal Banking 6,144 7,195 6,229 (1,051) (15)
--------------------------------------- ------ ------ ------ ------- -----
- net interest income 5,456 6,577 5,577 (1,121) (17)
--------------------------------------- ------ ------ ------ ------- -----
- non-interest income 688 618 652 70 11
--------------------------------------- ------ ------ ------ ------- -----
Other(2) 435 799 522 (364) (46)
--------------------------------------- ------ ------ ------ ------- -----
Net operating income(3) 11,401 11,694 11,019 (293) (3)
1 With effect from the first quarter of 2021, certain items
within the management view of adjusted revenue have been renamed.
'Wealth Management' has been renamed 'Wealth' and 'Retail Banking'
has been renamed 'Personal Banking'.
2 'Other' includes Markets Treasury, HSBC Holdings interest
expense and Argentina hyperinflation. It also includes the
distribution and manufacturing (where applicable) of retail and
credit protection insurance, disposal gains and other non-product
specific income.
3 'Net operating income' means net operating income before
change in expected credit losses and other credit impairment
charges (also referred to as 'revenue').
Financial performance
Adjusted profit before tax of $3.9bn in 1H21 was $2.2bn higher
than in 1H20. This reflected a release of adjusted ECL in 1H21 as
the economic outlook improved, compared with the significant
build-up of allowances in 1H20. The impact of lower global interest
rates resulted in a decrease in net interest income, which was
largely offset by an increase in Wealth revenue due to a net
favourable movement of $764m in market impacts in insurance and
growth in investment distribution.
Adjusted revenue of $11.4bn was $0.3bn or 3% lower.
In Personal Banking, revenue of $6.1bn was down $1.1bn or
15%.
-- Net interest income was $1.1bn lower due to narrower margins
as global interest rates fell in 2020 as a result of the Covid-19
outbreak. This reduction was partly mitigated by deposit balance
growth of $32bn or 4%, mainly in the UK and Hong Kong, and higher
mortgage lending of $24bn or 7%, particularly in the UK.
-- Non-interest income increased by $70m or 11%, reflecting
growth from mortgages in the UK and Hong Kong, partly offset by
lower income on unarranged overdrafts. Since March 2020, we moved
from charging fees on unarranged overdrafts to an interest-based
charging model, consistent with market practice.
In Wealth, net revenue of $4.8bn was up $1.1bn or 30%.
-- In life insurance manufacturing, revenue was $0.9bn higher,
which included a net favourable movement in market impacts of
$764m. In 1H21, there was a favourable movement of $413m, compared
with an adverse movement in 1H20 of $351m, as equity markets
performance continued to improve after the sharp fall in March
2020. The value of new business written was $0.1bn higher, as we
broadened how we engage with customers, including through our
improved digital capabilities, to mitigate the ongoing impact of
the Covid-19 pandemic.
-- Investment distribution revenue was $0.2bn or 13% higher,
reflecting strong equity market conditions in Hong Kong, which
resulted in higher mutual fund sales and growth in brokerage fees
as transaction volumes increased.
-- In Global Private Banking, revenue was $25m or 3% lower, as
net interest income fell by $68m or 18% as a result of the impact
of lower global interest rates. This was partly offset by growth in
non-interest income of $43m or 8%, as investment revenue increased,
reflecting higher fees from advisory and discretionary mandates and
increased market volatility.
Adjusted ECL were a net release of $0.1bn, compared with a
charge of $2.3bn in 1H20. ECL reflected releases in 1H21 as the
economic outlook improved. This compared with the significant
build-up of allowances in 1H20 as a result of the Covid-19
outbreak.
Adjusted operating expenses of $7.6bn were $0.1bn or 1% lower,
as the benefits of our cost-saving initiatives funded our continued
investment in Wealth in Asia and offset a higher
performance-related pay accrual.
Divisional highlights
$1.7tn
WPB wealth balances at 30 June 2021. This was an 18%
year-on-year increase, and a 5% increase from 31 December 2020.
$24bn
Growth in mortgage book, notably in the UK (up 9%) and Hong Kong
(up 6%) since 30 June 2020.
Adjusted profit before tax <>
($bn)
$3.9bn
Adjusted net operating income <>
($bn)
$11.4bn
Commercial Banking
Contribution to Group 1H21 adjusted profit before
tax<>
% contribution
to Group
28%
CMB supported our customers' liquidity and working capital
needs, growing lending and deposit balances, while our ongoing
investment in technology has helped enable us to support customers
under exceptionally challenging conditions. Performance in 1H21 was
favourably impacted by the release of ECL provisions, partly offset
by the impact of lower interest rates globally on revenue.
We support approximately 1.3 million business customers in 53
countries and territories, ranging from small enterprises focused
primarily on their domestic markets to large companies operating
globally.
We help entrepreneurial businesses grow by supporting their
financial needs, facilitating cross-border trade and payment
services, and providing access to products and services offered by
other global businesses.
Half-year to 1H21 vs 1H20
30 Jun 30 Jun 31 Dec
2021 2020 2020
Adjusted results
<> $m $m $m $m %
------- ------- ------- -------- ------
Net operating
income 6,651 7,326 6,489 (675) (9)
------------------- ------- ------- ------- -------- ----
ECL 249 (3,751) (1,265) 4,000 >100
------------------- ------- ------- ------- -------- ------
Operating expenses (3,525) (3,457) (3,491) (68) (2)
------------------- ------- ------- ------- -------- ----
Share of profit
in associates
and JVs 1 - (1) 1 -
------------------- ------- ------- ------- -------- ----
Profit before
tax 3,376 118 1,732 3,258 >100
------------------- ------- ------- ------- -------- ------
RoTE excluding
significant items
(annualised,
YTD) (%) 11.1 (1.6) 1.3
------------------- ------- ------- ------- -------- ------
1H21 vs
Half-year to 1H20
30 Jun 30 Jun 31 Dec
2021 2020 2020
Management view of adjusted revenue <> $m $m $m $m %
------ ------ ------ ----- ------
Global Trade and
Receivables Finance 933 925 869 8 1
---------------------------------------------- ------ ------ ------ ----- ----
Credit and Lending 2,965 2,885 2,988 80 3
---------------------------------------------- ------ ------ ------ ----- ----
Global Liquidity and Cash Management 1,741 2,411 1,865 (670) (28)
---------------------------------------------- ------ ------ ------ ----- ----
Markets products, Insurance and Investments,
and Other(1) 1,012 1,105 767 (93) (8)
---------------------------------------------- ------ ------ ------ ----- ----
- of which: share of revenue from Markets
and Securities Services and Banking products 524 492 465 32 7
---------------------------------------------- ------ ------ ------ ----- ----
Net operating income(2) 6,651 7,326 6,489 (675) (9)
---------------------------------------------- ------ ------ ------ ----- ----
1 Includes CMB's share of revenue from the sale of Markets and
Securities Services and Banking products to CMB customers. GBM's
share of revenue from the sale of these products to CMB customers
is included within the corresponding lines of the GBM management
view of adjusted revenue. Also includes allocated revenue from
Markets Treasury, HSBC Holdings interest expense and Argentina
hyperinflation.
2 'Net operating income' means net operating income before
change in expected credit losses and other credit impairment
charges (also referred to as 'revenue').
Financial performance
Adjusted profit before tax of $3.4bn was $3.3bn higher than in
1H20. This reflected a release of adjusted ECL in 1H21 as the
economic outlook improved, compared with 1H20 where we had a
significant build-up of allowances, along with a notable charge
related to a corporate exposure in Singapore. This was partly
offset by a decline in adjusted revenue due to the impact of lower
global interest rates.
Adjusted revenue of $6.7bn was $0.7bn or 9% lower.
-- In GLCM, revenue decreased by $0.7bn or 28%, reflecting the
impact of lower global interest rates, mainly in Hong Kong and the
UK. This was partly offset by a 19% increase in average deposit
balances, with growth particularly in the UK, Hong Kong and the US,
as well as from a 5% increase in fee income.
-- In Markets products, Insurance and Investments, and Other,
revenue reduced by $93m or 8%, reflecting the impact of lower
global interest rates on income earned on capital held in the
business. This reduction was partly offset by higher collaboration
revenue from GBM, in Markets and Capital Markets and Advisory.
These decreases were partly offset:
-- In Credit and Lending, revenue increased by $80m or 3%,
reflecting wider margins, notably in the UK, North America and
Latin America, partly offset by lower average balances, as
customers' funding requirements fell in the second half of 2020 due
to the Covid-19 restrictions. During 2021, balances grew in Asia,
although this was partly offset by a reduction in Europe.
-- In Global Trade and Receivables Finance, revenue was up by
$8m or 1%, driven by a 5% growth in fee income across all regions
from a recovery in global trade volumes during 2021, partly offset
by lower average balances. However, during 2021 there was strong
growth in lending balances in all regions, particularly in
Asia.
Adjusted ECL were a net release of $0.2bn, compared with a
charge of $3.8bn in 1H20. ECL in 1H21 included a release of stage 1
and stage 2 allowances as the economic outlook improved, notably in
the UK. This compared with the significant build-up of allowances
in 1H20 as a result of the adverse economic outlook due to the
Covid-19 outbreak. The reduction in ECL also reflected minimal
stage 3 charges in 1H21, compounded by a significant charge in 1Q20
related to a corporate exposure in Singapore.
Adjusted operating expenses of $3.5bn were $68m or 2% higher,
primarily reflecting an increase in the performance-related pay
accrual and continued investment in our digital and transactional
banking capabilities. These increases were partly offset by
continued cost discipline, and the impact of our cost-saving
initiatives.
Divisional highlights
$4.2bn
Net new money from CMB clients referred to Global Private
Banking during 2021, including $3.2bn or 75% in Asia.
12%
Increase in international account openings, compared with
1H20.
Adjusted profit before tax <>
($bn)
$3.4bn
Adjusted net operating income <>
($bn)
$6.7bn
Global Banking and Markets
Contribution to Group 1H21 adjusted profit before
tax<>
% contribution
to Group
28%
GBM adjusted profit before tax increased, reflecting a net
release in ECL in 1H21. While adjusted revenue fell, there was
continued momentum in Equities, Capital Markets and our Securities
Services business, where assets under custody reached over $10tn
for the first time. We also continued to invest in technology to
support our clients and to improve our operational resilience.
We support major government, corporate and institutional clients
worldwide. Our product specialists deliver a comprehensive range of
transaction banking, financing, advisory, capital markets and risk
management services.
Half-year to 1H21 vs 1H20
30 Jun 30 Jun 31 Dec
2021 2020 2020
Adjusted results
<> $m $m $m $m %
------- ------- ------- -------- ------
Net operating
income 7,878 8,574 7,323 (696) (8)
------------------- ------- ------- ------- -------- ----
ECL 414 (1,195) (95) 1,609 >100
------------------- ------- ------- ------- -------- ------
Operating expenses (4,985) (4,813) (4,916) (172) (4)
------------------- ------- ------- ------- -------- ----
Share of profit
in associates
and JVs - - - - -
------------------- ------- ------- ------- -------- ----
Profit before
tax 3,307 2,566 2,312 741 29
------------------- ------- ------- ------- -------- ----
RoTE excluding
significant items
(annualised,
YTD) (%) 10.7 7.7 6.7
------------------- ------- ------- ------- -------- ------
Financial performance
Adjusted profit before tax of $3.3bn was $0.7bn higher than in
1H20. This mainly reflected releases of ECL allowances, compared
with the significant build-up of allowances in 1H20, despite a
decrease in adjusted revenue.
Adjusted revenue of $7.9bn decreased by $0.7bn compared with
1H20.
-- In Markets and Securities Services, revenue decreased by
$0.6bn or 12%, reflecting lower market volatility and a reduction
in client activity in Global Foreign Exchange and Global Debt
Markets, in the context of a strong performance in 1H20. In
Securities Financing, income fell by $0.1bn or 25% due to margin
compression. In addition, in Securities Services revenue fell by
$0.1bn or 6% due to lower global interest rates, while fees
increased by 15%, as assets under custody surpassed $10tn for the
first time and transaction volumes increased in Asia and Europe.
These decreases more than offset favourable movements in credit and
funding valuation adjustments of $0.4bn and a strong performance in
structured derivatives in Equities, reflecting strong client
activity in Wealth, particularly in Asia.
-- In Banking, revenue decreased by $0.3bn or 8%, mainly in
GLCM, which fell by $0.2bn or 20% due to the impact of lower global
interest rates, although fee income increased. Credit and Lending
revenue fell by $41m or 3% due to lower net interest income
reflecting strategic actions to reduce RWAs, and as 1H20 included
elevated drawdowns due to the Covid-19 outbreak. The reduction in
'Other' reflected the non-recurrence of gains in 1H20 due to
widening credit spreads on portfolio hedges. These decreases were
partly offset by an increase in Capital Markets and Advisory from a
strong performance in leveraged finance and advisory, despite lower
investment grade underwriting fees, reflecting a strong first half
of 2020.
-- In GBM Other, Principal Investments revenue increased by
$0.2bn, reflecting revaluation gains on several funds, mainly in
Europe.
Half-year to 1H21 vs 1H20
-------------------------------------------
30 Jun 30 Jun 31 Dec
2021 2020 2020
Management view of adjusted revenue(1,
2) <> $m $m $m $m %
------------------------------------------- ------ ------ ------ ------- ---------
Markets and Securities Services 4,432 5,029 4,028 (597) (12)
-------------------------------------------
- Securities Services 924 985 862 (61) (6)
------------------------------------------- ------ ------ ------ ------- -------
- Global Debt Markets 713 1,040 426 (327) (31)
------------------------------------------- ------ ------ ------ ------- -------
- Global Foreign Exchange 1,680 2,486 1,679 (806) (32)
------------------------------------------- ------ ------ ------ ------- -------
- Equities 642 313 540 329 >100%
------------------------------------------- ------ ------ ------ ------- ---------
- Securities Financing 438 581 414 (143) (25)
------------------------------------------- ------ ------ ------ ------- -------
- Credit and funding valuation adjustments 35 (376) 107 411 >100%
-------------------------------------------
Banking 3,291 3,563 3,230 (272) (8)
-------------------------------------------
- Global Trade and Receivables Finance 358 364 348 (6) (2)
------------------------------------------- ------ ------ ------ ------- -------
- Global Liquidity and Cash Management 892 1,115 932 (223) (20)
------------------------------------------- ------ ------ ------ ------- -------
- Credit and Lending 1,312 1,353 1,354 (41) (3)
-------------------------------------------
- Capital Markets and Advisory 610 534 545 76 14
------------------------------------------- ------ ------ ------ ------- -------
- Other(3) 119 197 51 (78) (40)
------------------------------------------- ------ ------ ------ ------- -------
GBM Other 155 (18) 65 173 >100%
-------------------------------------------
- Principal Investments 237 (11) 124 248 >100%
------------------------------------------- ------ ------ ------ ------- ---------
- Other(4) (82) (7) (59) (75) >(100)%
------------------------------------------- ------ ------ ------ ------- ---------
Net operating income(5) 7,878 8,574 7,323 (696) (8)
1 With effect from the first quarter of 2021, management view of
adjusted revenue has been revised to align with changes to the
management responsibilities of the business and how we assess
business performance. Comparative data have been re-presented
accordingly.
2 From 1 June 2020, revenue from Issuer Services, previously
reported in Securities Services, was reported in Banking. This
resulted in $80m of revenue being recorded in Securities Services
in 1H20. Comparatives have not been re-presented.
3 Includes portfolio management, earnings on capital and other
capital allocations on all Banking products.
4 Includes notional tax credits and Markets Treasury, HSBC
Holdings interest expense and Argentina hyperinflation.
5 'Net operating income' means net operating income before
change in expected credit losses and other credit impairment
charges (also referred to as 'revenue').
Adjusted ECL were a net release of $0.4bn, compared with a
charge of $1.2bn in 1H20. ECL in 1H21 reflected the release of
stage 1 and stage 2 allowances as the economic outlook improved,
and benefited from a net release of provisions against specific
stage 3 customers. This compared with the significant build-up of
allowances in 1H20 as a result of the Covid-19 outbreak.
Adjusted operating expenses of $5.0bn were $0.2bn or 4% higher,
from an increased performance-related pay accrual of approximately
$0.3bn and higher technology investment. These were partly offset
by the impact of our cost-saving initiatives.
Divisional highlights
48%
Percentage of adjusted revenue generated in Asia in 1H21 (1H20:
49%).
$10tn
Assets under custody in Securities Services, our highest ever
balance.
Adjusted profit before tax <>
($bn)
$3.3bn
Adjusted net operating income <>
($bn)
$7.9bn
Corporate Centre
Contribution to Group 1H21 adjusted profit before
tax<>
% contribution
to Group
12%
Corporate Centre performance was broadly in line with 1H20 and
included higher share of profit from associates and joint
ventures.
The results of Corporate Centre primarily comprise the share of
profit from our interests in our associates and joint ventures. It
also includes Central Treasury, stewardship costs and consolidation
adjustments.
Adjusted results<> 1H21 vs
Half-year to 1H20
-------------------
30 Jun 30 Jun 31 Dec
2021 2020 2020
$m $m $m $m %
------------------- ------ ------ ------ ----- --------
Net operating
income (133) 3 (308) (136) >(100)
------------------- ------ ------ ------ ----- --------
ECL 4 (13) 14 17 >100
------------------- ------ ------ ------ ----- --------
Operating expenses (112) 260 (673) (372) >(100)
------------------- ------ ------ ------ ----- --------
Share of profit
in associates
and JVs 1,644 1,057 1,125 587 56
------------------- ------ ------ ------ ----- ------
Profit before
tax 1,403 1,307 158 96 7
------------------- ------ ------ ------ ----- ------
RoTE excluding
significant items
(annualised,
YTD) (%) 5.1 4.7 3.1
------------------- ------ ------ ------ ----- --------
Financial performance
Adjusted profit before tax of $1.4bn was $96m or 7% higher than
in 1H20, as higher income from the share of profit in associates
and joint ventures was partly offset by the fall in adjusted
revenue and higher adjusted operating expenses.
Adjusted revenue decreased by $136m, mainly in Central Treasury,
from a net adverse fair value movement of $249m relating to the
economic hedging of interest rate and exchange rate risk on our
long-term debt with associated swaps. This was partly offset by
higher revenue from our legacy portfolios, as 1H20 included
valuation losses as a result of the Covid-19 outbreak.
Adjusted operating expenses, which are stated after recovery of
costs from our global businesses, increased by $372m due to a
reduction in recoveries from our global businesses, higher
expenditure on regulatory projects and a higher performance-related
pay accrual.
Adjusted share of profit from associates and joint ventures of
$1.6bn increased by $0.6bn. This reflected increases in the share
of profit from BoCom, and also from SABB, reflecting improved
market conditions and a better economic outlook. Additionally, the
share of profit increased in Europe by $0.2bn, mainly from a UK
associate, reflecting a recovery in asset valuations relative to
1H20.
Half-year to 1H21 vs 1H20
30 Jun 30 Jun 31 Dec
2021 2020 2020
Management view of adjusted revenue
<> $m $m $m $m %
------ ------ ------ --------- ---------
Central Treasury(1) (54) 201 (44) (255) >(100)%
------------------------------------ ------ ------ ------ --------- ---------
Legacy portfolios 16 (52) 31 68 >100%
Other(2) (95) (146) (295) 51 35
------------------------------------ ------ ------ ------ --------- -------
Net operating income(3) (133) 3 (308) (136) >(100)%
------------------------------------ ------ ------ ------ --------- ---------
1 Central Treasury includes adverse valuation differences on
issued long-term debt and associated swaps of $54m (1H20: gains of
$195m; 2H20: losses of $44m).
2 Revenue from Markets Treasury, HSBC Holdings net interest
expense and Argentina hyperinflation are allocated out to the
global businesses, to align them better with their revenue and
expense. The total Markets Treasury revenue component of this
allocation for 1H21 was $1,320m (1H20: $1,582m; 2H20: $1,287m).
3 'Net operating income' means net operating income before
change in expected credit losses and other credit impairment
charges (also referred to as 'revenue').
Risk overview
Active risk management helps us to achieve our strategy, serve
our customers and communities and grow our business safely.
Managing risk
Banks continued to play an expanded role in supporting society
and customers during the first half of 2021 due to the
unprecedented global economic events caused by the Covid-19
outbreak. Many of our customers' business models and income were
impacted by the global economic downturn, requiring them to take
significant levels of support from both governments and banks.
Throughout the pandemic, we have continued to support our
customers and adapted our operational processes. We have maintained
high levels of service as our people, processes and systems
responded to the required changes.
The financial performance of our operations varied in different
geographies, but our balance sheet and liquidity remained strong.
This helped us to support our customers both during periods of
government-imposed restrictions and when these restrictions were
eased.
To help meet the additional challenges created by the Covid-19
pandemic, we supplemented our approach to risk management with
additional tools and practices, and these continue to be in place
today. We increased our focus on 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.
During the first half of 2021, metrics monitoring the change in
expected credit losses and other credit impairment charges returned
to within their defined risk appetite thresholds. This was achieved
by adapting our strategy in the context of the Covid-19 pandemic
and recovery; enhancing our risk monitoring; developing management
actions, such as reviews of our portfolios that are highly
vulnerable to general economic conditions; and implementing
additional review measures for new credit requests.
Key risk appetite metrics
Risk
Component Measure appetite 1H21
------------- ------------------------------- ---------- --------
CET1 ratio - end point
Capital basis >=13.0% 15.6%
------------- ------------------------------- ---------- ----
Change
in expected
credit
losses Change in expected credit
and other losses and other credit
credit impairment charges
impairment as a % of advances: Retail
charges (WPB) <=0.50% 0.13%
------------- ------------------------------- ---------- --------
Change in expected credit
losses and other credit
impairment charges
as a % of advances: Wholesale
(GBM, CMB) <=0.45% 0.10%
------------------------------- ------------------------ --------
Stress tests
We regularly conduct stress tests to assess the resilience of
our balance sheet and our capital adequacy, as well as to provide
actionable insights into how key elements of our portfolios may
behave during crises. We use the outcomes to calibrate our risk
appetite and to review the robustness of our strategic and
financial plans, helping to improve the quality of management's
decision making. Stress testing analysis assists management in
understanding the nature and extent of vulnerabilities to which the
Group is exposed. The results from the stress tests also drive
recovery and resolution planning to help enhance the Group's
financial stability under various macroeconomic scenarios. The
selection of stress scenarios is based upon the identification and
assessment of our top and emerging risks identified and our risk
appetite.
In 2021, the Bank of England ('BoE') required all major UK banks
to conduct a solvency stress test to assess whether the capital
buffers that banks had built during the Covid-19 outbreak are large
enough to deal with how a prevailing stress period could unfold.
This exercise differed from previous BoE stress tests, which were
used to determine the capital requirements for participating banks.
The 2021 solvency stress test incorporated a 'double dip' scenario,
whereby an economy faces a recession and then a partial or full
recovery for a short period of time before entering a second
recessionary period. Additionally, it represented an
intensification of the macroeconomic shocks seen in 2020, with
economic weaknesses persisting across the world, leading to ongoing
weaknesses in global GDP.
In addition to the BoE requirement for the solvency stress test,
we conducted our own internal stress test, which explored potential
impacts for key vulnerabilities to which the Group is exposed,
including geopolitical impacts and the Covid-19 outbreak. The
internal stress test considered the impacts of various risk
scenarios across all risk types and on capital resources. The
results of the internal stress test were shared with senior
management, and showed that after taking appropriate actions, the
Group would remain adequately capitalised.
We have also continued to build our climate stress testing and
scenario analysis capabilities in preparation for regulatory stress
tests and to further enhance our understanding of our climate risk
exposures for use in risk management and business decision
making.
Our operations
We remain committed to investing in the reliability and
resilience of our IT systems and critical services that support all
parts of our business. We do so to protect our customers,
affiliates and counterparties, and to help ensure that we minimise
any disruption to services that could result in reputational and
regulatory consequences. We continue to operate in a challenging
environment in which cyber threats are prevalent. We continue to
invest in business and technical controls to defend against these
threats.
We are making progress with the implementation of our business
transformation plans, while seeking to ensure that we are able to
manage safely the risks of the restructuring, which include
execution, operational, governance, reputational, conduct and
financial risks. We have put in place support to help our people,
particularly when we are unable to find alternative roles for
them.
For further details on our risk management framework and risks
associated with our banking and insurance manufacturing operations,
see pages 107 and 118 of the Annual Report and Accounts 2020,
respectively.
Risks related to Covid-19
The Covid-19 outbreak and its effect on the global economy have
continued to impact our customers, and the future effects of the
pandemic remain uncertain. The economic impact of the pandemic has
affected regions at different times and to varying degrees.
The varying government support measures and restrictions put in
place in response to the outbreak have created additional
challenges, given the rapid pace of change and significant
operational demands. The speed at which countries and territories
are able to return to pre-Covid-19 levels of economic activity will
vary based on the levels of continuing government support offered,
the level of infection, and ability of governments to roll out
vaccines across each country. Renewed outbreaks, including as a
result of the emergence of new variants of the virus, emphasise the
ongoing threat of Covid-19. A full return to pre-pandemic levels of
social interaction across all our key markets is unlikely in the
short to medium term, despite the easing of government restrictions
in some countries. We continue to monitor the situation.
While the approval and roll-out of vaccines during the first
half of 2021 raised hopes that government restrictions will be
lifted across developed markets by the end of 2021, there has been
significant divergence in the speed at which vaccines have been
deployed across countries. Most developed countries are now
offering vaccines to a large proportion of their populations,
although take-up rates vary both within countries and across age
groups. Many less developed countries have struggled to secure
supplies and are at a much earlier stage of their vaccination
programmes. There remains uncertainty regarding the efficacy and
side effects of the vaccines over various time horizons,
particularly as new variants of the virus emerge. Tensions have
been evident and may persist as countries compete for access to the
array of vaccines either under development, pending approval or
already approved.
The operational support functions on which the Group relies are
based in a number of countries worldwide, some of which, notably
India, have been particularly affected by the Covid-19 outbreak and
have recently experienced a significant increase in infection
rates. As a result of the pandemic, business continuity responses
have been implemented and the majority of service level agreements
have been maintained in locations where the Group operates. We
continue to monitor the situation closely, in particular in those
countries and regions where Covid-19 infections are most
prevalent.
The outbreak has also resulted in changes in the behaviours of
our retail and wholesale customers, leading some to require payment
holidays and others to miss or delay payments on loan balances.
Alongside the number of government support measures in place, these
factors have impacted the performance of our ECL models, requiring
enhanced monitoring of model outputs and use of compensating
controls. These include management judgemental adjustments based on
the expert judgement of senior credit risk managers and the
recalibration of key loss models to take into account the impacts
of Covid-19 on critical model inputs. In addition, we have been
responding to complex conduct considerations and heightened risk of
fraud related to the varying government support measures and
restrictions. The continued economic uncertainty from the Covid-19
outbreak could adversely impact our revenue assumptions, notably
volume growth.
For further details on our approach to the risks related to
Covid-19, see 'Areas of special interest' on page 55.
Geopolitical and macroeconomic risks
The trade and regulatory environment is increasingly fragmented,
as markets lay out plans to recover from the Covid-19 outbreak and
look to strengthen supply chain networks. Heightened geopolitical
tensions will continue to impact business sentiment, while the
relationship between the UK and the EU may take time to settle
following the UK's departure from the EU, despite the signing of
the Trade and Cooperation Agreement at the end of 2020. Central
bank interest rates remain at historically low levels, although a
vaccine-led economic recovery and rising inflation indicators have
contributed to an increase in interest rate yields and a steepening
of yield curves in our major markets in the first half of 2021.
Monetary policies have remained very accommodative during this
period, but rising inflation is posing a policy dilemma for some
central banks.
Potential changes to tax legislation and tax rates in the
countries in which we operate could increase the Group's effective
tax rate in future periods, as governments in many countries seek
revenue sources to pay for the Covid-19 support packages that they
have implemented. An OECD initiative to introduce a global minimum
tax rate reached agreement on the key principles and could
significantly increase the Group's tax charge if implemented.
Geopolitical tensions could have potential ramifications for the
Group and its customers. Developments in Hong Kong, the US approach
to strategic competition with China, supply chain restrictions,
claims of human rights violations, diplomatic tensions between
China and the UK, the EU, India and other countries, alongside
other potential areas of tension may affect the Group by creating
regulatory, reputational and market risks. The US and recently the
UK, EU, Canada and other US allies acting in concert have imposed
various sanctions and trade restrictions on Chinese persons and
companies, and the US continues to advance development of its
framework for strategic competition with China. Certain US measures
are of particular relevance, including the Hong Kong Autonomy Act
and Executive Order 13959, as amended, as are the promulgation and
use of US, EU and UK human rights-based sanctions. China has
subsequently announced a number of sanctions and trade restrictions
and promulgated laws in response to foreign sanctions and trade
restrictions against China. There is also increasing discussion in
the US and Europe on multilateral efforts to address certain issues
with China, which may create a more complex operating environment
for the Group and its customers. We continue to carefully monitor
and seek to manage the potential implications of these
developments.
The financial impact to the Group of geopolitical risks in Asia
is heightened due to the strategic importance of the region, and
Hong Kong in particular, in terms of profitability and prospects
for growth. Business sentiment in some sectors in Hong Kong remains
dampened, although the financial services sector has remained
strong and has benefited from stable liquidity conditions.
For further details on our approach to geopolitical and
macroeconomic risks, see 'Areas of special interest' on page
55.
Ibor transition
During the first half 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 from legacy Ibor products - has continued to engage with
our clients, and to implement the required IT and operational
changes necessary to facilitate an orderly transition from Ibors to
RFRs, or alternative benchmarks, such as policy interest rates. In
March 2021, the interest rate benchmark administrator, ICE
Benchmark Administration Limited ('IBA'), announced that the
publication of 24 of the 35 main Libor currency interest rate
benchmark settings would cease at the end of 2021 and that US
dollar Libor will continue to be published for the most widely used
settings until 30 June 2023. Therefore, the Group's transition
programme is focusing on client engagement for Ibors demising in
2021. Additionally, the Group has met industry guidelines on the
cessation of new Ibor contract issuance in Ibors demising in 2021,
including but not limited to, the end of the first and second
quarter cessation dates for new sterling Libor-linked products.
For Ibors demising in 2021, HSBC plans to transition all viable
legacy Ibor contracts by 30 September 2021 to the extent possible,
in line with RFR working group guidelines. However, the Group's
transition plans are dependent on the readiness of our customers
and the market, which is likely to result in operational activities
potentially extending beyond 30 September 2021, and being
concentrated into the latter part of 2021. All required contractual
repapering and rebooking activities will be managed through
bilateral and bulk transition processes, with fallback provisions
negotiated where active transition is not achieved. However, to
allow for a smooth transition of all contracts, we may also need to
rely on some jurisdictional legislative solutions, such as the
proposed 'synthetic'-based Libor methodology in the UK.
For further details on our approach to Ibor transition, see
'Areas of special interest' on page 57.
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 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 HSBC.
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 110 of the Annual Report
and Accounts 2020.
Risk Trend Mitigants
------------------------- ----- --------------------------------------------------------------
Externally driven
------------------------- -----
Geopolitical and > We continue to closely monitor emerging risks posed
macroeconomic by an evolving geopolitical landscape, as well as
risks macroeconomic risks, and adopt commensurate procedures
and controls based on an assessment of the impacts
these may have on our portfolios. In spite of a
rapid economic recovery during the first half of
2021 in many of our markets and a reduced credit
stress in our portfolios, we maintain heightened
monitoring activities to identify sectors and customers
experiencing financial difficulties as a result
of the Covid-19 outbreak. In light of continued
geopolitical tensions, we continue to assess those
sectors likely to be particularly impacted by a
resulting proliferation of laws and regulatory actions.
------------------------- -----
Cyber threat and > We protect HSBC and our customers by strengthening
unauthorised access our cyber defences, helping us to execute our business
to systems priorities safely and keep our customers' information
secure. We focus on controls to prevent, detect
and mitigate the impacts of persistent and increasingly
advanced cyber threats with a specific emphasis
on vulnerability management, malware defences, protections
against unauthorised access and third-party risk.
We closely monitor the continued dependency on widespread
remote working and online facilities.
------------------------- -----
Regulatory developments > We closely monitor for regulatory developments to
including conduct, ensure they are interpreted and implemented effectively
with adverse impact and in a timely way. We also engage with regulators,
on business model policy makers and standard setters as appropriate,
and profitability to help shape new regulatory requirements. Key themes
currently driving the regulatory compliance agenda
include: consumer protection and customer vulnerability;
the impact of digital services and innovation; and
ESG matters, with a particular focus on climate
risk.
------------------------- -----
Financial crime > We continued to support our customers and the business
risk environment throughout the Covid-19 pandemic, while making improvements
to our financial crime controls. We updated and
refreshed our fraud controls. We continued to invest
in advanced analytics and artificial intelligence
as key elements of our next generation of tools
to fight financial crime.
------------------------- -----
Ibor transition ^ We remain focused on completing the provision of
alternative near-RFR products - and the supporting
processes and systems - to replace all outstanding
Ibor-linked contracts that are on a demise path,
within the required timelines. Due to delays in
market readiness, we are preparing for an increased
risk that the transition of outstanding contracts
will be concentrated in the latter part of 2021.
------------------------- -----
Climate-related ^ We have established a climate risk team to support
risks our climate strategy and to respond to regulatory
expectations. We have integrated climate risk into
the Group risk management framework and enhanced
our climate risk appetite statement with quantitative
metrics. We are developing a training programme
for all levels of employees across the Group. We
continue to roll out customer transition risk questionnaires,
assess physical risk to our mortgage portfolio,
and build scenario analysis capabilities in preparation
for regulatory stress tests.
------------------------- -----
Internally driven
--------------------------------
IT systems infrastructure > We continue to monitor and improve IT systems and
and resilience network resilience to minimise service disruption
and improve customer experience. To support the
business strategy, we strengthened our end-to-end
service management, build and deployment controls
and system monitoring capabilities.
------------------------- -----
Risks associated > We monitor workforce capacity and capability requirements
with workforce in line with our published growth strategy. We have
capability, capacity put in place measures to support our people to work
and environmental safely during the Covid-19 outbreak, and to integrate
factors with potential them back into the workplace as government restrictions
impact on growth ease. We monitor people risks that may arise due
to business transformation to help sensitively manage
redundancies and support impacted employees.
------------------------- -----
Risks arising > The impacts of the Covid-19 pandemic on the delivery
from the receipt of services to the Group are being closely monitored,
of services from with businesses and functions taking appropriate
third parties action where needed. We have continued to enhance
our third-party risk management programme to help
ensure engagements comply with our third-party risk
policy and required standards.
------------------------- -----
Model risk management > We continue to strengthen our oversight of models.
A new model risk policy, including updated controls
around the monitoring and use of models, has been
implemented. We are redeveloping our capital models
to reflect the evolving regulatory requirements,
and in some cases the potential effects of the Covid-19
outbreak. In addition, Ibor models impacted by the
switch to new alternative measures are being redeveloped.
We have enhanced the oversight of models used in
Sarbanes-Oxley processes in light of potential impacts
from the uncertain external environment on the model
outcomes.
------------------------- -----
Data management > We continue to remediate the control environment
for data-related risks with focused investments
in data governance, data usage, data integrity,
data privacy and information lifecycle management.
In the first half of 2021, our data strategy was
refreshed to align to three pillars: protect, connect
and unlock.
------------------------- -----
Change execution ^ We continue to monitor and manage our change execution
risk risk, including our capacity and resources to meet
the increased levels of change for 2021 associated
with the delivery of our strategic transformation
and regulatory requirements. We are working to deliver
sustainable change efficiently and safely, with
a new change framework launched in May 2021.
^ Risk heightened during the first half of 2021
> Risk remained at the same level as 2020
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