TIDMHSBA
RNS Number : 5061U
HSBC Holdings PLC
01 August 2022
HSBC Holdings plc
Interim Report 2022
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 2022 Interim Report (the "Interim Report") for the
half-year ended 30 June 2022.
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 2022
Opening up a world of opportunity
Contents
Overview
2 Highlights
4 Group Chief Executive's review
8 Our strategy
11 How we do business
13 Financial overview
18 Global businesses
25 Risk overview
Interim management report
29 Financial summary
36 Global businesses
46 Geographical regions
56 Reconciliation of alternative performance measures
59 Risk
59 - Key developments in the first half of 2022
59 - Areas of special interest
63 - Credit risk
89 - Treasury risk
97 - Market risk
99 - Insurance manufacturing operations risk
102 Directors' responsibility statement
Interim condensed financial statements
103 Independent review report to HSBC Holdings plc
104 Interim condensed financial statements
110 Notes on the interim condensed financial statements
Additional information
131 Shareholder information
137 Forward-looking statements
138 Certain defined terms
139 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 16.
In this document we use the following abbreviations to refer to
reporting periods:
1H22 First half of 2022 2Q22 Second quarter of 2022
2H21 Second half of 2021 1Q22 First quarter of 2022
1H21 First half of 2021 2Q21 Second quarter of 2021 1Q21 First
quarter of 2021
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 18
to 24 we provide an overview of our performance in the first half
of 2022 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.
Our purpose, ambition and values reflect our strategy and
support our focus on execution.
Read more on our purpose and values on pages 4 and 15 of our
Annual Report and Accounts 2021.
Key themes
Financial performance
Reported profit after tax in 1H22 increased compared with 1H21,
and included a $1.8bn gain on the recognition of a deferred tax
asset. Reported profit before tax decreased, primarily as a result
of a net charge for expected credit losses and other credit
impairment charges, compared with a net release in 1H21. In
recognition of the impact of our growth and transformation
programmes, as well as the improved global interest rate outlook,
we have updated our returns target, and are now targeting a return
on average tangible equity of at least 12% from 2023 onwards.
Read more on page 13.
Strategic transformation
We made good progress on our strategic growth priorities,
including in our Asia Wealth business through a combination of
bolt-on acquisitions and continued investment. To support growth,
we continue to deliver on our transformation initiatives. Our
cost-reduction programmes have now generated cumulative savings of
$4.4bn and we are dedicating an increasing share of expenditure to
technology to drive operating productivity and improved customer
outcomes.
Read more on page 8.
Climate transition
We continued to make progress towards our net zero ambition,
with a focus on financing the transition to a net zero global
economy. We have set 2030 targets to reduce our on-balance sheet
financed emissions for two sectors, and are working on setting
targets for five new sectors for our next annual disclosures. In
March 2022, we set out three key steps to turn our net zero
ambition into business transformation, including a review to align
our key sector policies with net zero, starting with energy and
deforestation.
Read more on page 10.
Delivery against our financial targets
Return on average tangible equity (annualised) <>
9.9%
Revised target: >=12% from 2023 onwards (updated from
>=10% in the medium term).
(1H21: 9.4%)
Adjusted operating expenses <>
$15.4bn
Target: 2022 adjusted operating expenses in line with 2021.
(1H21: $15.5bn)
Gross risk-weighted asset reduction
$114bn
since the start of the programme.
Target: >$110bn by the end of 2022.
Common equity tier 1 capital ratio
13.6%
Target: >14%, managing in the range of 14% to 14.5% in the
medium term; and manage the range down further long term.
(31 December 2021: 15.8%)
Interim dividend per ordinary share for 1H22
$0.09
Further explanation of performance against Group financial
targets may be found on page 13.
Performance in 1H22
Reported profit after tax
$9.2bn
(1H21: $8.4bn)
Basic earnings per share
$0.42
(1H21: $0.36)
Gender diversity
32.5%
Women in senior leadership roles.
Target: 35% by 2025.
(31 December 2021: 31.7%)
Sustainable finance and investment
$170.8bn
Cumulative total provided and facilitated since January
2020.
Ambition: $750bn to $1tn by 2030.
(31 December 2021: $126.7bn)
Read more on our financial overview on page 13.
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
.
HSBC Holdings plc Interim Report 2022 1
Highlights
Performance in the first half of 2022 benefited from global
interest rate rises on revenue and strong cost discipline. The
impact of our growth and transformation programmes, as well as the
improved global interest rate outlook, have given us the confidence
to update our returns target.
Financial performance (1H22 vs 1H21)
-- Reported profit after tax increased by $0.8bn to $9.2bn. This
included a $1.8bn gain on the recognition of a deferred tax asset
from historical losses, as a result of improved profit forecasts
for the UK tax group, which has accelerated the expected
utilisation of these losses. Reported profit before tax decreased
by $1.7bn to $9.2bn, reflecting a net charge for expected credit
losses and other credit impairment charges ('ECL'), compared with a
net release in 1H21. Adjusted profit before tax fell by $0.9bn to
$10.7bn.
-- Reported revenue decreased marginally to $25.2bn, primarily
due to foreign currency translation impacts and 1H22 losses on
planned business disposals. Adjusted revenue increased by 4% to
$25.7bn, driven by higher net interest income, reflecting interest
rate rises a nd balance sheet growth, and strong growth in revenue
from Global Foreign Exchange in Global Banking and Markets ('GBM').
This was partly offset by unfavourable market impacts in insurance
manufacturing in Wealth and Personal Banking ('WPB').
-- Net interest margin ('NIM') of 1.30% rose by 9 basis points ('bps').
-- Reported ECL were a net charge of $1.1bn, reflecting stage 3
charges of $0.8bn, as well as additional allowances to reflect
heightened economic uncertainty and inflation, in part offset by
the release of most of our remaining Covid-19 reserves. This
compared with a $0.7bn net release in 1H21.
-- Reported operating expenses decreased by 4%, primarily due to
foreign currency translation impacts. The reduction also reflected
the impact of our cost-saving initiatives and a lower
performance-related pay accrual, which partly offset increased
investment and inflationary impacts. Adjusted operating expenses
decreased by 1%.
-- Reported customer lending decreased by $17bn since 31
December 2021 due to foreign currency translation impacts. Adjusted
customer lending increased by $34bn, reflecting growth in
Commercial Banking ('CMB') and GBM, including trade lending, and
growth in WPB from mortgages and unsecured lending.
-- Return on average tangible equity ('RoTE') (annualised) of
9.9% increased by 0.5 percentage points compared with 1H21,
including a 2.3 percentage point annualised impact of the deferred
tax asset gain.
-- Common equity tier 1 ('CET1') ratio of 13.6% decreased by 2.2
percentage points from 31 December 2021. This reflected a reduction
in CET1 capital of $16.8bn, which included a $4.8bn valuation loss
in equity from financial instruments as yield curves steepened, and
a $13.4bn increase in risk-weighted assets ('RWAs') primarily from
1Q22 regulatory changes. The reduction also included the share
buy-back of up to $1bn announced at our full-year 2021 results.
-- The Board has approved an interim dividend for 1H22 of $0.09
per ordinary share, to be paid in cash.
Financial performance (2Q22 vs 2Q21)
-- Reported profit after tax increased by $1.9bn to $5.8bn,
which included a $1.8bn deferred tax gain. Reported profit before
tax was stable at $5.0bn. Net ECL charges of $0.4bn compared with
2Q21 net ECL releases of $0.3bn. This movement was broadly offset
by reported revenue growth, mainly due to interest rate rises,
despite an adverse movement in market impacts in insurance
manufacturing, foreign currency translation impacts and losses on
planned business disposals. In addition, reported operating
expenses were lower due to foreign currency translation impacts,
our cost-saving initiatives and strong cost discipline mitigating
increased investment and inflation.
Outlook
-- The revenue outlook remains positive. Based on the current
market consensus for global central bank rates and our continued
mid-single-digit percentage lending growth expectations for 2022,
we would expect net interest income of at least $31bn for 2022 and
at least $37bn for 2023 (based on average June rates of foreign
exchange on an IFRS 4 basis(1) ).
-- We continue to expect our ECL charges to normalise towards
30bps of average loans in 2022, recognising the possible risk of
further deterioration in the consensus economic outlook.
-- We remain confident in our ability to deliver 2022 adjusted
operating expenses in line with 2021, despite inflationary
pressures. We now aim to deliver 2023 adjusted cost growth of
around 2%, compared with 2022 on an IFRS 4 basis(1) , and intend to
maintain strict cost discipline thereafter.
-- With profit generation and continued RWA actions, we aim to
manage back to within our 14% to 14.5% CET1 target range during the
first half of 2023. While further share buy-backs remain unlikely
in 2022, for future years we expect to return to shareholders
excess capital over and above what is required for executing the
strategy. The forecast loss on the disposal of our French retail
operations is expected to impact our CET1 ratio by approximately
30bps in the second half of 2022.
-- The impact of our growth and transformation programmes over
the last two years has given us the confidence to update our
returns guidance. Subject to the current path implied by the market
for global policy rates, we are now targeting a RoTE of at least
12% from 2023 onwards, noting continued macroeconomic
uncertainty.
-- Given the current returns trajectory, we expect a dividend
payout ratio of around 50% for 2023 and 2024. We also intend to
revert to paying quarterly dividends in 2023, although we expect
the quarterly dividend for the first three quarters to initially be
reinstated at a lower level than the historical quarterly dividend
of $0.10 per share paid up to the end of 2019.
1 Following the implementation of IFRS 17 on 1 January 2023,
directly attributable costs will be incorporated in the contractual
service margin and, as recognised, will be presented as a deduction
to reported revenue. This will result in a reduction in reported
operating expenses.
2 HSBC Holdings plc Interim Report 2022
Key financial metrics
Half-year to
30 Jun 30 Jun 31 Dec
2022 2021 2021
------------------ ---------------------------------- ----------------------------------- -------------------------------
Reported results
------------------ ---------------------------------- ----------------------------------- -------------------------------
Reported revenue
($m) 25,236 25,551 24,001
------------------ ---------------------------------- ----------------------------------- -------------------------------
Reported profit
before tax ($m) 9,176 10,839 8,067
------------------ ---------------------------------- ----------------------------------- -------------------------------
Reported profit
after tax ($m) 9,215 8,422 6,271
------------------ ---------------------------------- ----------------------------------- -------------------------------
Profit
attributable to
the ordinary
shareholders
of the parent
company ($m) 8,289 7,276 5,331
------------------ ---------------------------------- ----------------------------------- -------------------------------
Cost efficiency
ratio (%) 65.1 66.9 73.1
------------------ ---------------------------------- ----------------------------------- -------------------------------
Net interest
margin (%)(1) 1.30 1.21 1.20
------------------ ---------------------------------- ----------------------------------- -------------------------------
Basic earnings per
share ($) 0.42 0.36 0.26
------------------ ---------------------------------- ----------------------------------- -------------------------------
Diluted earnings
per share ($) 0.41 0.36 0.26
Alternative
performance
measures
------------------ ---------------------------------- ----------------------------------- -------------------------------
Adjusted revenue
($m) 25,690 24,734 23,577
------------------ ---------------------------------- ----------------------------------- -------------------------------
Adjusted profit
before tax ($m) 10,673 11,538 9,681
Adjusted cost
efficiency ratio
(%) 59.9 62.7 65.5
------------------ ---------------------------------- ----------------------------------- -------------------------------
Expected credit
losses and other
credit
impairment
charges ('ECL')
(annualised)
as % of average
gross loans and
advances
to customers (%) 0.21 (0.14) (0.03)
------------------ ---------------------------------- ----------------------------------- -------------------------------
Return on average
ordinary
shareholders'
equity
(annualised)
(%)(1) 9.7 8.4 7.1 %
------------------ ---------------------------------- ----------------------------------- -------------------------------
Return on average
tangible equity
(annualised)
(%)(1,2) 9.9 9.4 8.3 %
------------------ ---------------------------------- ----------------------------------- -------------------------------
At
--------------------------------------------------------------------------------------------------------
30 Jun 30 Jun 31 Dec
2022 2021 2021
------------------ ---------------------------------- ----------------------------------- -------------------------------
Balance sheet
------------------ ---------------------------------- ----------------------------------- -------------------------------
Total assets ($m) 2,985,420 2,976,005 2,957,939
------------------ ---------------------------------- ----------------------------------- -------------------------------
Net loans and
advances to
customers ($m) 1,028,356 1,059,511 1,045,814
------------------ ---------------------------------- ----------------------------------- -------------------------------
Customer accounts
($m) 1,651,301 1,669,091 1,710,574
------------------ ---------------------------------- ----------------------------------- -------------------------------
Average
interest-earning
assets ($m) 2,233,321 2,188,991 2,209,513
------------------ ---------------------------------- ----------------------------------- -------------------------------
Loans and advances
to customers as %
of
customer accounts
(%) 62.3 63.5 61.1
------------------ ---------------------------------- ----------------------------------- -------------------------------
Total
shareholders'
equity ($m) 188,382 198,218 198,250
------------------ ---------------------------------- ----------------------------------- -------------------------------
Tangible ordinary
shareholders'
equity
($m) 148,308 157,985 158,193
------------------ ---------------------------------- ----------------------------------- -------------------------------
Net asset value
per ordinary
share at period
end ($) 8.41 8.69 8.76
------------------ ---------------------------------- ----------------------------------- -------------------------------
Tangible net asset
value per
ordinary share
at period end ($) 7.48 7.81 7.88
Capital, leverage
and liquidity
------------------ ---------------------------------- ----------------------------------- -------------------------------
Common equity tier
1 capital ratio
(%)(3,4) 13.6 15.6 15.8
------------------ ---------------------------------- ----------------------------------- -------------------------------
Risk-weighted
assets ($m)(3,4) 851,743 862,292 838,263
------------------ ---------------------------------- ----------------------------------- -------------------------------
Total capital
ratio (%)(3,4) 18.6 21.0 21.2
------------------ ---------------------------------- ----------------------------------- -------------------------------
Leverage ratio
(%)(3,4) 5.5 5.3 5.2
------------------ ---------------------------------- ----------------------------------- -------------------------------
High-quality
liquid assets
(liquidity value)
($bn)(4) 656.6 659.3 717.0
------------------ ---------------------------------- ----------------------------------- -------------------------------
Liquidity coverage
ratio (%)(4) 134 134 138
Share count
------------------ ---------------------------------- ----------------------------------- -------------------------------
Period end basic
number of $0.50
ordinary
shares
outstanding
(millions) 19,819 20,223 20,073
------------------ ---------------------------------- ----------------------------------- -------------------------------
Period end basic
number of $0.50
ordinary
shares
outstanding and
dilutive
potential
ordinary shares
(millions) 19,949 20,315 20,189
------------------ ---------------------------------- ----------------------------------- -------------------------------
Average basic
number of $0.50
ordinary
shares
outstanding
(millions) 19,954 20,211 20,183
------------------ ---------------------------------- ----------------------------------- -------------------------------
Dividend per
ordinary share
(in respect
of the period)
($) 0.09 0.07 0.18
------------------ ---------------------------------- ----------------------------------- -------------------------------
For reconciliations of our reported results to an adjusted
basis, including lists of significant items, see page 37.
Definitions and calculation of other alternative performance
measures are included in our 'Reconciliation of alternative
performance measures' on page 56.
1 For these metrics, half-year to 31 December 2021 is calculated
on a full-year basis and not a 2H21 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 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 94. The leverage
ratio is calculated using the end point definition of capital and
the IFRS 9 regulatory transitional arrangements, in line with the
UK leverage rules that were implemented on 1 January 2022, and
excludes central bank claims. Comparatives for 2021 are reported
based on the disclosure rules in force at that time, and include
claims on central banks. References to EU regulations and
directives (including technical standards) should, as applicable,
be read as references to the UK's version of such regulation and/or
directive, as onshored into UK law under the European Union
(Withdrawal) Act 2018, and subsequently amended under UK law.
4 Regulatory numbers and ratios are as presented at the date of
reporting. Small changes may exist between these numbers and ratios
and those subsequently submitted in regulatory filings. Where
differences are significant, we will restate in subsequent
periods.
HSBC Holdings plc Interim Report 2022 3
Group Chief Executive's review
By delivering our growth and transformation plans at pace, HSBC
has become a stronger, more international business capable of
achieving our best returns in a decade.
We are now two and a half years into our transformation
programme to make HSBC fit for the future. We still have more work
to do in the second half of this year - but we are now much better
positioned to meet the needs of our international customers and to
deliver higher returns for our shareholders.
The key to delivering our ambitions, now and in the future, is
to grow and transform HSBC at the same time. That was the focus of
the transformation programme we announced in February 2020, and of
the updated strategy we launched in February 2021. The progress we
have made in both regards gives us a strong starting point as we
enter the current interest rate cycle.
Our transformation agenda has been based around three things:
reshaping our portfolio, increasing our capital efficiency and
tightly managing our costs. In 2021, we accelerated this agenda in
response to Covid-19, under four strategic pillars: focus on our
strengths, digitise at scale, energise for growth, and lead the
transition to net zero.
In reshaping our portfolio, we have exited - or are exiting -
non-strategic businesses in the West and reallocated capital
towards areas of growth in Asia and the Middle East. In the first
half of 2022, we completed our acquisition of AXA Singapore,
increased our stake in HSBC Qianhai Securities to 90%, took full
ownership of our HSBC Life China insurance business, and agreed to
sell our businesses in Greece and Russia, subject to regulatory
approvals.
In terms of capital efficiency, our risk-weighted asset
reduction programme had reached $104bn by the end of 2021, against
a target of $110bn by the end of 2022. We have now reached a
cumulative total of $114bn of risk-weighted asset savings, and the
acceleration of restructuring across our US and Europe businesses
means we are on track to reach at least $120bn of savings by the
end of this year.
We continue to invest in areas of strength. Our investment to
boost our Asia wealth product and platform capabilities helped us
to attract strong levels of net new invested assets, and to grow
the value of new business in our insurance franchise in Asia by 41%
on last year's first-half. We achieved both of these despite the
temporary closure of parts of our branch network due to Covid-19
restrictions in Hong Kong.
Finally, we have continued to manage our cost base with
discipline. Our sustained investment to digitise HSBC at scale has
helped make us a more agile and efficient organisation. Our hybrid
working model has enabled us to reduce our office real estate
footprint by around a third since the start of 2020. At the same
time, rising customer demand for digital products and services has
enabled us to keep reducing and adapting our branch network in
response to changing customer behaviour.
Our cost reduction programmes remain on track. We have more to
do before December - particularly to further simplify the
organisation - but I remain committed to achieving stable adjusted
costs in 2022 compared with last year, despite rising
inflation.
4 HSBC Holdings plc Interim Report 2022
"The progress we have made in growing and transforming the
business gives us a strong starting point as we enter the current
interest rate cycle."
International
As a result of this work, HSBC is now a more international
business, focused on serving international customers alongside our
strong domestic franchises in Hong Kong and the UK. Serving
customers across borders is what we do best. It is how we can best
help them to grow, and, we believe, the fastest way to accelerate
returns for our shareholders.
HSBC has been internationally focused since it was founded 157
years ago to support trade between East and West. When we refreshed
our purpose 18 months ago, we spoke to tens of thousands of our
customers, colleagues and other stakeholders as we considered who
we are and what we do. Our refreshed purpose - 'opening up a world
of opportunity' - underlined that our internationalism remains the
most defining characteristic of our identity.
Our strength as a well connected, global institution is the main
reason our wholesale clients choose to bank with us and we are
determined to capitalise on the advantages our network gives us. As
part of this, we are exiting domestic wholesale client
relationships where returns are sub-standard in order to focus on
meeting the needs of international customers. We have repositioned
our US and Europe businesses in the same vein, completing the sale
of our US domestic mass market retail business in the first half of
the year, and remaining on track to complete the sale of our French
retail business in 2023.
This strategy is serving our customers and investors well. Even
as trade flows have changed and supply chains have shifted
post-pandemic, we have maintained our leadership in global trade
because our global network means we can go wherever trade goes. We
built on this further in the first-half, growing trade balances by
$5bn or 6% in a challenging global environment. We were also named
'Best Bank for Trade Finance' by Euromoney in July.
In a low interest-rate environment, our international network
was also a key factor in the good returns generated by our other
leading franchises. More than three quarters of our wholesale
client revenue is connected to our international network, and just
under half of our wholesale client business is cross-border. Our
ability to connect clients in the West with high-returning
opportunities in the East remains a key differentiator.
In Commercial Banking, adjusted revenue grew by 14% compared
with last year's first-half, with international business a strong
contributor. In particular, we saw adjusted revenue growth of 20%
in Global Trade and Receivables Finance, and of 42% in Global
Liquidity and Cash Management.
In Global Banking and Markets, adjusted revenue was up 4% on the
same period last year, due in part to a good performance in
transaction banking. In addition, the volume of client business
booked in Asia and the Middle East from clients managed in Europe
and the Americas grew by 8% on last year's first-half, underlining
the importance of our ability to connect global clients and
investors to those regions.
In Wealth and Personal Banking, we grew the number of customers
classed as international by 5%, compared with last year's
first-half. These include customers we bank in more than one
market, and customers who come from a country or territory other
than the market in which they now bank. According to our analysis,
the average international customer generates around double the
revenue of the average domestic customer. This is both our fastest
growing customer segment, and our most commercially attractive.
HSBC Holdings plc Interim Report 2022 5
Financial performance
Our first-half performance reflected much of the progress we
have made since 2020, with good organic growth across the business
and tight cost control. In addition, increased net interest income
reflected rising global interest rates, with further policy rate
rises anticipated over the coming months.
Overall, the Group delivered $9.2bn of reported profit before
tax and $10.7bn of adjusted profit before tax in the first half of
the year. Although this was lower than in the first half of 2021,
it reflected a more normalised level of expected credit losses
compared with the Covid-19 releases made last year, as well as the
macroeconomic impact of the Russia-Ukraine war.
All our regions were profitable in the first-half. This included
a strong performance from HSBC UK, which delivered adjusted profits
of $2.5bn, up 15% on the first half of last year. Our Asia business
delivered adjusted profits of $6.3bn, despite the impact of
Covid-19 in some of our biggest markets.
Adjusted revenue was up 4%, including growth of 15% in net
interest income compared with last year's first-half. Market
impacts meant wealth revenue was lower compared with the same
period last year, although our insurance business performed well.
In Commercial Banking, adjusted trade revenue was up 20% on the
prior year. Lending balances were up in all businesses in the
first-half, underlining that conversion of our business pipelines
remains strong.
Adjusted operating expenses fell by 1%, mainly as a result of
our cost-saving initiatives and a lower performance-related pay
accrual. We achieved this in spite of growing inflationary
pressures and rising investments in technology and our Asia Wealth
business.
Our CET1 ratio at the end of the first-half was 13.6%, down from
15.8% at the end of 2021. This reflected losses on financial
instruments held as hedges to our exposure to interest rate
movements, and an increase in RWAs due to regulatory changes and
foreign exchange movements. We expect to be back within our 14% to
14.5% CET1 target range in the first half of 2023.
We have announced an interim dividend of $0.09 per share, up
$0.02 per share on the first half of 2021. We have also now
completed both the $2bn buy-back programme we announced in 2021,
and the further $1bn buy-back we announced at our annual results in
February.
"Serving customers across borders is what we do best. It is how
we can best help them to grow, and, we believe, the fastest way to
accelerate returns for our shareholders."
Outlook
The revenue outlook has improved further since our full-year
2021 results, despite the uncertain macroeconomic environment.
In February, based on the implied market consensus policy rates
at the time, we expected to deliver a return on tangible equity of
at least 10% for 2023. We expect to make further progress with our
growth and transformation plans in the second half of 2022, and
believe we can restrict cost growth to around 2% in 2023, despite
inflationary pressures. Subject to the path currently being implied
by the market for policy rates, we are now confident of achieving a
return on tangible equity of at least 12% from 2023 onwards.
As a result of this higher returns trajectory, we are also able
to provide more specific guidance around dividends. We now expect
to deliver an improved payout ratio of around 50% for 2023 and
2024, subject to achieving our performance targets. We also intend
to revert to paying quarterly dividends from the start of 2023. We
remain committed to enabling our shareholders to benefit from the
growing returns that our strategy is delivering.
6 HSBC Holdings plc Interim Report 2022
Transition to net zero
The transition to net zero is a core part of our strategy, both
now and for the long term. Given our scale and footprint, we know
we have a major role to play in enabling the transition to a net
zero global economy. I am unequivocal about my own personal
commitment to this agenda, and that commitment is shared by the
Board and the senior management team. The urgent need to transition
the global economy to net zero is going to change the industrial
landscape completely. The overwhelming majority of our clients
understand this, and are actively planning and undertaking their
own transitions. It stands to reason that financing the new
business models and climate technologies they need presents a huge
commercial opportunity for HSBC.
I am pleased that we have continued to make good progress
towards our ambition of providing and facilitating between $750bn
and $1tn of sustainable finance and investment by 2030. By the end
of June, our cumulative total for sustainable finance and
investment since 2019 was more than $170.8bn. Earlier this year, we
published interim targets for on-balance sheet financed emissions
in the oil and gas, and power and utilities sectors. We also
committed to publish our first bank-wide climate transition plan in
2023, to phase down fossil fuel financing in line with
science-based targets, and to review and update our financing and
investment policies critical to net zero. These concrete actions
can have a significant impact in reducing global emissions and will
help ensure that HSBC remains a global climate leader.
Our people
Everything we have achieved over the last six months - and
everything we want to achieve over the next six months and beyond -
rests on the hard work, commitment and tireless efforts of my
colleagues around the world.
I am especially grateful to my colleagues for managing
considerable uncertainty and disruption in the first half of the
year, particularly those in Hong Kong and mainland China, who have
managed the impact of Covid-19 restrictions on our customers and
communities; in Sri Lanka, who have continued to deliver for our
customers during the current economic and political crisis; and in
Poland and eastern Europe, who have been volunteering to help those
directly impacted by the Russia-Ukraine war.
I am grateful too for the support that my colleagues have
offered to customers impacted by the ongoing cost of living crisis
gripping many of the world's major economies. These are testing
times for many of those who bank with us and we are committed to
helping support them through this difficult period.
My colleagues represent the very best of HSBC, and I am proud of
all they have done - and are doing - to support our customers,
communities and each other.
Noel Quinn
Group Chief Executive
1 August 2022
HSBC Holdings plc Interim Report 2022 7
Our strategy
We are actively implementing our strategy across the four
pillars aligned to our purpose, values and ambition announced in
February 2021.
Progress on our 2021 commitments
Since the announcement of our transformation programme in
February 2020 and the launch of our refreshed strategy in February
2021, we have made good progress in both growth and transformation
initiatives 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 2022, we saw strong underlying growth
across our businesses. In Wealth and Personal Banking, our net new
invested assets grew by $39bn despite adverse market conditions,
reflecting our focus on wealth over the past years. The insurance
value of new business in Asia increased by 41%, and lending
balances continued to grow. In Commercial Banking, we had strong
growth in both net interest income and fee income. Our Markets and
Securities Services business also had a strong 1H22 despite market
volatility.
We also made good progress on our inorganic activities. We
completed the acquisition of AXA Singapore and are on track to
complete the acquisition of L&T Investment Management in India.
We increased our equity shareholding in our Chinese securities
joint venture, HSBC Qianhai Securities, bringing our stake from 51%
to 90%, and also acquired the remaining 50% stake in HSBC Life
Insurance Company Limited in China. In the UK, we continued our
strong growth momentum in mortgages, with market share growing to
7.6% in 1H22, from 7.4% in 1H21, according to calculations based on
Bank of England market data.
In addition to growth, we continue to deliver on various
transformation initiatives. We are on track to keep our adjusted
costs in 2022 stable compared with 2021, while continuing to
dedicate a higher portion of expenditure into technology to drive
operating productivity and better customer outcomes.
To further support our areas of growth, we are continuing to
reposition our portfolio through the exits of the domestic mass
market retail business in the US and the retail banking business in
France. We are also planning to exit Greece and Russia, subject to
regulatory approval. The progress of our transformation programme
positions us well as we enter into a cycle of higher interest
rates. We have a higher deposit balance than a few years ago, lower
unsecured lending credit risk as a percentage of our retail loan
book and higher operating leverage through our cost programme. We
are well positioned to execute our growth and transformation
programme from this strong basis.
Shifting capital to areas with the highest returns and
growth
We aim to accelerate the shift of capital and resources to areas
that have demonstrated the highest returns and where we are
strongest, including to Asia and our higher-returning WPB business.
Fee-income growth continues to be our focus, although its share
relative to total adjusted revenue was impacted by recent interest
rate rises, which led to higher net interest income in 1H22. We aim
to pivot to a longer-term revenue mix of approximately 35% fees and
insurance income, given our investments across the three global
businesses on fee propositions.
Capital allocation and revenue concentration
Asia
(as a % of Group tangible equity)(1)
Wealth and Personal Banking
(as a % of Group tangible equity)(2)
Adjusted fees and insurance revenue
(as a % of total adjusted revenue)(3)
1 Based on tangible equity of the Group's major legal entities
excluding associates, holding companies and consolidation
adjustments.
2 WPB tangible equity as a share of tangible equity allocated to
the global businesses (excluding Corporate Centre). Excludes
holding companies and consolidation adjustments.
3 IFRS 17 is effective from 1 January 2023 and could have a
significant adverse impact on the recognition of profits in our
insurance business. For further details on the impact of IFRS 17 on
the results of our insurance operations, including preliminary
management estimates, see page 29.
4 Medium term is defined as 3 to 4 years from 1 January 2020;
long term is defined as 5 to 6 years from 1 January 2020.
8 HSBC Holdings plc Interim Report 2022
Our strategy
Our strategy centres on four key areas: focus on our strengths,
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.
Focus on our strengths
In our global businesses
In each of our global businesses, we focus on delivering growth
in areas where we are strongest and have opportunities to grow.
Wealth and Personal Banking
In WPB, we have continued to make progress in executing our
wealth, asset management and insurance strategy, notably in Asia.
WPB adjusted revenue in 1H22 was $10.9bn, down 0.5% compared with
1H21, but with good growth in the UK, Mexico and Asia excluding
Hong Kong. Personal Banking performed strongly with 13% growth
during the same period. Despite adverse market conditions, in 1H22
we grew our net new invested assets by $39bn, with $22bn coming
from Asia. Our Asia insurance value of new business reached $660m,
up 41% compared with 1H21. During the same period, our lending
balance grew 4% to $475bn. We have made progress on many
international propositions. Global Money Account, our
multi-currency account, is live in three markets and Global Money
Transfer is launched in five markets with expansion planned for
later this year. We launched the first corridor - India to
Singapore - for our international credit portability service, which
allows customers to use their credit history in their home country
to gain customer credit in a foreign country. In the US, Canada,
Hong Kong (overseas Hong Kong ID holders only) and for HSBC Expat
Banking accounts, we enabled a digital capability for customers to
open their foreign bank accounts from their home country
online.
Commercial Banking
We saw strong performance in CMB across all regions with
adjusted revenue reaching $7.2bn, a 14% increase compared with
1H21, driven by both transaction banking and lending. Growth in
Global Liquidity and Cash Management and Global Trade and
Receivables Finance especially contributed to fee income growth, a
key area of focus for us, with overall fee income increasing by 12%
to $1.9bn in 1H22. We continue to invest in global platforms and
improving SME propositions. We are rolling out Global Wallet, a
digital wallet that allows Business Banking customers to send 11
currencies and receive six currencies without opening local bank
accounts, to more markets later in 2022. To support our plan to
accelerate international client acquisition, we launched our
Banking as a Service platform with Oracle Netsuite in the US, and
are exploring expansion to additional markets. We also piloted a
trade finance platform that provides financing programmes to
manufacturers, retailers and online marketplaces.
Global Banking and Markets
GBM adjusted revenue increased 4% compared with 1H21, reaching
$7.8bn. Adjusted collaboration revenue with our other global
businesses remains a key opportunity for us, with $1.8bn in 1H22
compared with $1.7bn in 1H21. GBM continues to drive international
connectivity across regions, with our clients in Europe and the
Americas facilitating approximately $1.1bn of client business into
Asia and the Middle East in 1H22, an increase of approximately 8%
compared with 1H21.(1) In Asia, we are ramping up our client
coverage, through strengthening our Singapore-based expertise to
support regional growth, and rolling out a coverage model that will
serve our mainland China clients consistently across the relevant
legal entities, including activities served out of Hong Kong. We
are creating a platform to issue digital bonds as our first
tokenised solution in the market. We are also engaging with central
banks on central bank digital currency experiments in preparation
for future launches.
1 Client business differs from reported revenue as it relates to
certain client-specific income, and excludes certain products
(including Principal Investments, CMB and GBM Other and Asset
Management), Group allocations, recoveries and other non-client
related and portfolio level revenue. It also excludes Hang Seng.
CMB client business excludes Business Banking customers. GBM client
business includes an estimation of client-specific day one
trade-specific revenue from Markets and Securities Services
products, which excludes ongoing mark-to-market revenue and
portfolio level revenue such as hedging. Cross-border client
business represents the income earned from a client's entity
domiciled in a different geography than where the client group's
global relationship is managed. 'Booking location' represents the
geography of the client's entity or transaction booking location
where this is different from where the client group's global
relationship is managed. Analysis is based on reported FX.
HSBC Holdings plc Interim Report 2022 9
Digitise at scale
Investing in technology
We continue to invest in our technology and operational
capabilities to drive operating productivity and to offer better
client experience across businesses and geographies. In 1H22,
approximately $3.1bn, or 20%, of our overall adjusted operating
expenses were dedicated to technology, up from approximately $2.9bn
in 1H21.
Our investments are enhancing our platforms and our customers'
digital experiences. The improving digital engagement with clients
across various channels shows the progress we have made so far. At
the end of 1H22, 46% of our retail customers active on our mobile
services had logged onto a HSBC mobile app at least once in the
last 30 days, compared with 41% at the end of 1H21. Our wholesale
clients executed 6.3 million payments on HSBCnet's mobile banking
app, a 61% increase compared with 1H21.
To improve our operational efficiency, we continue to increase
the usage of Cloud in our back-office functions. Our Cloud adoption
rate, which is the percentage of our technology services on the
private or public Cloud, increased from approximately 25% at the
end of 1H21 to 31% at the end of 1H22. During the same period, 27%
of our total technology workforce in the global businesses and
functions were aligned to at least one agile team per agile
blueprint, more than doubling from 13%. Since 2019, we have reduced
our global corporate real estate by 30%, and decreased our physical
branch footprint globally from 3,222 branches to 2,665. Our
operations headcount in the Digital Business Services function also
reduced during the same period from approximately 31,400 to 28,400
people.
As we increase our efficiency, especially through utilising
technology, we continue to focus on keeping our costs stable and
offsetting pressures that arise from higher inflation.
Technology spend
% of total adjusted operating expenses
Energise for growth
Empowering and energising our employees is crucial for building
a more effective workforce. We have made progress across all the
parameters set out in our strategy.
We continue to advocate diversity and inclusion, especially in
senior leadership roles, which are those classified as band 3 and
above in our global career band structure. We have been steadily
increasing the percentage of female leaders, reaching 32.5% at the
end of 1H22, compared with 31.1% at the end of 1H21.
To open up a world of opportunity for our colleagues and to help
them develop future-ready skills, in 2021 we launched Talent
Marketplace, an online platform that uses our global network and
allows colleagues to work on projects around the world based on
their skills and aspirations. We aim to roll this out to all
employees by 2023. We also continued to provide learning
opportunities for our colleagues, especially in data, digital and
sustainability. In 1H22, the total learning hours spent on these
future skills increased to approximately 175,000 hours from 22,400
hours in 1H21. To build a simpler, leaner organisation, we created
Group-wide design principles to shape our future organisational
model and structure.
Transition to net zero
As part of our ambition to support our customers through
transition to net zero, we aim to provide and facilitate $750bn to
$1tn of sustainable finance and investments by 2030. In 1H22, we
provided and facilitated $44.1bn of cumulative sustainable finance
and investments, bringing our cumulative amount since 1 January
2020 to $170.8bn. We also continued to demonstrate progress towards
our net zero target. In March 2022, we outlined three steps to turn
our net zero ambition for our portfolio of clients into business
transformation across the Group. This includes publishing a
bank-wide climate transition plan in 2023, phasing down our fossil
fuel finance with a science-aligned method, and reviewing our wider
financing and investment policies that are critical to achieving
net zero by 2050. We continue to unlock new climate solutions,
focusing on supporting innovation in critical areas such as green
technologies. To support this, in January 2022 we announced our
investment of $100m as an anchor partner in Breakthrough Energy
Catalyst, a programme that uses private-public capital to
accelerate the development of clean technologies.
10 HSBC Holdings plc Interim Report 2022
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. It is a long-term,
optimistic and confident statement of the opportunity and growth we
see for our customers and ourselves in the future.
We are continuing to embed our purpose and values in the
organisation. We regularly ask our people to reflect on how we are
opening up a world of opportunity for our customers, investors,
colleagues and communities. In the first half of 2022, we invited
all our colleagues globally to join a live online conversation, to
share ideas on how to improve customer and colleague experience,
and delivering on our purpose. These ideas will be analysed and
shared with leaders to inspire action.
We were also guided by our purpose when we sought to help our
customers impacted by the Russia-Ukraine war, the Covid-19
pandemic, supply chain disruptions and the rising cost of living
(see next page).
Our conduct
Our purpose-led conduct approach guides us to do the right thing
and focus on the impact we have for our customers and the financial
markets in which we operate. Together with more formal policies and
the tools we have to do our jobs, our conduct approach provides a
clear path to achieving our purpose and delivering our strategy.
For further details, see
www.hsbc.com/who-we-are/esg-and-responsible-business/our-conduct.
Our colleagues
We have continued to help our colleagues navigate the impacts of
the Covid-19 pandemic. Supporting the mental and physical
well-being of our colleagues has remained a priority. We have
provided new tools, services, and training, especially in countries
and territories where Covid-19-related restrictions on mobility
persisted throughout the first half of this year.
Developing the skills of colleagues is critical to energising
our organisation and developing career resilience. In 1H22, our
colleagues completed approximately 175,000 hours on courses and
development activity related to our key future skills:
sustainability, digital and data.
We have continued to develop the diversity of our senior
leadership and we remain on track to achieve our ambition of 35%
female leaders by 2025. Providing transparency over the makeup of
our organisation helps us to improve how we reflect the communities
we serve. In 2020, we committed to double the number of Black
senior leaders by 2025. In the UK and US, we have set
country-specific goals that are aligned to country demographics. In
the Asia-Pacific and MENA regions, we are encouraging colleagues to
voluntarily share their ethnicity data to allow us to continue
developing market-specific goals.
Our climate transition
Climate change is one of the most urgent problems facing our
world. Finance has a critical role to play and, given our global
presence, we believe we are well positioned to support our
customers in the transition to a net zero global economy.
We are committed to a science-aligned phase-down of fossil fuel
finance to limit the rise in global temperatures to 1.5degC,
compared with pre-industrial levels. We have set on-balance sheet
financed emissions reduction targets for two emissions-intensive
sectors, where we believe engagement and climate action have the
greatest potential to effect change: the oil and gas, and power and
utilities sectors.
In March 2022, we announced the steps we will take to transform
our business to achieve our net zero ambition of becoming net zero
in our operations and supply chain by 2030, and align our financed
emissions to net zero by 2050.
Our ambition is underpinned by our relationships with customers
and our collective engagement. We will work with our major energy
producer clients to help develop credible, science-based transition
plans. We will use these plans as a basis for further engagement
and decision making, including how we drive decarbonisation within
our portfolios.
We are reviewing and updating our financing and investment
policies critical to achieving our net zero ambition. These include
policies on energy and thermal coal, as well as on deforestation to
reflect emerging science, international guidance and industry
practice.
We plan to publish initial financed emissions baselines and
targets for the sectors: coal mining, aluminium, cement, iron and
steel, and transport (including automotive, aviation and shipping),
as part of our annual disclosure for the year ended 31 December
2022. We have committed to publish our own climate transition plan
in 2023. This plan will bring together our climate strategy,
science-based targets, and how we plan to embed this into our
processes, policies and governance.
Delivering for our stakeholders
Having a clear purpose and strong values has never been more
important. As the world changed over the past two years, we adapted
to new ways of working.
We have endeavoured to provide support to our customers,
colleagues and communities impacted by the Russia-Ukraine war. We
also recognise that the world is at different stages of the
Covid-19 pandemic, and have sought to help customers amid supply
chain disruptions and the rising cost of living, while providing
support to our colleagues in maintaining their well-being.
Listening to the views of our colleagues is also fundamental to how
we work at HSBC.
In the following table, we set out how we have supported our
stakeholders - our customers, employees, investors, communities,
regulators and governments, and suppliers - during the first half
of 2022.
HSBC Holdings plc Interim Report 2022 11
Our stakeholders How we deliver
---------------- ------------------------------------------------------------------
Customers * We have opened over 5,000 bank accounts for Ukrainian
refugees in the UK to support them with accessing
required financial services. This follows a scheme
launched last year to allow Afghan settlers to open
bank accounts. HSBC UK fully supports the Homes for
Ukraine scheme and is committed to making it as
simple as possible for mortgage and home insurance
customers to take part.
* We provided more flexible payment terms and reduced
the time for both supplier credit approvals and
access to working capital financing to help customers
manage recent supply chain disruptions.
* In the UK, we are preparing to support customers amid
the rising cost of living pressures from higher
inflation. Initiatives include proactively contacting
customers who might be at risk of financial
difficulty, and creating a new cost of living 'hub'
on the public website, with articles, tools and links
to third-party support.
* We continued to support businesses in their
sustainability transition with the launch of a
GBP500m Green SME Fund in the UK and a $5bn
Sustainability Fund for the Greater Bay Area, as well
as a $1bn Female Entrepreneur Fund across selected
markets.
---------------- ------------------------------------------------------------------
Employees
* In April 2022, 18,000 colleagues joined our second
'Global Jam', where for over three days colleagues
from every region held a multi-language conversation
on topics such as our purpose and values, life at
HSBC and customer experience.
* In some of our Asian markets, which continued to face
Covid-19-related restrictions, we supported
colleagues with an enhanced well-being offering to
support mental and physical needs. Care packages -
including food supplies - were distributed to
colleagues where local supply chains were strained.
* Following positive feedback from colleagues, we
continued to adopt hybrid working practices. We are
continuing to review and implement more modern
flexible working arrangements across all our
operating markets to help more colleagues improve
their work-life balance, which is linked to improved
mental health.
---------------- ------------------------------------------------------------------
Investors
* We value the ongoing engagement we have with our
shareholders and have begun to reflect the Group's
approach to new ways of working in conducting our
investor programme, offering in-person, virtual and
hybrid meetings and events.
* We were pleased to be able to offer in-person
attendance as well as a video webcast option for our
AGM in April and continue to engage constructively
with institutional shareholders and ShareAction in
developing our climate-related commitments. In April,
we also paid the second interim dividend for 2021 of
$0.18 per share, and continue to target sustainable
dividends with a target payout ratio range of 40% to
55% of reported EPS, while retaining the flexibility
to adjust for non-cash significant items.
* We look forward to engaging with our Hong Kong retail
shareholders at an Informal Shareholder Meeting to be
held on Tuesday 2 August 2022.
---------------- ------------------------------------------------------------------
Communities * Our Hongkong Bank Foundation donated $12.8m towards
Covid-19 relief for vulnerable communities in Hong
Kong.
* We made donations to UNICEF and the International
Committee of the Red Cross to support their emergency
response programmes helping those affected by the
conflict in Ukraine.
---------------- ------------------------------------------------------------------
Regulators * We proactively engage with regulators and governments
and governments to facilitate strong relationships via virtual and
in-person meetings, and responses to consultations
individually and jointly via the industry bodies.
---------------- ------------------------------------------------------------------
Suppliers
* We invited 500 suppliers to participate in the CDP
(previously Carbon Disclosure Project) supply chain
programme, which helps us to better understand their
carbon emissions and zero carbon ambitions. This
initiative supports our ambition to be net zero in
our operations and supply chain by 2030.
---------------- ------------------------------------------------------------------
12 HSBC Holdings plc Interim Report 2022
Financial overview
In assessing the Group's financial performance, management uses
a range of financial measures that focus on the delivery of
sustainable returns for our shareholders and maintaining our
financial strength.
Executive summary
Financial performance in the first half of 2022 included a net
ECL charge, compared with a net release in 1H21. Revenue benefited
from the impact of interest rate rises, primarily in response to
higher inflation, and balance sheet growth in all of our global
businesses. Our Markets and Securities Services ('MSS') business
benefited from strong client activity, although we were impacted by
unfavourable movements in market impacts in life insurance
manufacturing due to weaker performances in equity markets.
Operating expenses continued to reflect strong cost discipline.
Reported profit before tax of $9.2bn decreased by $1.7bn,
compared with 1H21, and our annualised return on average tangible
equity ('RoTE') was 9.9%, which included a 2.3 percentage point
annualised impact of a $1.8bn gain following the recognition of a
deferred tax asset. This compared with a RoTE of 9.4% in 1H21. In
1H22, all of our regions were profitable, while of our three global
businesses, CMB had a particularly strong performance.
The Group CET1 ratio of 13.6% was down 2.2 percentage points
from 31 December 2021, which included the impact of a valuation
loss on financial instruments held as economic hedges of net
interest income, recorded in other comprehensive income in equity.
In respect of 1H22, the Board has announced an interim dividend of
$0.09 per ordinary share. Given the path currently being implied by
the market for policy rates, we have updated our returns target and
we will now target a RoTE of at least 12% from 2023 onwards.
Delivery against Group financial targets
Return on average tangible equity (annualised) (%) <>
9.9%
(1H21: 9.4%)
We achieved an annualised RoTE of 9.9%, compared with 9.4% in
1H21. This included the 2.3 percentage point annualised favourable
impact of a $1.8bn gain following the recognition of a deferred tax
asset.
The impact of our growth and transformation programmes, together
with the anticipated path of global interest rates, has given us
the confidence to update our returns target. Despite continued
macroeconomic uncertainty, we are now targeting a RoTE of at least
12% from 2023 onwards.
Adjusted operating expenses <>
$15.4bn
(1H21: $15.5bn)
Adjusted operating expenses were $15.4bn, a decrease of 1%
compared with 1H21, mainly due to the impact of our cost-saving
initiatives and a lower performance-related pay accrual for which
the Group-wide phasing of the accrual is driven by the expected
profile of full-year profits. These were partly offset by continued
investments in technology and wealth in Asia, as well as the
effects of higher inflation.
At 30 June 2022, our cost-reduction programmes had generated
cumulative savings of $4.4bn, with costs to achieve of $4.6bn. We
are on track to deliver cost saves at the high-end of our $5bn and
$5.5bn range by the end of 2022, and spend around $7bn in costs to
achieve. We now also expect to deliver an additional $1bn of cost
saves from this programme in 2023.
Adjusted operating expenses for 2022 are expected to be in line
with 2021, with further savings from our cost-reduction programme
broadly offsetting inflationary impacts, continued investment and
the impacts of acquisitions and disposals. We now aim to deliver
2023 cost growth of around 2%, compared with 2022 on an IFRS 4
basis, and intend to maintain strict cost discipline
thereafter.
Gross RWA reductions
$114bn
At 30 June 2022, the Group had delivered cumulative gross RWA
reductions of $114bn against our targeted gross RWA reduction of
$110bn by the end of 2022. We now aim to achieve gross RWA
reductions of $120bn or more by the end of 2022.
CET1 ratio
13.6%
Capital and dividends
At 30 June 2022, our CET1 ratio was 13.6%, down 2.2 percentage
points from 31 December 2021, reflecting a decrease in CET1 capital
of $16.8bn and an increase in RWAs of $13.4bn. The forecast loss on
the disposal of our French retail operations is expected to impact
our CET1 ratio by approximately 30bps in 2H22.
With profit generation and continued RWA actions, we aim to
manage back to within our target CET1 range of 14% to 14.5% during
the first half of 2023. While further share buy-backs remain
unlikely in 2022, for future years we expect to return to
shareholders excess capital over and above what is required for
executing the strategy.
The Board has announced an interim dividend for 1H22 of $0.09
per ordinary share, to be paid in cash with no scrip alternative.
The $2bn buy-back programme announced in October 2021 was completed
on 20 April 2022, while the additional $1bn buy-back, which was
announced in February 2022, concluded on 28 July 2022.
Given our current forecast returns trajectory, we now expect a
dividend payout ratio of around 50% for 2023 and 2024. In line with
our dividend policy, when calculating our dividend payout ratio, we
retain the flexibility to adjust the earnings per ordinary share
('EPS') for non-cash significant items. In 2022, we intend to
exclude the $1.8bn gain following the recognition of a deferred tax
asset when calculating our dividend payout ratio. As previously
disclosed, we also intend to exclude the 2H22 forecast loss on the
sale of our retail banking operations in France when calculating
our dividend payout ratio. We also intend to revert to paying
quarterly dividends in 2023, although we expect the quarterly
dividend for the first three quarters to initially be reinstated at
a lower level than the historical quarterly dividend of $0.10 per
share paid up to the end of 2019.
Interim dividend per ordinary share for 1H22
$0.09
HSBC Holdings plc Interim Report 2022 13
Reported results
Half-year to Quarter ended
----------------------------------------------------------------------------------- ----------------------------------------------------------------------------------
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Mar
2022 2021 2021 2022 2021 2022
Reported results $m $m $m $m $m $m
------------------ --------------------------- -------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Net operating
income
before change in
expected
credit losses and
other
credit impairment
charges
('revenue') 25,236 25,551 24,001 12,772 12,565 12,464
------------------ --------------------------- -------------------------- -------------------------- -------------------------- -------------------------- --------------------------
ECL (1,090) 719 209 (448) 284 (642)
------------------ --------------------------- -------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Net operating
income 24,146 26,270 24,210 12,324 12,849 11,822
------------------ --------------------------- -------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Total operating
expenses (16,419) (17,087) (17,533) (8,107) (8,560) (8,312)
------------------ --------------------------- -------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Operating
profit/(loss) 7,727 9,183 6,677 4,217 4,289 3,510
------------------ --------------------------- -------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Share of profit in
associates
and joint
ventures 1,449 1,656 1,390 793 771 656
------------------ --------------------------- -------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Profit before tax 9,176 10,839 8,067 5,010 5,060 4,166
------------------ --------------------------- -------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Tax
income/(expense) 39 (2,417) (1,796) 762 (1,206) (723)
------------------ --------------------------- -------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Profit/(loss)
after tax 9,215 8,422 6,271 5,772 3,854 3,443
------------------ --------------------------- -------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Reported performance - 1H22 vs 1H21
Reported profit
Reported profit after tax of $9.2bn in 1H22 was $0.8bn higher
than in 1H21. This included a $1.8bn gain on the recognition of a
deferred tax asset from historical losses. This was as a result of
improved profit forecasts for the UK tax group, which accelerated
the expected utilisation of these losses.
Reported profit before tax of $9.2bn was $1.7bn lower, as
reported net ECL charges compared with net ECL releases in 1H21.
The net ECL charge in 1H22 included stage 3 charges, as well as the
impact of heightened economic uncertainty and inflationary
pressures. While reported revenue was lower, primarily due to
foreign currency translation differences, it included the positive
impact of rising interest rates across all of our global
businesses, as well as the benefit of higher volatility to our MSS
business. Wealth revenue in WPB was lower, mainly due to
unfavourable market impacts in insurance manufacturing and lower
investment distribution revenue, although sales in insurance were
strong. Our reported share of profit from associates and joint
ventures also decreased. These factors were partly offset by a 4%
decrease in reported operating expenses, primarily reflecting the
impact of foreign currency translation differences.
The fall in reported profit before tax included the adverse
impact of foreign currency translation differences of $0.4bn, as
well as losses of $0.3bn in 1H22 associated with the planned sales
of our branch operations in Greece and our operations in Russia. It
also included a $0.1bn increase in restructuring and other related
costs.
We continue to be subject to foreign exchange volatility, and in
particular with regard to the US dollar, which has strengthened
relative to many major currencies. This will impact the translation
of results from non-US dollar reporting entities in the Group,
particularly in Europe. We intend to retranslate our net interest
income guidance and the baseline for our cost guidance at each
reporting period to remove the impact of foreign currency
translation differences from these measures.
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 adverse impact on the
recognition of profits in our insurance business. For further
details on the impact of IFRS 17 on the results of our insurance
operations, including preliminary management estimates, see page 29
.
Reported revenue
Reported revenue of $25.2bn in 1H22 was $0.3bn or 1% lower,
primarily due to an adverse impact of foreign currency translation
differences of $1.1bn. It also included losses of $0.3bn associated
with the planned disposals mentioned above.
Net interest income grew by $1.4bn, reflecting the positive
impact of interest rate rises, mainly in Global Liquidity and Cash
Management ('GLCM') in CMB and GBM, and Personal Banking in WPB,
partly offset by the adverse impact of foreign currency translation
differences. In GBM, Global Foreign Exchange revenue benefited from
elevated market volatility, and there were strong sales in our
insurance business in WPB, which also included a $0.3bn gain
following a pricing update for our policyholders' funds held on
deposit with us in Hong Kong to reflect the cost to provide this
service. Performance in Global Trade and Receivables Finance
('GTRF') remained strong, notably in CMB, as we grew balances
during 1H22.
These increases were partly offset by adverse market impacts in
life insurance manufacturing in WPB of $654m, primarily reflecting
weaker performances in equity markets, compared with favourable
market impacts of $413m in 1H21. Revenue was lower in investment
distribution, as subdued customer sentiment led to reduced activity
in equity markets, and Covid-19-related restrictions in Hong Kong
in 1Q22 resulted in the temporary closure of parts of our branch
network. In GBM, a reduction in Principal Investments revenue was
driven by lower revaluation gains relative to 1H21. In addition, a
reduction in Markets Treasury revenue, which is allocated to our
global businesses, reflected lower disposal gains.
14 HSBC Holdings plc Interim Report 2022
Reported ECL
Reported ECL were a net charge of $1.1bn, compared with a net
release of $0.7bn in 1H21. The 1H22 charge primarily reflected
stage 3 charges of $0.8bn, including charges related to the
commercial real estate sector in mainland China, as well as against
Russia exposures. We also recognised additional stage 1 and stage 2
allowances to reflect heightened levels of economic uncertainty and
inflationary pressures, in part offset by the release of most of
our remaining Covid-19-related allowances. This compared with a net
release in 1H21, primarily relating to Covid-19-related allowances
previously built up in 2020.
We continue to expect our ECL charges to normalise towards 30bps
of average loans in 2022, recognising the possible risk of further
deterioration in the consensus economic outlook. We also continue
to monitor external developments in certain key vulnerable sectors,
particularly offshore commercial financing of the real estate
sector in mainland China.
For further details on the calculation of ECL, including the
measurement uncertainties and significant judgements applied to
such calculations, the impact of the economic scenarios and
management judgemental adjustments, see pages 67 to 75.
Reported operating expenses
Reported operating expenses of $16.4bn were $0.7bn or 4% lower
than in 1H21. This included a favourable impact of $0.7bn from
foreign currency translation differences, in part offset by an
increase in restructuring and other related costs of $0.2bn.
The reduction also reflected the impact of our cost-saving
initiatives of $1.1bn and a lower performance-related pay accrual
of $0.4bn, for which the Group-wide phasing of the accrual is
driven by the expected profile of full-year profits. Given profits
in 1H21 benefited from significant ECL releases, we recognised a
larger share of the accrual in the first half of the year relative
to 1H22. These factors more than offset increases from our
continued investments in technology of $0.4bn, gross of cost saves
of $0.2bn, and in wealth in Asia of $0.2bn, as well as from other
increases, including higher inflation, regulatory investments,
growth in business volumes and marketing.
Reported share of profit in associates and joint ventures
Reported share of profit from associates and joint ventures of
$1.4bn was $0.2bn or 13% lower than in 1H21, primarily as 1H21
included a higher share of profit from Business Growth Fund ('BGF')
due to the recovery in asset valuations.
Tax
Tax in 1H22 was a credit of $39m, mainly due to a $1.8bn credit
arising from the recognition of a deferred tax asset from
historical tax losses in HSBC Holdings. This was as a result of
improved profit forecasts for the UK tax group, which accelerated
the expected utilisation of these losses and reduced the
uncertainty regarding their recoverability. Excluding this, the
effective tax rate for 1H22 was 19.4%, and was reduced by the
remeasurement of deferred tax balances following the substantive
enactment of legislation to reduce the rate of the UK banking
surcharge from 8% to 3% from 1 April 2023. The effective tax rate
for 1H21 was 22.3%.
Reported profit after tax in 1H22
$9.2bn
(1H21: $8.4bn)
Reported net interest income in 1H22
$14.5bn
Up 10% compared with 1H21
Reported performance - 2Q22 vs 2Q21
Reported profit
Reported profit after tax of $5.8bn in 2Q22 was $1.9bn higher
than in 2Q21, and included a $1.8bn gain following the recognition
of a deferred tax asset.
Reported profit before tax was stable at $5.0bn, which included
losses of $0.3bn in 2Q22 associated with the planned sales of our
branch operations in Greece and our operations in Russia, together
with the adverse impact of foreign currency translation differences
of $0.3bn.
Reported revenue grew by $0.2bn to $12.8bn, despite the adverse
impact of foreign currency translation differences. Net interest
income increased across all global businesses, mainly as a result
of higher interest rates. Revenue growth also reflected a strong
performance in Global Foreign Exchange in GBM and higher sales in
life insurance manufacturing in WPB. These increases were partly
offset by a net adverse movement in market impacts in life
insurance manufacturing of $0.7bn and a reduction in Markets
Treasury revenue reflecting lower disposal gains. Reported ECL in
2Q22 were $0.4bn, compared with a net ECL release of $0.3bn in
2Q21. Reported operating expenses of $8.1bn were $0.5bn lower due
to the favourable impact of foreign currency translation
differences. Increases from our continued investments and higher
inflation were mitigated by the impact of our cost-saving
initiatives of $0.5bn and strong cost discipline.
Reported profit after tax in 2Q22
$5.8bn
(2Q21: $3.9bn)
Net interest margin in 2Q22
1.35%
Up 9 basis points from 1Q22
HSBC Holdings plc Interim Report 2022 15
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
110.
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 37.
Definitions and calculation of other alternative performance
measures are included in our 'Reconciliation of alternative
performance measures' on page 56.
Half-year to 1H22 vs 1H21
--------------------- ----------------------------------------------------------------------------------- -----------------------------------------------------
30 Jun 30 Jun 31 Dec
2022 2021 2021
Adjusted results <> $m $m $m $m %
--------------------- ------------------------- --------------------------- --------------------------- ------------------------ ---------------------------
Revenue 25,690 24,734 23,577 956 4
--------------------- ------------------------- --------------------------- --------------------------- ------------------------ ---------------------------
ECL (1,090) 675 174 (1,765) >(100)
--------------------- ------------------------- --------------------------- --------------------------- ------------------------ ---------------------------
Total operating
expenses (15,376) (15,520) (15,447) 144 1
--------------------- ------------------------- --------------------------- --------------------------- ------------------------ ---------------------------
Operating profit 9,224 9,889 8,304 (665) (7)
--------------------- ------------------------- --------------------------- --------------------------- ------------------------ ---------------------------
Share of profit in
associates
and joint ventures 1,449 1,649 1,377 (200) (12)
--------------------- ------------------------- --------------------------- --------------------------- ------------------------ ---------------------------
Profit before tax 10,673 11,538 9,681 (865) (7)
--------------------- ------------------------- --------------------------- --------------------------- ------------------------ ---------------------------
Adjusted performance - 1H22 vs 1H21
Adjusted profit before tax <>
Adjusted profit before tax of $10.7bn was $0.9bn lower, as
adjusted net ECL charges compared with net ECL releases in 1H21.
The net ECL charge in 1H22 included stage 3 charges, as well as the
impact of heightened economic uncertainty and inflationary
pressures. Adjusted revenue rose, primarily due to the positive
impact of rising interest rates across all our global businesses,
as well as the benefit of increased volatility to our MSS business.
This was partly offset by unfavourable market impacts in insurance
manufacturing, notwithstanding strong insurance sales, and lower
investment distribution income in WPB. Adjusted operating expenses
were 1% lower, reflecting continued strong cost discipline, while
our adjusted share of profit from associates and joint ventures
decreased.
Adjusted revenue <>
Adjusted revenue of $25.7bn was $1.0bn or 4% higher than in
1H21. The increase was driven by higher net interest income from
the positive impact of interest rate rises and balance sheet
growth, mainly in GLCM in CMB and GBM, and in Personal Banking in
WPB. Global Foreign Exchange in GBM benefited from elevated market
volatility, and there were strong sales in our insurance business
in WPB, with the value of new business up by $0.2bn or 39%. In
addition, insurance revenue also included a $0.3bn gain following a
pricing update for our policyholders' funds held on deposit with us
in Hong Kong to reflect the cost to provide this service.
Performance in GTRF remained strong, notably in CMB, as we
continued to grow balances during the first half of the year.
These increases were partly offset by net adverse movements in
market impacts in life insurance manufacturing in WPB of $1.0bn,
reflecting weaker performances in equity markets. Revenue was lower
in investment distribution, as subdued customer sentiment led to
reduced activity in equity markets, and Covid-19-related
restrictions in Hong Kong in 1Q22 resulted in the temporary closure
of parts of our branch network. In GBM, Principal Investments
revenue fell due to lower revaluation gains relative to 1H21.
Revenue relating to Markets Treasury decreased by $0.4bn due to
lower disposal gains. This revenue is allocated to our global
businesses.
Adjusted ECL <>
Adjusted ECL, which removes the period-on-period effects of
foreign currency translation differences, were a net charge of
$1.1bn, compared with a net release of $0.7bn in 1H21. The 1H22
charge primarily reflected stage 3 charges of $0.8bn, including
charges related to the commercial real estate sector in mainland
China, as well as against Russia exposures. We also recognised
additional stage 1 and stage 2 allowances to reflect heightened
levels of economic uncertainty and inflationary pressures, in part
offset by the release of most of our remaining Covid-19-related
allowances. This compared with a net release in 1H21 primarily
relating to Covid-19-related allowances previously built up in
2020.
16 HSBC Holdings plc Interim Report 2022
Adjusted operating expenses <>
Adjusted operating expenses of $15.4bn were $0.1bn or 1% lower,
reflecting the impact of our cost-saving initiatives of $1.1bn and
a $0.4bn reduction in the performance-related pay accrual, for
which the Group-wide phasing of the accrual is driven by the
expected profile of full-year profits. Given profits in 1H21
benefited from significant ECL releases, we recognised a larger
share of the accrual in the first half of the year relative to
1H22. These reductions mitigated increases from our continued
investments in technology of $0.4bn, which is gross of cost saves
of $0.2bn, and in wealth in Asia of $0.2bn, as well as from other
increases, including higher inflation, regulatory investments,
growth in business volumes and marketing.
The number of employees expressed in full-time equivalent staff
('FTE') at 30 June 2022 was 218,866, a decrease of 831 compared
with 31 December 2021. The number of contractors at 30 June 2022
was 6,642, an increase of 450.
Adjusted share of profit in associates and joint
ventures<>
Adjusted share of profit from associates and joint ventures of
$1.4bn decreased by $0.2bn or 12%, primarily as 1H21 included a
higher share of profit from BGF due to the recovery in asset
valuations.
Reconciliation of reported to adjusted profit before tax
Half-year to
-------------- -------------------------------------------------------------------------------------------------------------------------------
30 Jun 2022 30 Jun 2021 31 Dec 2021
$m $m $m
-------------- ----------------------------------------- ------------------------------------------ ----------------------------------------
Reported
profit before
tax 9,176 10,839 8,067
-------------- ------------------------------------------ ----------------------------------------
Currency
translation - (371) (249)
-------------- ----------------------------------------- ------------------------------------------ ----------------------------------------
Significant
items: 1,497 1,070 1,863
- customer 8 (1) 39
redress
programmes
(total)
--------------
- disposals, 288 - -
acquisitions
and investment
in new
businesses
(total)
--------------
- fair value
movements on
financial
instruments 220 194 48
--------------
- impairment
of goodwill
and other
intangible
assets 9 - 587
--------------
-
restructuring
and other
related
costs (total) 972 918 1,225
--------------
- settlements - - -
and provisions
in
connection
with legal and
regulatory
matters
--------------
- past service - - -
costs of
guaranteed
minimum
pension
benefits
equalisation
--------------
- goodwill - - -
impairment
(share of
profit in
associates and
joint
ventures)
--------------
- currency
translation
on
significant
items - (41) (36)
-------------- ----------------------------------------- ------------------------------------------
Adjusted
profit before
tax 10,673 11,538 9,681
-------------- ----------------------------------------- ------------------------------------------ ----------------------------------------
Balance sheet and capital
Balance sheet strength
Total assets of $3.0tn were $27bn higher than at 31 December
2021 on a reported basis, and included adverse effects of foreign
currency translation differences of $146bn. On a constant currency
basis, total assets increased by $173bn, primarily from higher
derivative asset balances and growth in loans and advances to
customers. In addition, settlement accounts and cash collateral
balances increased.
Reported loans and advances to customers of $1.0tn were $17bn
lower, but $34bn higher on a constant currency basis. In WPB, we
grew mortgage balances in the UK, Australia and Hong Kong, while in
CMB and GBM, term lending and overdrafts increased. Reported
customer accounts of $1.7tn decreased by $59bn, but increased by
$24bn on a constant currency basis, as customers took advantage of
rising interest rates.
Loans and advances to customers as a percentage of customer
accounts was 62.3%, which was higher compared with 61.1% at 31
December 2021.
Distributable reserves
The distributable reserves of HSBC Holdings at 30 June 2022 were
$33.6bn, compared with $32.2bn at 31 December 2021. The increase
was primarily driven by profits generated of $6.5bn, offset by
ordinary dividend payments and additional tier 1 coupon
distributions of $4.2bn and $1bn related to our share buy-back
programme.
Capital position
We actively manage the Group's capital position to support our
business strategy and meet our regulatory requirements at all
times, including under stress, while optimising our capital
efficiency. To do this, we monitor our capital position using a
number of measures. These include our capital ratios and the impact
on our capital ratios as a result of stress.
Our CET1 ratio at 30 June 2022 was 13.6%, down from 15.8% at 31
December 2021, reflecting a decrease in CET1 capital of $16.8bn
including valuation losses in equity from financial instruments as
yield curves steepened, and an increase in RWAs of $13.4bn.
Liquidity position
We actively manage the Group's liquidity and funding to support
our business strategy and meet regulatory requirements at all
times, including under stress. To do this, we monitor our position
using a wider set of measures, including the liquidity coverage
ratio ('LCR') and the net stable funding ratio. At 30 June 2022,
the Group's LCR was 134% and we held high-quality liquid assets of
$657bn. For further details, see page 95.
HSBC Holdings plc Interim Report 2022 17
Wealth and Personal Banking
Contribution to Group 1H22 adjusted profit before
tax<>
% contribution
to Group
28 %
We serve more than 38 million customers 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 demands.
WPB continued to execute strategic investments in our digital
capabilities and colleagues, to expand our Wealth franchise in
Asia, and address our customers' international needs. Performance
was adversely impacted by a more normalised ECL charge, compared
with releases in 1H21. Revenue performance benefited from our
product diversification, as strong sales in our insurance business,
the rise in interest rates and balance sheet growth mitigated
adverse movements in market impacts in insurance, and lower
customer activity in equity markets.
1H22 vs
Half-year to 1H21
------------------ ----------------------------------------------------------------------------------- -----------------------------------------------
30 Jun 30 Jun 31 Dec
2022 2021 2021
Adjusted results
<> $m $m $m $m %
------------------ --------------------------- -------------------------- -------------------------- ------------------ ---------------------------
Net operating
income 10,922 10,980 10,439 (58) (1)
------------------ --------------------------- -------------------------- -------------------------- ------------------ ---------------------------
ECL (573) 38 215 (611) >(100)
------------------ --------------------------- -------------------------- -------------------------- ------------------ ---------------------------
Operating expenses (7,411) (7,277) (7,574) (134) (2)
------------------ --------------------------- -------------------------- -------------------------- ------------------ ---------------------------
Share of profit
in associates
and JVs 8 10 24 (2) (20)
------------------ --------------------------- -------------------------- -------------------------- ------------------ ---------------------------
Profit before
tax 2,946 3,751 3,104 (805) (21)
------------------ --------------------------- -------------------------- -------------------------- ------------------ ---------------------------
RoTE excluding
significant items
(annualised,
YTD) (%) 8.4 17.9 15.2
------------------ --------------------------- -------------------------- -------------------------- ------------------ ---------------------------
1H22 vs
Half-year to 1H21
------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------
30 Jun 30 Jun 31 Dec
2022 2021 2021
Management view of adjusted revenue
<> $m $m $m $m %
------------------------------------- ----------------------- ---------------------- ---------------------- ----------------- ---------------------------
Wealth 4,110 4,762 4,137 (652) (14)
------------------------------------- ----------------------- ---------------------- ---------------------- ----------------- ---------------------------
- investment distribution 1,617 1,847 1,573 (230) (12)
------------------------------------- ----------------------- ---------------------- ---------------------- ----------------- ---------------------------
- Global Private Banking 945 905 870 40 4
------------------------------------- ----------------------- ---------------------- ---------------------- ----------------- ---------------------------
net interest income 388 310 320 78 25
------------------------------------- ----------------------- ---------------------- ---------------------- ----------------- ---------------------------
non-interest income 557 595 550 (38) (6)
------------------------------------- ----------------------- ---------------------- ---------------------- ----------------- ---------------------------
- life insurance manufacturing 1,010 1,437 1,090 (427) (30)
------------------------------------- ----------------------- ---------------------- ---------------------- ----------------- ---------------------------
- asset management 538 573 604 (35) (6)
------------------------------------- ----------------------- ---------------------- ---------------------- ----------------- ---------------------------
Personal Banking 6,656 5,870 5,994 786 13
------------------------------------- ----------------------- ---------------------- ---------------------- ----------------- ---------------------------
- net interest income 6,004 5,211 5,299 793 15
------------------------------------- ----------------------- ---------------------- ---------------------- ----------------- ---------------------------
- non-interest income 652 659 695 (7) (1)
------------------------------------- ----------------------- ---------------------- ---------------------- ----------------- ---------------------------
Other(1) 156 348 308 (192) (55)
------------------------------------- ----------------------- ---------------------- ---------------------- ----------------- ---------------------------
Net operating income(2) 10,922 10,980 10,439 (58) (1)
1 'Other' includes Markets Treasury, HSBC Holdings interest
expense and hyperinflation. It also includes the distribution and
manufacturing (where applicable) of retail and credit protection
insurance, disposal gains and other non-product specific
income.
2 'Net operating income' means net operating income before
change in expected credit losses and other credit impairment
charges (also referred to as 'revenue').
18 HSBC Holdings plc Interim Report 2022
Financial performance
Adjusted profit before tax of $2.9bn in 1H22 was $0.8bn lower
than in 1H21. This reflected lower revenue in Wealth, driven by an
adverse movement of $1.0bn in market impacts in life insurance
manufacturing. This was largely offset by strong insurance sales
and higher revenue within Personal Banking, as rising interest
rates and balance sheet growth resulted in a $0.8bn increase in net
interest income. There were also adjusted net ECL charges of
$0.6bn, compared with a small net release in 1H21, while adjusted
operating expenses were $0.1bn higher.
Adjusted revenue of $10.9bn was $0.1bn or 1% lower, despite
adverse movements in market impacts of $1.0bn.
In Wealth, revenue of $4.1bn was down $0.7bn or 14%.
-- In life insurance manufacturing, revenue was $0.4bn lower due
to a net adverse movement in market impacts of $1,046m. Adverse
market impacts of $654m compared with favourable market impacts in
1H21 of $392m, reflecting a weaker performance in equity markets.
However, there was strong growth in the value of new business
written, which increased by $0.2bn or 39% to $739m, reflecting the
launch of innovative product offerings and digital enhancements,
mainly in Hong Kong. In addition, there was a $0.3bn gain following
a pricing update for our policyholders' funds held on deposit with
us in Hong Kong to reflect the cost to provide this service. We
also recognised a $0.1bn provisional gain on the completion of our
acquisition of AXA Singapore.
-- Investment distribution revenue was $0.2bn or 12% lower, as
muted customer sentiment led to lower activity in equity markets,
and as Covid-19-related restrictions in Hong Kong in 1Q22 resulted
in the temporary closure of parts of our branch network.
-- In Global Private Banking, revenue was $40m or 4% higher due
to the positive impact of rising interest rates on net interest
income and from higher annuity fee income. This increase was partly
offset by a decline in brokerage and trading revenue, reflecting
reduced client activity compared with a strong 1H21.
-- Asset Management revenue was 6% lower, as adverse market
conditions led to valuation losses on our seed investment book.
This was partly offset by growth in management fees from resilient
net new invested assets of $20bn.
In Personal Banking, revenue of $6.7bn was up $0.8bn or 13%.
-- Net interest income was $0.8bn higher due to the benefit of
interest rate rises and strong balance sheet growth. Deposit
balances increased by $43bn or 5%, and mortgage lending rose by
$22bn or 7%, with growth across all regions, notably in the UK and
Hong Kong. Unsecured lending increased by $2bn or 6%, primarily in
the UK and Mexico.
-- Non-interest income decreased by $7m or 1%, primarily driven
by a $33m reclassification of early repayment charges to net
interest income in the UK to bring our approach in line with
industry practice.
Other income fell by $0.2bn, mainly due to lower income
allocated from Markets Treasury.
Adjusted ECL were a net charge of $0.6bn, compared with a small
net release in 1H21 of Covid-19-related allowances. The charge in
1H22 reflected a deterioration in the forward economic outlook from
heightened levels of uncertainty and inflationary pressures,
although the credit quality of our portfolio remained resilient.
The small net release in 1H21 was from Covid-19-related allowances
previously built up in 2020.
Adjusted operating expenses of $7.4bn were $0.1bn or 2% higher,
mainly due to continued investments, notably in wealth in Asia, and
the impact of higher inflation, which was partly offset by the
benefits of our cost-saving initiatives and the Group-wide phasing
of the performance-related pay accrual.
Divisional highlights
$39bn
WPB net new invested assets, which was a 9% increase compared
with 1H21.
$22bn
Growth in mortgage book, notably in the UK (up 7%) and Hong Kong
(up 5%) since 30 June 2021.
Adjusted profit before tax <>
($bn)
$2.9bn
Adjusted net operating income <>
($bn)
$10.9bn
HSBC Holdings plc Interim Report 2022 19
Commercial Banking
Contribution to Group 1H22 adjusted profit before
tax<>
% contribution
to Group
33 %
We support businesses in 53 countries and territories, ranging
from small enterprises to large companies operating globally.
We help businesses grow by supporting their financial needs,
facilitating cross-border trade and payment services, and providing
access to products and services. We help them access international
markets, provide expert financial advice and offer a full suite of
products and services from across the Group's other businesses.
In the first half of 2022, CMB increased lending and enabled our
clients to participate in the recovery in global trade volumes,
while navigating recent supply chain constraints. We continued our
investment in technology, launching new platforms to support
customers and make banking with us easier. There was strong revenue
performance in all core CMB products, notably in GLCM, due to
interest rate rises. This was partly offset by a more normalised
ECL charge relative to the net releases in 1H21.
1H22 vs
Half-year to 1H21
------------------ ------------------------------------------------------------------------------------ ------------------------------------------------
30 Jun 30 Jun 31 Dec
2022 2021 2021
Adjusted results
<> $m $m $m $m %
------------------ -------------------------- ---------------------------- -------------------------- ------------------ ----------------------------
Net operating
income 7,217 6,353 6,556 864 14
------------------ -------------------------- ---------------------------- -------------------------- ------------------ ----------------------------
ECL (288) 228 40 (516) >(100)
------------------ -------------------------- ---------------------------- -------------------------- ------------------ ----------------------------
Operating expenses (3,351) (3,371) (3,355) 20 1
------------------ -------------------------- ---------------------------- -------------------------- ------------------ ----------------------------
Share of profit
in associates
and JVs - 1 - (1) (100)
------------------ -------------------------- ---------------------------- -------------------------- ------------------ ----------------------------
Profit before
tax 3,578 3,211 3,241 367 11
------------------ -------------------------- ---------------------------- -------------------------- ------------------ ----------------------------
RoTE excluding
significant items
(annualised,
YTD) (%) 12.6 11.1 10.8
------------------ -------------------------- ---------------------------- -------------------------- ------------------ ----------------------------
1H22 vs
Half-year to 1H21
------------------------------------- ----------------------------------------------------------------------------- -------------------------------------------
30 Jun 30 Jun 31 Dec
2022 2021 2021
Management view of adjusted revenue
<> $m $m $m $m %
------------------------------------- ------------------------- ------------------------ ------------------------ -------------- ---------------------------
Global Trade and Receivables Finance 1,078 896 984 182 20
------------------------------------- ------------------------- ------------------------ ------------------------ -------------- ---------------------------
Credit and Lending 2,971 2,833 2,995 138 5
------------------------------------- ------------------------- ------------------------ ------------------------ -------------- ---------------------------
Global Liquidity and Cash Management 2,369 1,669 1,779 700 42
------------------------------------- ------------------------- ------------------------ ------------------------ -------------- ---------------------------
Markets products, Insurance and
Investments,
and Other(1) 799 955 798 (156) (16)
------------------------------------- ------------------------- ------------------------ ------------------------ -------------- ---------------------------
- of which: share of revenue from
Markets
and Securities Services and Banking
products 608 504 514 104 21
------------------------------------- ------------------------- ------------------------ ------------------------ -------------- ---------------------------
Net operating income(2) 7,217 6,353 6,556 864 14
------------------------------------- ------------------------- ------------------------ ------------------------ -------------- ---------------------------
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
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').
20 HSBC Holdings plc Interim Report 2022
Financial performance
Adjusted profit before tax of $3.6bn was $0.4bn or 11% higher
than in 1H21. This was driven by an increase in adjusted revenue in
all core CMB products, notably including a 51% increase in GLCM net
interest income. This was partly offset by an adjusted net ECL
charge in 1H22, compared with Covid-19-related releases in 1H21.
Adjusted operating expenses were down 1%, as cost discipline more
than offset continued investment spend.
Adjusted revenue of $7.2bn was $0.9bn or 14% higher.
-- In GLCM, revenue increased by $0.7bn or 42%, with
double-digit growth across all regions, particularly in Europe and
Asia. This was driven by higher margins, reflecting interest rate
rises and pricing actions, as well as average balance growth of 8%.
Period end balances were 6% higher compared with 30 June 2021.
There was also an increase of 23% in fee income, with growth across
all regions, as we delivered on our strategic fee initiatives.
-- In GTRF, revenue increased by $0.2bn or 20%, with
double-digit percentage growth across all regions, notably in Asia
and the UK. This was driven by a continued increase in average
trade balances, which rose by 25% compared with 1H21. Trade period
end balances at 30 June 2022 increased by 8% compared with 31
December 2021, and we benefited from improved margins. We grew fee
income by 9%.
-- In Credit and Lending, revenue increased by $0.1bn or 5%,
with growth across all regions, driven by wider margins and a 1%
growth in average balances, compared with 1H21. Period end balances
at 30 June 2022 were 4% higher compared with 31 December 2021, with
growth in North America and Asia. In addition, fee income grew by
4%.
-- In Market products, Insurance and Investments, and Other,
revenue decreased by $0.2bn or 16%, reflecting a lower allocation
of Markets Treasury revenue of $0.1bn and the adverse effects of
hyperinflation accounting of $0.1bn. This was partly offset by a
$0.1bn or 21% increase in collaboration revenue from GBM products,
notably Foreign Exchange.
Adjusted ECL were a net charge of $0.3bn, mainly related to
stage 3 charges, notably against exposures in the commercial real
estate sector in mainland China. Our stage 1 and stage 2 ECL
charges were a net release in 1H22, as a release of
Covid-19-related allowances, notably relating to the UK hotels
sector, was partly offset by the effects of a deterioration in the
forward economic outlook reflecting heightened levels of
uncertainty and inflationary pressures. This compared with a net
ECL release of $0.2bn in 1H21, reflecting the release of
Covid-19-related allowances previously built up in 2020.
Adjusted operating expenses of $3.4bn were $20m or 1% lower,
reflecting continued cost discipline on discretionary spend and
hiring efficiencies, as well as the impact of our cost-saving
initiatives and the Group-wide phasing of the performance-related
pay accrual. These reductions more than offset continued investment
in technology and the impact of higher inflation.
Divisional highlights
20%
Increase in adjusted net interest income, notably 51% in GLCM
and 33% in GTRF.
12%
Increase in adjusted net fee income, with growth across all
products.
Adjusted profit before tax <>
($bn)
$3.6bn
Adjusted net operating income <>
($bn)
$7.2bn
HSBC Holdings plc Interim Report 2022 21
Global Banking and Markets
Contribution to Group 1H22 adjusted profit before
tax<>
% contribution
to Group
27 %
We support multinational corporates, financial institutions and
institutional clients, as well as public sector and government
bodies. We are leaders in facilitating global trade and payments,
particularly into and within Asia and the Middle East, enabling our
clients in the East and West to achieve their objectives by
accessing our expertise and geographical reach. Our product
specialists deliver a comprehensive range of transaction banking,
financing, capital markets and advisory, and risk management
services.
GBM continued to invest in technology in 1H22 to support our
clients and to improve our operational resilience, while achieving
on our cost-saving initiatives. We delivered a good revenue
performance due to elevated levels of volatility in financial
markets and rising interest rates. Adjusted profit before tax
decreased due to ECL charges that reflected heightened levels of
economic uncertainty, compared with ECL releases in 1H21.
1H22 vs
Half-year to 1H21
------------------ --------------------------------------------------------------------------------- ---------------------------------------------
30 Jun 30 Jun 31 Dec
2022 2021 2021
Adjusted results
<> $m $m $m $m %
------------------ -------------------------- ------------------------- -------------------------- ---------------- ---------------------------
Net operating
income 7,841 7,518 6,878 323 4
------------------ -------------------------- ------------------------- -------------------------- ---------------- ---------------------------
ECL (227) 405 (80) (632) >(100)
------------------ -------------------------- ------------------------- -------------------------- ---------------- ---------------------------
Operating expenses (4,735) (4,724) (4,831) (11) -
------------------ -------------------------- ------------------------- -------------------------- ---------------- ---------------------------
Share of profit
in associates
and JVs - - - - -
------------------ -------------------------- ------------------------- -------------------------- ---------------- ---------------------------
Profit before
tax 2,879 3,199 1,967 (320) (10)
------------------ -------------------------- ------------------------- -------------------------- ---------------- ---------------------------
RoTE excluding
significant items
(annualised,
YTD) (%) 10.9 10.7 8.6
------------------ -------------------------- ------------------------- -------------------------- ---------------- ---------------------------
1H22 vs
Half-year to 1H21
------------------------------------- --------------------------------------------------------------------------------------- ----------------------------------------------
30 Jun 30 Jun 31 Dec
2022 2021 2021
Management view of adjusted revenue
<> $m $m $m $m %
------------------------------------- ----------------------------- -------------------------- ---------------------------- ----------------- ---------------------------
Markets and Securities Services 4,700 4,257 3,741 443 10
-------------------------------------
- Securities Services 973 885 969 88 10
------------------------------------- ----------------------------- -------------------------- ---------------------------- ----------------- ---------------------------
- Global Debt Markets 436 683 164 (247) (36)
------------------------------------- ----------------------------- -------------------------- ---------------------------- ----------------- ---------------------------
- Global Foreign Exchange 2,214 1,618 1,621 596 37
------------------------------------- ----------------------------- -------------------------- ---------------------------- ----------------- ---------------------------
- Equities 616 615 566 1 -
------------------------------------- ----------------------------- -------------------------- ---------------------------- ----------------- ---------------------------
- Securities Financing 468 421 428 47 11
------------------------------------- ----------------------------- -------------------------- ---------------------------- ----------------- ---------------------------
- Credit and funding valuation
adjustments (7) 35 (7) (42) >(100)%
-------------------------------------
Banking 3,399 3,162 3,231 237 7
-------------------------------------
- Global Trade and Receivables
Finance 373 344 347 29 8
------------------------------------- ----------------------------- -------------------------- ---------------------------- ----------------- ---------------------------
- Global Liquidity and Cash
Management 1,164 856 919 308 36
------------------------------------- ----------------------------- -------------------------- ---------------------------- ----------------- ---------------------------
- Credit and Lending 1,251 1,261 1,257 (10) (1)
-------------------------------------
- Capital Markets and Advisory 443 587 627 (144) (25)
------------------------------------- ----------------------------- -------------------------- ---------------------------- ----------------- ---------------------------
- Other(1) 168 114 81 54 47
------------------------------------- ----------------------------- -------------------------- ---------------------------- ----------------- ---------------------------
GBM Other (258) 99 (94) (357) >(100)%
-------------------------------------
- Principal Investments 81 235 139 (154) (66)
------------------------------------- ----------------------------- -------------------------- ---------------------------- ----------------- ---------------------------
- Other(2) (339) (136) (233) (203) >(100)%
------------------------------------- ----------------------------- -------------------------- ---------------------------- ----------------- ---------------------------
Net operating income(3) 7,841 7,518 6,878 323 4
1 Includes portfolio management, earnings on capital and other
capital allocations on all Banking products.
2 Includes notional tax credits and Markets Treasury, HSBC
Holdings interest expense and hyperinflation.
3 'Net operating income' means net operating income before
change in expected credit losses and other credit impairment
charges (also referred to as 'revenue').
22 HSBC Holdings plc Interim Report 2022
Financial performance
Adjusted profit before tax of $2.9bn was $0.3bn or 10% lower
than in 1H21. This was driven by an adjusted net ECL charge in 1H22
of $0.2bn, primarily due to provisions taken in the first quarter,
compared with a net release of $0.4bn in 1H21. Adjusted revenue
grew, while adjusted operating expenses were broadly stable.
Adjusted revenue of $7.8bn was $0.3bn or 4% higher.
In MSS, revenue increased by $0.4bn or 10%, driven by strong
client activity and robust risk management, despite adverse
movements in credit and funding valuation adjustments of $42m.
-- In Global Foreign Exchange, revenue growth of $0.6bn or 37%
reflected increased client activity and risk management due to
elevated market volatility and the macroeconomic impacts from
rising inflation and increasing interest rates.
-- In Securities Services, revenue grew by $0.1bn or 10% from
higher net interest income, as global interest rates rose, partly
offset by lower fee income, as a fall in market indices adversely
impacted asset valuations.
-- In Securities Financing, revenue increased by $47m or 11%
from increased client activity in prime finance, partly offset by a
more challenging macroeconomic environment for repurchase agreement
products.
-- In Global Debt Markets, revenue fell by $0.2bn or 36%,
reflecting lower primary issuances and reduced client activity due
to uncertainty and challenging market conditions.
In Banking, revenue increased by $0.2bn or 7%.
-- In GLCM, revenue increased by $0.3bn or 36%, driven by a rise
in net interest income due to higher global interest rates and an
8% growth in average balances. There was also a 16% increase in fee
income, as we delivered on our strategic initiatives.
-- Capital Markets and Advisory revenue decreased by $0.1bn or
25%, within the context of a significant reduction in the global
market fee pool, particularly in equity and debt capital
markets.
In GBM Other, Principal Investments revenue fell by $0.2bn, as
1H22 included lower revaluation gains compared with 1H21. This also
included a reduction in revenue allocated from Markets
Treasury.
Adjusted ECL were a net charge of $0.2bn, compared with a
release of $0.4bn in 1H21. The net charge in 1H22 reflected a
deterioration in the forward economic outlook due to heightened
levels of uncertainty and inflationary pressures. This compared
with the net release in 1H21 of Covid-19-related allowances
previously built up in 2020.
Adjusted operating expenses were broadly unchanged, as the
impact of our cost-saving initiatives and the Group-wide phasing of
the performance-related pay accrual helped fund strategic
investments across key transformation initiatives, and mitigated
the impact of higher inflation.
Divisional highlights
47%
Percentage of adjusted revenue generated in Asia in 1H22.
36%
Revenue increase in GLCM compared with 1H21.
Adjusted profit before tax <>
($bn)
$2.9bn
Adjusted net operating income <>
($bn)
$7.8bn
HSBC Holdings plc Interim Report 2022 23
Corporate Centre
Contribution to Group 1H22 adjusted profit before
tax<>
% contribution
to Group
12 %
The results of Corporate Centre primarily comprise the share of
profit from our interests in our associates and joint ventures. It
also includes Central Treasury, stewardship costs and consolidation
adjustments.
Corporate Centre performance in 1H22 reflected lower adjusted
revenue and a decrease in the adjusted share of profit from
associates and joint ventures, partly offset by a reduction in
adjusted operating expenses.
Adjusted 1H22 vs
results<> Half-year to 1H21
------------ ----------------------------------------------------------------------------------------- -----------------------------------------------
30 Jun 30 Jun 31 Dec
2022 2021 2021
$m $m $m $m %
------------ ----------------------------- ---------------------------- ---------------------------- ------------------ ---------------------------
Net
operating
income (290) (117) (296) (173) >(100)
------------ ----------------------------- ---------------------------- ---------------------------- ------------------ ---------------------------
ECL (2) 4 (1) (6) >(100)
------------ ----------------------------- ---------------------------- ---------------------------- ------------------ ---------------------------
Operating
expenses 121 (148) 313 269 >100
------------ ----------------------------- ---------------------------- ---------------------------- ------------------ ---------------------------
Share of
profit
in
associates
and JVs 1,441 1,638 1,353 (197) (12)
------------ ----------------------------- ---------------------------- ---------------------------- ------------------ ---------------------------
Profit
before
tax 1,270 1,377 1,369 (107) (8)
------------ ----------------------------- ---------------------------- ---------------------------- ------------------ ---------------------------
RoTE
excluding
significant
items
(annualised
,
YTD) (%) 5.3 5.1 5.6
------------ ----------------------------- ---------------------------- ---------------------------- ------------------ ---------------------------
Financial performance
Adjusted profit before tax of $1.3bn was $0.1bn or 8% lower.
Adjusted revenue decreased by $0.2bn, mainly due to
transactional foreign currency-related valuation losses. The
reduction also included the non-recurrence of 1H21 gains related to
the revaluation of assets.
Adjusted operating expenses decreased by $0.3bn due to an
increase in costs allocated to our global businesses.
Adjusted share of profit from associates and joint ventures of
$1.4bn decreased by $0.2bn, primarily as 1H21 included a higher
share of profit from BGF due to the recovery in asset
valuations.
1H22 vs
Half-year to 1H21
------------------------------------- ------------------------------------------------------------------------------------- ---------------------------------------------
30 Jun 30 Jun 31 Dec
2022 2021 2021
Management view of adjusted revenue
<> $m $m $m $m %
------------------------------------- ----------------------------- -------------------------- -------------------------- ---------------- ---------------------------
Central Treasury(1) (28) (54) (45) 26 48
------------------------------------- ----------------------------- -------------------------- -------------------------- ---------------- ---------------------------
Legacy portfolios 4 15 (47) (11) (73)
Other(2) (266) (78) (204) (188) >(100)%
Net operating income(3) (290) (117) (296) (173) >(100)%
------------------------------------- ----------------------------- -------------------------- -------------------------- ---------------- ---------------------------
1 Central Treasury includes adverse valuation differences on
issued long-term debt and associated swaps of $28m (1H21: losses of
$54m; 2H21: losses of $45m).
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 1H22 was $877m (1H21: $1,269m; 2H21: $965m).
3 'Net operating income' means net operating income before
change in expected credit losses and other credit impairment
charges (also referred to as 'revenue').
24 HSBC Holdings plc Interim Report 2022
Risk overview
Active risk management helps us to achieve our strategy, serve
our customers and communities and grow our business safely.
Managing risk
Political tensions, together with the risk of a global economic
slowdown and high inflationary pressures, have resulted in an
increasingly fragmented macroeconomic, trade and regulatory
environment.
Global commodity markets have been significantly impacted by the
Russia-Ukraine war, leading to supply chain disruptions and
increased prices for both energy and raw materials. The
continuation of - or any further escalation in - the Russia-Ukraine
war could have additional economic, social and political
consequences. These include further sanctions and trade
restrictions, longer-term changes in the macroeconomic environment
with the risk of higher and sustained inflation, and a continued
increase in energy prices.
The macroeconomic, trade and regulatory environment has been
further impacted with market concerns regarding potential impacts
following instability in China's commercial real estate sector.
Continued tensions between China and the US, the UK, the EU, India
and other countries, and developments in Hong Kong and Taiwan, may
affect the Group by creating regulatory, reputational and market
risks. We continue to monitor the situation closely.
We continued to focus on improving the quality and timeliness of
the data used to inform management decisions, through measures such
as early warning indicators, prudent active management of our risk
appetite, and ensuring regular communication with our Board and key
stakeholders.
While the financial performance of our operations varied in
different geographies, our balance sheet and liquidity remained
strong.
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.
At 30 June 2022, our CET1 ratio and ECL charges were within
their defined risk appetite thresholds. Monitoring of measures
against our risk appetite remains a key focus. During the first
half of 2022, we enhanced the monitoring and forecasting of our
CET1 ratio through regular reviews in periods of high
volatility.
Key risk appetite metrics
Risk
Component Measure appetite 1H22
------------- ------------------------------- ---------- ---------------
CET1 ratio - end point 13.6
Capital basis >=13.0% %
------------- ------------------------------- ---------- ---------------
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% 0.08%
------------- ------------------------------- ---------- ---------------
Change in expected credit
losses and other credit
impairment charges
as a % of advances: Wholesale
(GBM, CMB) <=0.45% 0.09%
------------------------------- ------------------------ ---------------
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. The results from the stress tests also drive
recovery and resolution planning to help enhance the Group's
financial stability under various macroeconomic scenarios. The
selection of stress scenarios is based upon the identification and
assessment of our top risks, emerging risks and our risk appetite.
During the first half of 2022, assessments were made of the impact
on the Group of the Russia-Ukraine war and the consequences from
the deteriorating global economic outlook.
Our latest solvency stress testing results published by the Bank
of England ('BoE') in December 2021 confirmed the Group was
sufficiently capitalised.
The 2022 BoE annual cyclical scenario was originally due in June
2022, although this has been postponed in light of the uncertainty
related to the Russia-Ukraine war. The exercise will now commence
later in the third quarter of 2022.
We will also conduct our own internal stress test in the second
half of 2022, which will explore the potential impacts of key
vulnerabilities to which we are exposed, including geopolitical
issues, related macroeconomic headwinds and the continued impact of
the Covid-19 pandemic. The internal stress test will consider the
impacts of various risk scenarios across all risk types and on
capital resources.
To support the requirements for assessing the impacts of climate
change, we have developed a set of capabilities to execute climate
stress testing and scenario analysis. These are used to improve our
understanding of our risk exposures for risk management and
business decision making. In 2021, the Prudential Regulation
Authority requested all major UK banks to run a climate-related
stress test to explore the impacts of a set of scenarios: an early
policy action, a late policy action and no additional policy
action. This was followed in the first half of 2022 with a second
round to explore our strategic responses to such scenarios. We have
also conducted climate change stress testing exercises for the
European Central Bank and the Monetary Authority of Singapore. We
continue to develop our climate change capabilities and
methodologies, and we are planning to execute in the second half of
2022 an internal climate scenario analysis to identify challenges
and opportunities to our net zero strategy, as well as to inform
capital planning and risk appetite.
HSBC Holdings plc Interim Report 2022 25
Our operations
We remain committed to investing in the reliability and
resilience of our IT systems and critical services, including those
provided by third parties, that support all parts of our business.
We do so to help protect our customers, affiliates and
counterparties, and to help ensure that we minimise any disruption
to services that could result in reputational and regulatory
consequences. In our approach to defend against these threats, we
invest in business and technical controls to help us detect, manage
and recover from issues, including data loss, in a timely
manner.
We have made progress on the implementation of our business
transformation plans, and as we shift from transformation to
growth-focused initiatives, we will continue to seek to manage the
risks associated with any structural change, which include
execution, operational, governance, reputational, conduct and
financial risks.
For further details on our risk management framework and risks
associated with our banking and insurance manufacturing operations,
see pages 121 and 135 of the Annual Report and Accounts 2021,
respectively.
Geopolitical and macroeconomic risks
Heightened geopolitical tensions, alongside other factors, have
disrupted global supply chains and created potential ramifications
for the Group. The Russia-Ukraine war has elevated geopolitical
instability and resulted in the US, the UK and the EU, as well as
other countries, imposing significant sanctions and trade
restrictions against Russia, including against numerous Russian
government officials and individuals with close ties to the Russian
government, and a number of Russian financial institutions and
companies. Russia has implemented certain countermeasures in
response.
The Russia-Ukraine war, alongside the economic impacts that
continue to result from the Covid-19 pandemic, has increased
commodity prices, with the resulting sharp increase in inflation
creating further challenges for monetary authorities and our
customers. Central banks both in developed and emerging markets
have stepped up the pace of monetary policy tightening in 2022 to
help ease inflationary pressures. Price pressures may increase
further in coming months as the effects of the war and supply chain
disruptions intensify. This may lead central banks to increase
tightening to a greater level than currently envisaged. There is an
increasing risk that a combination of significant monetary policy
tightening and worse-than-anticipated economic effects from the
Russia-Ukraine war, including as a result of continued pressure
exerted through extensive sanctions, trade restrictions and Russian
countermeasures, could precipitate a recession in parts of the
global economy.
Higher inflationary concerns around the world and the resulting
economic uncertainty are having an impact on ECL. We have continued
to carry out enhanced monitoring of model outputs and use of model
overlays, including management adjustments based on the expert
judgement of senior credit risk managers. Inflation has been
considered both directly in certain models, and assessed via
adjustments where not directly considered. Government programmes
implemented during the Covid-19 pandemic to support businesses and
individuals also impacted the level of credit losses, which in turn
may have impacted the longer-term reliability of loss and capital
models. As a result, these models may require significant
changes.
Political tensions between China and the US, extending to the
UK, the EU, India and other countries, and political developments
in Hong Kong and Taiwan, may affect the Group and its customers by
creating regulatory, reputational and market risks. The US, the UK,
the EU, Canada and other countries have imposed various sanctions
and trade restrictions on Chinese persons and companies. In
response to foreign sanctions and trade restrictions, China has
imposed sanctions and trade restrictions and enacted laws that
could impact the Group and its customers.
Market participants remain concerned about the repercussions for
the Chinese domestic economy from instability in its commercial
real estate sector, including deteriorating operating performance
and challenging liquidity conditions, and more recently from
China's government-imposed lockdown restrictions in major Chinese
cities in response to elevated Covid-19 infections. Such
repercussions may occur directly through financial exposures to the
Chinese commercial real estate sector, or indirectly through the
effect of a slowdown in economic activity in China and on global
supply chains in various sectors. Despite a recent improvement in
economic indicators as lockdown restrictions are lifted, we
continue to monitor the situation closely, including potential
indirect impacts, and seek to take mitigating actions as
required.
Strains in the relationship between the UK and the EU, which to
a certain extent have had less of a focus in light of the
Russia-Ukraine war, have come back to the fore through a number of
potential areas of tension, notably the Northern Ireland Protocol,
with possible impacts for the operation of the EU-UK Trade and
Cooperation Agreement ('TCA'). The ongoing leadership election to
replace Boris Johnson as prime minister has added to that
uncertainty.
In December 2021, the OECD published model rules that provided a
template for countries to implement a new global minimum tax rate
of 15%. In January 2022, the UK government opened a consultation on
how the UK plans to implement the model rules, with guidance to
accompany these rules published in March 2022. In July 2022, the UK
government issued draft legislation to implement these rules and
has confirmed that the final legislation will be effective for
accounting periods beginning on or after 31 December 2023.
The impact on HSBC will depend on how the UK implements the
model rules, as well as the profitability and local tax liabilities
of HSBC's operations in each tax jurisdiction from 2024.
Separately, potential changes to tax legislation and tax rates in
the countries in which we operate could increase our effective tax
rate in future as governments seek revenue to pay for Covid-19
support packages.
We continue to monitor, and seek to manage, the potential
implications of all the above developments on our customers and our
business.
For further details on our approach to geopolitical and
macroeconomic risks, see 'Areas of special interest' on page
59.
26 HSBC Holdings plc Interim Report 2022
Risks related to Covid-19
While the global vaccination roll-out has helped reduce the
social and economic impact of the Covid-19 pandemic, new variants
and sub-variants pose a continuing risk. Countries continue to
differ in their approach to restrictions on activity and travel,
and if these differences persist, this could prolong or worsen
supply chain and international travel disruptions. Most notably,
China's government-imposed lockdown restrictions in major Chinese
cities, which were only eased recently, have impacted China's
economy, Asia tourism and global supply chains adversely. A full
return to pre-pandemic levels of social interaction across all our
key markets remains unlikely in the short to medium term.
While our operations have been resilient throughout the
pandemic, the operational support functions on which the Group
relies are based in countries around the world, some of which have
been particularly affected by Covid-19. As a result, business
continuity responses have been implemented and most service level
agreements have been maintained in places where the Group
operates.
We continue to monitor the situation closely and, given the
significant uncertainties related to the post-pandemic landscape,
additional mitigating actions may be required.
For further details on our approach to the risks related to
Covid-19, see 'Areas of special interest' on page 60.
Climate risk
The pace of regulatory developments focusing on climate risk
management, disclosures, and stress testing and scenario analysis
has continued to increase in 2022. The Russia-Ukraine war has
impacted global commodity markets, with short-term supply concerns
driving changes in energy policy in Europe. While these policy
changes may affect the near-term climate transition path for HSBC
and our customers, we remain committed to our climate ambition to
align our own operations and supply chain to net zero by 2030, and
the financed emissions from our portfolio of customers to net zero
by 2050.
For further details on our approach to Climate risk, see 'Areas
of special interest' on page 60.
Ibor transition
The publication of sterling, Swiss franc, euro and Japanese yen
Libor interest rate benchmarks, as well as Euro Overnight Index
Average ('Eonia'), ceased from the end of 2021. Our interbank
offered rate ('Ibor') transition programme - which is tasked with
the development of new near risk-free rate ('RFR') products and the
transition of legacy Ibor products - has continued to support the
transition of a limited number of remaining contracts in these
benchmarks to RFRs, or alternative reference rates.
During the first half of 2022, we continued to develop
processes, technology and RFR product capabilities throughout our
Group, particularly in entities that have US dollar Libor contracts
that require transition. We also implemented controls, and are
monitoring to help ensure we do not undertake any new US dollar
Libor contracts outside of agreed-upon exemptions, and that we
control the associated risks. We have begun to engage with our
clients to support them through the transition of their US dollar
Libor and other demising Ibor contracts, with progress made on the
transition of trade, hedging and uncommitted lending
facilities.
We continue to actively engage in market and industry
discussions around the transition of US dollar Libor and other
demising Ibors, and consultations related to ceasing the use of
'synthetic' sterling and Japanese yen Libor. Additionally,
following the recent announcement relating to the cessation of the
Canadian dollar offered rate ('CDOR') after June 2024, we are
assessing the impacts of this measure and will take appropriate
actions to effect the transition.
We continue to be exposed to risks associated with Ibor
transition. These key risks remain unchanged and include regulatory
compliance risk, resilience risk, financial reporting risk, legal
risk, model risk and market risk. We have implemented mitigating
controls, where required, and continue to actively manage and
monitor these risks.
For further details on our approach to Ibor transition, see
'Areas of special interest' on page 61.
Top and emerging risks
Our top and emerging risks report identifies forward-looking
risks so that they can be considered in determining whether any
incremental action is needed to either prevent them from
materialising or to limit their effect.
Top risks are those that have the potential to have a material
adverse impact on the financial results, reputation or business
model of the Group. We actively manage and take actions to mitigate
our top risks. Emerging risks are those that, while they could have
a material impact on our risk profile were they to occur, are not
considered immediate and are not under active management.
Our suite of top and emerging risks is subject to regular review
by senior governance forums. We continue to monitor closely the
identified risks and ensure management actions are in place, as
required.
Our current top and emerging risks are summarised on the next
page and discussed in more detail on page 124 of the Annual Report
and Accounts 2021.
HSBC Holdings plc Interim Report 2022 27
Risk Trend Description
----------------------- ----- ------------------------------------------------------------
Externally driven
----------------------- ----- ------------------------------------------------------------
Geopolitical and ^ Our operations and portfolios are subject to risks
macroeconomic associated with political instability, civil unrest
risks and military conflict, which could lead to disruption
of our operations, physical risk to our staff and/or
physical damage to our assets. Heightened geopolitical
tensions, alongside other factors, have also disrupted
supply chains globally. Inflation and rising interest
rates may prompt a marked global slowdown that could
affect our credit portfolio.
----------------------- ----- ------------------------------------------------------------
Technology and > We face a risk of service disruption resulting from
cybersecurity technology failures or malicious activity by internal
risk or external threats. In response to the recent geopolitical
events, we have further strengthened our monitoring
approach. We operate a continuous improvement programme
to protect our technology operations, and to counter
a fast evolving cyber threat environment.
----------------------- ----- ------------------------------------------------------------
Evolving regulatory > The compliance risk environment has become more
environment risk complex, given heightened geopolitical tensions.
There has been increased regulatory focus on operational
and cyber resilience, crypto-asset-related risks
and sanctions, and wider anti-money laundering controls.
These, alongside other regulatory priorities, may
result in change requirements across the Group in
the short to medium term. We continue to monitor
regulatory and wider industry developments closely
and engage with regulators as appropriate.
----------------------- ----- ------------------------------------------------------------
Financial crime > We continue to support our customers against a backdrop
risk of complex geopolitical, socio-economic and technological
challenges, including the Russia-Ukraine war. HSBC
is monitoring the direct and indirect impacts of
the war on the Group, and using its sanctions compliance
capabilities to respond to the new sanctions regulations,
noting the challenges that arise in implementing
the complex, novel and ambiguous aspects of certain
of the sanctions.
----------------------- ----- ------------------------------------------------------------
Ibor transition > We are primarily exposed to regulatory compliance,
risk legal and resilience risks as part of the transition
away from demising Ibor benchmarks, in advance of
their cessation dates, to new reference rates. As
a result, we continue to take into account the fairness
of client outcomes, our compliance with regulatory
expectations and the operation of our systems and
processes. We continue to support the transition
of a small number of contracts in demised Ibors
and have begun our customer engagement for demising
Ibors, specifically US dollar Libor.
----------------------- ----- ------------------------------------------------------------
Environmental, ^ We are subject to ESG risks relating to climate
social and governance change, nature and human rights. This risk has increased
('ESG') risks owing to the pace and volume of regulatory developments
globally and stakeholders placing more emphasis
on financial institutions' actions and investment
decisions in respect of ESG matters. If we fail
to meet evolving regulatory and stakeholder expectations
on ESG risk management as a result of any event,
behaviour, action or inaction, this may result in
financial and non-financial risks for HSBC, including
potential reputational consequences.
----------------------- ----- ------------------------------------------------------------
Digitalisation > Developments in technology and changes in regulations
and technological are enabling new entrants to the banking industry,
advances risk as well as new products and services offered by
our existing competitors. This challenges us to
continue to innovate to take advantage of new digital
capabilities to best serve our customers, and adapt
our products to attract and retain customers and
employee talent.
----------------------- ----- ------------------------------------------------------------
Internally driven
------------------------------ ------------------------------------------------------------
Risks associated > We are subject to risks associated with employee
with workforce retention, talent availability, and compliance with
capability, capacity employment laws and regulations. The Covid-19 pandemic
and environmental has also created workforce capacity challenges and
factors with potential impacted employee well-being. Heightened demand
impact on growth for talent in key labour markets and continuing
Covid-19-related challenges have led to increased
attrition and attraction challenges, and continuing
pressure on employees.
----------------------- ----- ------------------------------------------------------------
Risks arising > We procure services and goods from a range of third
from the receipt parties. It is critical that we have appropriate
of services from risk management policies and processes over the
third parties selection and governance of third parties. This
includes third parties' supply networks, particularly
for key activities that could affect our operational
resilience. Any deficiency in the management of
risks associated with our third parties could affect
our ability to support our customers and meet regulatory
expectations.
----------------------- ----- ------------------------------------------------------------
Model risk > Evolving regulatory requirements are driving material
changes to models across the banking industry, with
a particular focus on capital models. New technologies
such as machine learning are driving changes to
the model landscape, and the Group's strategic focus
on climate risk requires the development of new
methods that will effectively model climate-related
factors and activities. A key area of focus is ensuring
our standards, processes and controls are adequate
to identify, measure and manage the resulting model
risks.
----------------------- ----- ------------------------------------------------------------
Data risk > We use data to serve our customers and run our operations,
often in real-time within digital experiences and
processes. If our data is not accurate and timely,
our ability to serve customers, operate with resilience
or meet regulatory requirements could be impacted.
We need to ensure that data is kept confidential,
and that we comply with the growing number of laws
and regulations governing data privacy and the cross-border
movement of data.
----------------------- ----- ------------------------------------------------------------
Change execution > Failure to effectively prioritise, manage and/or
risk deliver transformation across the organisation impacts
our ability to achieve our strategic objectives.
We must monitor, manage and oversee change execution
risk to ensure our change portfolios and initiatives
continue to deliver the right outcomes for our customers,
people, investors and communities.
----------------------- ----- ------------------------------------------------------------
^ Risk heightened during the first half of 2022
> Risk remained at the same level as 2021
28 HSBC Holdings plc Interim Report 2022
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END
IR FLFIETFILIIF
(END) Dow Jones Newswires
August 01, 2022 11:31 ET (15:31 GMT)
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