TIDMRT90
RNS Number : 9084H
HSBC UK Bank PLC
01 August 2023
HSBC UK Bank plc 2023 Interim Report
In fulfilment of its obligations under sections 4.2.2 and
6.3.5(1) of the Disclosure and Transparency Rules, HSBC UK Bank plc
(the "Company") hereby releases its 2023 Interim Report for the
half-year ended 30 June 2023.
The document is now available on our corporate website:
http://www.hsbc.com/investor-relations/subsidiary-company-reporting
The document has also been submitted in unedited full text to
the Financial Conduct Authority's National Storage Mechanism and
will shortly be available for viewing at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
HSBC UK Bank plc
Interim Report and Accounts 2023
Contents
2 About us
4 Financial highlights
5 Key financial metrics
6 Our purpose and values
6 Our strategy
9 Economic background and outlook
11 Financial summary
14 Risk
36 Directors' responsibility statement
37 Independent review report to
HSBC UK Bank plc
34 Condensed financial statements
39 Notes on the interim condensed
financial statements
46 Reconciliation of alternative
performance measures
47 Abbreviations
Presentation of information
This document comprises the Interim Report 2023 for HSBC UK Bank
plc ('the bank' or 'the Company') and its subsidiaries (together
'HSBC UK' or 'the group'). 'We', 'us' and 'our' refer to HSBC UK
Bank plc together with its subsidiaries. References to 'HSBC Group'
or 'the Group' within this document mean HSBC Holdings plc together
with its subsidiaries.
A full list of abbreviations is provided on page 47.
It contains the Interim Management Report and Condensed
Consolidated Financial Statements of the group, together with the
Auditors' Review Report, as required by the Financial Conduct
Authority's Disclosure Guidance and Transparency Rules.
Our Pillar 3 Disclosures at 30 June 2023 is expected to be
published on or around 8 August 2023 at www.hsbc.com.
Unless otherwise stated, commentary on the income statement
compares the six months to 30 June 2023 with the six months to 30
June 2022. Balance sheet commentary compares the position at 30
June 2023 to 31 December 2022.
In accordance with IAS 34 'Interim Financial Reporting', the
Interim Report is intended to provide an update on the Annual
Report and Accounts 2022 and therefore focuses on events during the
first six months of 2023, rather than duplicating information
previously reported.
Our reporting currency is GBP sterling. Unless otherwise
specified, all GBP symbols represent GBP sterling and $ symbols
represent US dollars. The abbreviations 'GBPm' and 'GBPbn'
represent millions and billions (thousands of millions) of GBP
sterling, respectively.
Cautionary statement regarding forward-looking statements
The Interim Report 2023 contains certain forward-looking
statements with respect to the financial condition, ESG related
matters, result of operations and business of the group.
Statements that are not historical facts, including statements
about the group's beliefs and expectations, are forward-looking
statements. Words such as 'expects', 'will', 'targets',
'anticipates', 'intends', 'plans', 'believes', 'seeks',
'estimates', 'potential' and 'reasonably possible', variations of
these words and similar expressions are intended to identify
forward-looking statements. These statements are based on current
plans, estimates and projections, and therefore undue reliance
should not be placed on them. Forward-looking statements speak only
as of the date they are made. HSBC UK makes no commitment to revise
or update any forward-looking statements to reflect events or
circumstances occurring or existing after the date of any
forward-looking statements.
Forward-looking statements involve inherent risks and
uncertainties. Readers are cautioned that a number of factors,
including ESG related factors, could cause actual results to
differ, in some instances materially, from those anticipated or
implied in any forward-looking statement.
About us
HSBC UK Bank plc is a public limited company with debt
securities traded on the London Stock Exchange. The Company is a
ring-fenced bank and wholly owned subsidiary of HSBC Holdings
plc.
HSBC UK, headquartered in Birmingham, has over 14.5 million
active customers, with over 18,900 FTE employees across the
country. Further support is provided by c.5,000 FTE based in our
service company, HSBC Global Services (UK) Limited, who provide
services to HSBC UK and the wider HSBC Group.
HSBC UK is intrinsically linked to the rest of the HSBC Group
and leverages this network to support customers and grow revenue
across key trade corridors around the world. HSBC UK provides
products and services to customers through three businesses,
supported by a corporate centre.
Wealth and Personal Banking
WPB serves c.14 million active customers under three brands:
HSBC UK, including our Private Bank, first direct and M&S Bank.
WPB helps our customers manage their day-to-day finances and aims
to protect and grow their wealth.
Commercial Banking
CMB serves over 700,000 active clients, from start-ups through
to multinational corporates. CMB is a full-service international
commercial bank, that is highly connected to the Group network and
all lines of business, delivering the Group's comprehensive product
suite to meet the full life cycle needs of clients, both
internationally and domestically.
On 13 March 23, HSBC UK announced the acquisition of Silicon
Valley Bank UK Limited for GBP1. During June's London Tech Week,
the rebranding of SVB UK to HSBC Innovation Bank Limited was
announced. HSBC Innovation Banking was also launched by the HSBC
Group as part of a Global proposition which includes HSBC
Innovation Bank Limited. The results of HSBC Innovation Bank
Limited are presented within CMB.
Global Banking and Markets
Within HSBC UK, we offer selected products to enable commercial
hedging in permitted products under UK ring-fencing legislation, as
well as foreign currency payments and transaction banking. Through
close collaboration with HSBC Group, we also make available, from
other entities within the Group, other GBM products required by our
clients that are not available within HSBC UK.
Corporate Centre
Corporate Centre supports central operations of the HSBC UK
business lines and comprises interests in a joint venture, and
stewardship costs. The results of Market Treasury are allocated to
the global businesses.
Our strategy
The Interim Report and Accounts outline our business and
financial performance aligned to our key strategic pillars. Our UK
strategy comprises the following four pillars:
Focus on our strengths
We seek to use our strengths as a major UK bank to play a vital
role in the future of the UK economy, supporting our customers and
the communities in which we operate, both domestically and
internationally.
Digitise at scale
We aim to use technology to deliver fast, easy and secure
banking.
Energise for growth
We seek to inspire an inclusive and customer-focused culture
where employees can learn, develop and grow.
Transition to net zero
HSBC Group is targeting a transition to net zero for financed
emissions from the portfolio of customers by 2050, and operations
and supply chain by 2030.
Our strategy, setting out further details of our four strategic
pillars, can be found on pages 5 to 7.
Financial performance
We delivered reported profit before tax of GBP3,902m, GBP2,152m
higher than 1H22, including GBP1,240m for the provisional gain on
the acquisition of SVB UK.
Revenue increased by GBP2,408m or 67% including GBP1,240m for
the provisional gain on the acquisition of SVB UK as well as wider
net interest margins from 1.70% in 1H22 to 2.41% in 1H23 following
successive interest rate rises. In 1H23 Loans and advances have
grown by 3% (0% excluding the SVB UK acquisition) with a stable
market share. Customer deposits have fallen by 3% in 1H23 (5%
excluding the SVB UK acquisition) primarily due to the impact of
cost of living pressures on our customers, corporate deleveraging
in the market driven by prevailing conditions and the competitive
environment.
Expected credit losses increased by GBP295m from GBP42m in 1H22
to GBP337m in 1H23 driven by the higher charges in CMB for a
limited number of specific exposures in 1H23 and a release of the
remaining Covid-19 related allowances in 1H22, partly offset by
lower year-on-year charges in 1H23 in WPB through a lower loss
experience and a strong employment market.
Operating expenses decreased by GBP39m in 1H23. We continue to
actively manage our cost base with the impacts of the ongoing
investment in technology, wage inflation and new costs from HSBC
Innovation Bank Limited more than offset by reduced restructuring
costs following the completion of our cost-saving programme at the
end of 2022.
Our 1H23 reported RoTE of 36.4% was 20% higher than the 1H22
reported RoTE of 16.4%. The profit for the period includes the
annualised impact of the provisional gain on the acquisition of SVB
UK, excluding which the RoTE was 22.5%.
Supported by a CET1 ratio of 14.5% and LCR of 213% as at 30 June
2023, our balance sheet remains highly resilient with ample capital
and liquidity.
Our Financial summary, containing further details of our
financial performance, can be found on page 8.
Risk overview
We use an established risk management framework underpinned by a
strong culture to enable effective risk governance and an
understanding of the risks that apply to HSBC UK. All our people
are responsible for the management of risk, with the ultimate
accountability residing with the Board.
Full details of our top and emerging risks and areas of key
interest are included on pages 12 to 14.
Financial highlights
For the half-year ended 30 June 2023.
Profit before tax
GBP3.9bn
(1H22: GBP1.8bn )
Expected credit losses and other
credit impairment charges
GBP337m
(1H22: GBP42m)
Loans and advances to customers
GBP209.6bn
(31 Dec 2022: GBP204.1bn)
Risk-weighted assets
GBP99.1bn
(31 Dec 2022: GBP92.4 bn)
Revenue
GBP6.0bn
(1H22: GBP3.6bn)
Total assets at period end
GBP335.8bn
(31 Dec 2022: GBP342bn )
Customer accounts
GBP273.8bn
(31 Dec 2022: GBP281.1bn)
Common equity tier 1 capital ratio
14.5%
(31 Dec 2022: 13.5%)
Key financial metrics
Half-year to
30 Jun 30 Jun
For the period 2023 2022
-------------------------------------------------------------------- ------------------- ---------------------
Reported results
-------------------------------------------------------------------- ------------------- ---------------------
Revenue (GBPm)(1) 6,004 3,596
-------------------------------------------------------------------- ------------------- ---------------------
Profit before tax (GBPm)(2) 3,902 1,750
-------------------------------------------------------------------- ------------------- ---------------------
Profit after tax (GBPm) 3,203 1,469
-------------------------------------------------------------------- ------------------- ---------------------
Profit attributable to the shareholders of the parent company
(GBPm) 3,200 1,466
-------------------------------------------------------------------- ------------------- ---------------------
Net interest margin (%) 2.41 1.70
Cost efficiency ratio (%)(2) 29.4 50.2
-------------------------------------------------------------------- ------------------- ---------------------
Alternative performance measures
-------------------------------------------------------------------- ------------------- ---------------------
Expected credit losses and other credit impairment charges
as % of average gross loans and advances to customers (annualised)
(%) 0.33 0.04
-------------------------------------------------------------------- ------------------- ---------------------
Return on average ordinary shareholder's equity (annualised)(2,6) 29.1 13.2
-------------------------------------------------------------------- ------------------- ---------------------
Return on average tangible equity (annualised)(2,6) 36.4 16.4
-------------------------------------------------------------------- ------------------- ---------------------
Return on average tangible equity excluding the acquisition
of SVB UK (annualised)(2,6) 22.5 16.4
-------------------------------------------------------------------- ------------------- ---------------------
At
30 Jun 31 Dec
Balance sheet 2023 2022
-------------------------------------------------------------------- ------------------- ---------------------
Total assets (GBPm) 335,770 342,441
-------------------------------------------------------------------- ------------------- ---------------------
Net loans and advances to customers (GBPm) 209,566 204,143
-------------------------------------------------------------------- ------------------- ---------------------
Customer accounts (GBPm) 273,785 281,095
-------------------------------------------------------------------- ------------------- ---------------------
Average interest-earning assets (GBPm) 324,356 327,840
-------------------------------------------------------------------- ------------------- ---------------------
Loans and advances to customers as % of customer accounts
(%) 76.5 72.6
-------------------------------------------------------------------- ------------------- ---------------------
Total shareholders' equity (GBPm) 23,910 22,166
-------------------------------------------------------------------- ------------------- ---------------------
Tangible ordinary shareholders' equity (GBPm) 17,436 15,699
-------------------------------------------------------------------- ------------------- ---------------------
Capital, leverage and liquidity
-------------------------------------------------------------------- ------------------- ---------------------
Common equity tier 1 capital ratio (%)(2,3,4) 14.5 13.5
-------------------------------------------------------------------- ------------------- ---------------------
Total capital ratio (%)(3,4) 19.9 19.3
-------------------------------------------------------------------- ------------------- ---------------------
Risk-weighted assets (GBPm)(3,4) 99,098 92,413
-------------------------------------------------------------------- ------------------- ---------------------
Leverage ratio (%)(2,3) 6.3 5.9
High-quality liquid assets (liquidity value) (GBPm)(4,5) 102,757 110,722
-------------------------------------------------------------------- ------------------- ---------------------
Liquidity coverage ratio (%)(4,5) 213 226
-------------------------------------------------------------------- ------------------- ---------------------
1 Revenue also refers to net operating income before change in
expected credit losses and other credit impairment charges.
2 These metrics are tracked as Key Performance Indicators of the group.
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. Leverage
metrics exclude central bank claims in accordance with the PRA's UK
leverage framework. References to EU regulations and directives
(including technical standards) should, as applicable, be read as
references to the UK's version of such regulation or directive, as
onshored into UK law under the European Union (Withdrawal) Act
2018, and as may be subsequently amended under UK law.
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.
5 The LCR ratio presented in the above table is based on average
values. The LCR is based on the average month-end value over the
preceding 12 months.
6 In the event that the current IAS 19 Pension fund surplus was
zero, RoTE would be 42.4% (1H22: 16.7%), we refer to this as
Pension Adjusted RoTE. Pension Adjusted RoTE excluding the
acquisition of SVB UK would be 25.8% (1H22: 16.7%). Further details
are on page 46.
Purpose and strategy
Our purpose and values
Our purpose
Opening up a world of opportunity.
Our values
- We value difference: Seeking out different perspectives.
- We succeed together: Collaborating across boundaries.
- We take responsibility: Holding ourselves accountable and taking the long view.
- We get it done: Moving at pace and making things happen.
Our strategy
Our strategy comprises the following four pillars:
Focus on our strengths
Supporting our customers
Throughout the year, we have taken a number of measures to
support our customers through the current cost of living
challenges. We are continuously adapting the services, information
and tools available to our customers including:
- Our Cost of Living Hub, which has had over 60,000 visits this
year, and financial wellbeing events that have been delivered to
over 12,500 customers.
- Supporting the Mortgage Charter set out by the UK Government,
committing to adopt the standards and put support within closer
reach of those customers who need it the most.
- Offering competitive products to both savers and mortgage borrowers.
- Holding focused Cost of Living webinars with corporates and
small and medium-sized enterprises combining economic updates with
the support available to businesses.
- Launching our HSBC Connected Cashflow pilot, a tool that uses
open banking to give businesses a full picture of their finances,
in partnership with a fintech.
In WPB, financial accessibility and inclusion are key priorities
and we are continuously improving our products and services for
customers. In 1H23, we opened over 10,000 bank accounts for
Ukrainian settlers. Since 2018, we have supported over 5,000
individuals through our No Fixed Address service, and over 2,500
survivors of human trafficking and modern slavery through our
Survivor Bank Service. We are helping some of the most vulnerable
in our society today.
In CMB, we have continued to support our business customers
navigate global macro-economic challenges, in the UK and
internationally, including inflation and supply chain pressures
through:
- Supporting global multi-banked corporates with requirements
across all HSBC's product range including capital financing
structures, financial sponsor shareholding and acquisition
debt.
- Launching our GBP15bn SME Fund for 2023, with allocated pots
for clients trading internationally and sectors including
Agriculture, Technology and Franchising. This brings our total
support to over GBP100bn since the fund was first launched in
2014.
- Collaborating with Employee Banking Services within WPB to
support the employees of our CMB clients. During 1H23, we provided
c.40 bespoke employee financial support events to CMB clients
covering financial wellbeing and employee international moves.
Growing our business
We continue to focus on growing our mortgage market share,
helping our retail customers purchase their homes. As of 30 June
2023, we provided GBP11.1bn of gross new mortgage lending (1H22:
GBP13.4bn), which has seen our mortgage book surpass GBP126bn. As
of 31 May 2023, we increased our mortgage stock market share to
7.8% (1H22: 7.7%). We have also extended access to our mortgage
broker platform to cover over 1,000 firms and helped over 400,000
customers manage their cash flows through providing credit cards
and personal loans.
In first direct, we opened over 160,000 accounts and 250,000
savings accounts in the first half of the year. In M&S Bank, we
have been focusing on our strengths in unsecured lending and
following the phased introduction of Sparks Pay late last year we
have processed over 18,000 transactions.
In CMB, our strategy is focused on enhancing our core strengths
in International, Innovation and Sustainability underpinned by
developing our digital capabilities. Our Transaction Banking core
strength enables us to deliver on our strategy, with GTRF
maintaining strong market share. Our market shares in 1Q23 of 28%
in Receivables Finance and 61% for Export Receivables Finance have
both increased since 4Q22. In GPS, we had significant revenue
growth of +118%. This was supported by wider Net Interest Margins
following successive base rate increases and growth in Net Fee
Income including commercial cards growth of +33% following delivery
of an enhanced cards proposition.
From an international perspective, we achieved over 50%
international revenue growth (vs. 2022). HSBC UK was named as the
UK's #1 Trade Finance Bank for the 7th consecutive year and
maintained its ranking as Best in Service for Trade Finance in the
UK, for the 6th consecutive year by Euromoney Trade Finance
Survey.
We unveiled HSBC Innovation Banking, combining SVB UK's
innovation and industry experience with the global capabilities of
the HSBC Group. Investing in innovation is critical and we saw an
opportunity to do that through this acquisition, which made
strategic sense for our business. We expect this acquisition to
strengthen our commercial banking franchise and enhance our ability
to serve innovative and fast-growing firms. The acquisition
accelerates our future innovation sector plans by three to four
years by bringing in capabilities immediately, such as the deep
industry sector knowledge and the depth of embedded industry
ecosystem relationships with founders and funders. We are now the
#1 bank for tech and life sciences in the UK. This international
proposition aims to deliver globally-connected specialised banking
services and expertise to innovation businesses and their
investors. HSBC Innovation Bank Limited is a core part of the
broader global HSBC Innovation Banking proposition, together with
newly assembled teams in the US, Israel, and Hong Kong.
Digitise at scale
Improving customer service
The new Consumer Duty regulation was introduced by the FCA on 31
July 2023. It sets higher and clearer standards of consumer
protection across financial services, requiring the delivery of
good outcomes for customers and acting as an accelerator to our
customer-centric ambition.
Our NPS benchmarking survey (a measurement of customer
satisfaction) for 1H23, saw first direct ranked 2nd across all
retail providers, previously ranked joint 1st in FY22, with a score
of +45 (vs. +44 in FY22). For HSBC UK WPB, our score deteriorated
to +7 vs +11 in FY22, ranking us joint 14th vs our peers. Our
ranking decreased vs. FY22 by four places partly due to three new
entrants into the survey.
In CMB, we have a core strength in Corporate Banking with our
Large Corporate segment ranked 2nd for NPS in the 2022 Greenwich UK
Large Corporate Banking Study. We have seen an increase in our
overall 1Q23(1) CMB NPS score to -16 (vs. -19 in FY22), as measured
by the Savanta MarketVue Business Banking Survey. Our MME segment
maintained 3rd position, with an improving score to +14 (vs.+12 in
FY22). We have also maintained our BB segment ranking at 4th,
increasing our score to -7pts (vs. -14 in FY22), while our SBB
segment remains ranked 8th, with our score improving to -17pts (vs.
-19 in FY22).
1 Year Ending 1Q23, covering period from 2Q22 - 1Q23.
Customer satisfaction, measured in part through NPS, is a key
focus for Management and the Board, and guides our focus on
investment and service improvements. We acknowledge that there is
more work to be done to consistently meet and exceed customer
expectations.
Our branches remain an important face to face channel, though
they are no longer our customers' preferred engagement channel for
most transactions. Our branches or the counter service of the Post
Office, with whom we have partnered, still provide an important
role in providing access to physical cash. They also help
facilitate customer adoption of digital journeys through education
and problem solving. While we have proactively chosen to reduce our
branch estate, with 114 announced closures, we remain focused on
modernising our go-forward branch footprint and supporting our
customers in the communities we serve:
- We expect to run over 460 Community Pop Up events during 2023
in locations where we will be closing a branch and we will continue
to support the roll out of Shared Banking Hubs.
- We are developing remote cash pods that will provide cash
withdrawal and deposit facilities in communities and aim to deploy
the first of these by the end of the year. Three sites have been
secured for installation by 31 December 2023.
- We have supported over 33,000 vulnerable customers on the
telephone or in branch to ensure they are aware of the closure, and
to provide guidance on how they can continue to bank with us post
closure, including Post Office Services.
- We are a founding member of Cash Access UK Limited which will
set up Banking Hubs. To date, 64 Hubs have been announced for
2023-2024 across the UK. Each Hub has a dedicated room where
customers can see Community Bankers from their own bank on a set
day of the week or use the counter services run by the Post Office
at any time.
- We have provided over 1,800 tablets to customers that want to
become digitally active and supported them with accessing our
services in this way.
Improving digital capabilities
We aim to use technology to deliver fast, easy and secure
banking, with a critical focus on delivering key digital priorities
across our two main business areas, CMB and WPB.
In CMB, we deployed Digital Banking learning to all UK CMB
colleagues, with the purpose of developing knowledge and confidence
across our digital products and services. We continue to enhance
our digital capabilities in Kinetic, HSBCnet, and Digital Business
Banking. Kinetic was named Best App Based Business Bank Account for
the 2nd year running in the Moneynet Personal Finance Awards. We
have onboarded over 66,000 customers to the platform since its
launch in 2021 and have a 92% customer satisfaction score. We are
focused on enhancing our digital customer journeys and increasing
client digital adoption which is now at 83% and on a positive
trajectory. We continue to scale our HSBC Trade Solutions platform
migrating over 90% of all trade clients onto this new API enabled
digital platform that operates as a single point of contact for all
of our client's trade finance needs providing a smoother end to end
journey.
In WPB, we launched mobile registration with digital ID,
reducing the time it takes to complete to less than five minutes,
improving current conversion by 50% and removing up to 54,000
customer calls this year. To help customers understand and manage
their money better, we launched new digital features to our mobile
app, including Spending Insights and Monthly Budgets. M&S Bank
continues to focus on digitising lending and payments for customers
and improving key processes. So far this year, 128,000 customers
have adopted the mobile app, with 8 out of 10 users awarding it 5
stars. Over 283,000 customers have been helped through online chat
channels, with MOBI the AI Chat assisting a third of these
customers.
As an international bank, we are committed to offering customers
international services that meet their needs. This year, in WPB, we
launched our new international proposition to make it quicker and
easier to bank internationally, helping customers open an account
before they land in another country. Following the launch of Global
Money last year, which allows fee-free spending and sending money
abroad across 65 currencies, we have onboarded 389,000 customers.
In CMB, we have grown the client base of Global Wallet, our
multi-currency virtual wallet, by over 50% in 1H23.
We are constantly innovating to keep our customers and their
money safe. This year we launched Aura, our new internal fraud
Chatbot to provide quick and accurate procedural guidance to help
colleagues better support customers.
Energise for growth
Supporting our colleagues
Providing our customers with the highest standards of service
quality is underpinned by our colleagues performing at their best.
Managing well-being and engagement is key. During 2023, we
continued to focus on our colleagues' well-being and engagement,
with key activities including: well-being month; recognition
awards; developing leadership capability; and immersive events.
We hosted Executive-led Future Fit For Customers events
throughout 1Q23 to emphasise our commitment to delivering for our
customers now and in the future. Over 24,000 colleagues attended
these sessions which aimed to bring to life what it means to be
truly customer centric. A key component is that colleagues feel
empowered to find solutions for our customers and to take action to
ensure we are delivering good outcomes. The sessions were an
opportunity for our colleagues to form a consistent view on the
priority of consumer duty.
Speak-up culture
We foster and encourage a strong speak-up culture where all of
our colleagues feel able to raise issues. Colleagues make use of a
variety of speak up channels such as our confidential
whistleblowing helpline and our HR Direct platform. The HSBC
Confidential whistleblowing line enables colleagues to raise
concerns in confidence and anonymously if they wish, without fear
of retaliation. Concerns are investigated thoroughly and
independently by specialist investigation teams. HSBC UK does not
condone or tolerate any acts of retaliation against those involved
in internal investigations.
Inclusion
In 2023, we continue the delivery of our '3 Rs' inclusion
strategy: Representation, Respect and Reputation. Our strategy is
delivering better outcomes for customers, colleagues and the wider
community.
We provided employability learning, in partnership with Scope,
supporting 46 people into employment as at 31 May 2023. External
bodies are also showing their recognition for our Inclusion
efforts. So far in 2023, HSBC UK has received five awards and been
shortlisted 16 times for our Inclusion work and we continue to be
the only organisation in the UK to have achieved the Business
Disability Forum Gold standard since their model was upgraded in
2021.
In May this year we sponsored Birmingham Pride, with c.500 HSBC
colleagues, customers and community supporters taking part in the
parade. Additionally, we have been recognised by Stonewall as the
12th best employer in the UK for LGBTQ+ Inclusion.
Supporting our community
In CMB, we have launched Social Loans, a new sustainable finance
option for businesses looking to reinvest their returns into social
projects. New and existing clients can use the loan to fund schemes
that tackle social issues or achieve positive social outcomes, such
as creating affordable housing, employment programmes or access to
education and training. As well as having a positive impact on
local communities, the facility will enable our customers to
showcase their sustainability strategies and demonstrate their
social credentials.
Community partnerships
Shelter Partnership
In April 2023, HSBC UK and housing and homelessness charity
Shelter announced a new multi-year partnership to support the
financial health of people and communities during the cost of
living crisis and help break the vicious circle of homelessness.
The partnership builds on the work of HSBC UK's 'No Fixed Address'
service which has helped people without a fixed home address to
open a bank account and rebuild their lives after experiencing
homelessness.
HSBC UK's additional support will enable Shelter to help over a
million people at risk of losing their home during the
cost-of-living crisis, and together we aim to build financial
resilience in local communities to help prevent homelessness.
Youth Financial Education
In 2023, HSBC UK has supported c.348,000 children and young
people to learn about money through our programmes and partnership.
A great deal of thanks goes to our Education Team and volunteer
network who make this happen.
Transition to net zero
HSBC Group is supporting customers through the transition to net
zero and a sustainable future.
HSBC Group continues to take steps to implement its climate
ambition to become net zero in its operations and supply chain by
2030, and align financed emissions to the Paris Agreement goal of
net zero by 2050. HSBC Group aims to provide between $750bn to $1tn
of sustainable financing and investment by 2030. HSBC Group has set
on-balance sheet 2030 financed emissions targets for
emissions-intensive sectors. In December 2022, HSBC Group published
an updated energy policy covering the broader energy system
including upstream oil and gas, oil and gas power generation,
hydrogen,
renewables and hydropower, nuclear, biomass and energy from
waste. HSBC Group also updated the thermal coal phase-out
policy.
HSBC Group continues to focus on the implementation of these
policies through customer engagement and assessment of their
transition plans. For further details, please refer to the 'ESG
Overview' section in the HSBC Holdings plc Interim Report 2023.
For further details, please refer to the 'ESG Overview' section
in the HSBC Holdings plc Interim Report 2023.
Supporting our customers
In 1H23, HSBC UK provided and facilitated GBP2.3bn of
sustainable finance(1) . In addition, we launched a Sustainable
Finance Ambassadors Influencers network to play a key role in
supporting business areas to drive greater adoption of Sustainable
Finance. We have launched our Sustainability Tracker. It enables
businesses to understand how sustainable their business, get
tailored suggestions to build a plan and take action, and track
their progress. This builds on our ongoing commitment to support
businesses on their ESG journey and complements our existing
sustainable finance products.
We have also launched new Environmental, Social and Governance
metrics that provide Private Banking clients with insight into
their sustainability holdings. Clients can gain more knowledge
about ESG through insights available on dedicated educational
pages, giving them the opportunity to learn more about sustainable
investing.
1 Detailed definitions can be found in HSBC Group's Sustainable Finance Data Dictionary. See https://www.hsbc.com/who-we-are/ esg-and-responsible-business/esg-reporting-centre.
Supporting climate solutions and thought-leadership
Through our philanthropic partners we are unlocking barriers to
finance ventures and projects that tackle climate change. Since the
start of our partnership with the National Trust in 2021, we have
planted nearly 600,000 native trees across England, Wales and
Northern Ireland. Working together with the National Trust for
Scotland, we supported the pioneering Threave Landscape Restoration
Project, with restoration work being carried out across 60 hectares
in Dumfries and Galloway since 2021.
Our partnerships with the University of Birmingham and Imperial
College London since 2021 have enabled us to support 113 climate
innovation ventures. We have partnered with Economist Impact to
publish a series of Sector focussed reports to help inform our
business customers about the future of industries key to the
transition to net zero.
Economic background and outlook
UK economic outlook
High inflation, continued interest rate rises
UK consumer price inflation remains high. While the headline
inflation rate fell to 7.9% in June 2023, compared to a peak of
11.1% in October 2022, that largely reflects the 'dropping out' of
last year's sharp rises in utility bills from the annual
calculation. The 'core' inflation rate, which excludes food and
energy prices, remained elevated at 6.9% in June 2023, only a touch
below its May 2023 peak of 7.1%.
A large portion of this inflation strength is likely being
driven by labour cost pressures. 'Regular' wages, excluding
bonuses, grew by 7.3%
year-on-year in the three months to May. This might partly
reflect ongoing labour shortages, perhaps stemming from a
combination of elevated rates of economic inactivity due to long
term sickness, and lower levels of low-skilled worker immigration.
That said, the unemployment rate rose to 4.0% in the three months
to May, versus 3.5% in August 2022.
Despite strength in pay growth, it has not kept up with
inflation, implying a fall in real household incomes. This has held
back economic growth. GDP rose by a sub-par 0.1% in the first
quarter of 2023 and remains 0.5% below the peak level seen before
the Covid-19 pandemic. Regarding interest rates, the Bank of
England has raised Bank Rate in every policy meeting since December
2021, taking it to 5.00% in June 2023.
Financial summary
Summary consolidated income statement
Half-year to
--------------------------------------------------
30 Jun 30 Jun
2023 2022
GBPm GBPm
----------------------------------------------------------------- ------------------------ ------------------------
Net interest income 3,871 2,752
----------------------------------------------------------------- ------------------------ ------------------------
Net fee income 649 597
----------------------------------------------------------------- ------------------------ ------------------------
Net income from financial instruments held for trading
or managed on a fair value basis
Net income from financial instruments held for trading
or managed on a fair value basis 190 173
----------------------------------------------------------------- ------------------------ ------------------------
Change in fair value of other financial instruments mandatorily
measured at fair value through profit or loss
Change in fair value of other financial instruments mandatorily
measured at fair value through profit or loss 7 32
----------------------------------------------------------------- ------------------------ ------------------------
Gains less losses from financial investments 36 21
----------------------------------------------------------------- ------------------------ ------------------------
Gain on acquisition of subsidiary(1) 1,240 -
----------------------------------------------------------------- ------------------------ ------------------------
Other operating income 11 21
----------------------------------------------------------------- ------------------------ ------------------------
Net operating income before change in expected credit
losses and other credit impairment charges 6,004 3,596
----------------------------------------------------------------- ------------------------ ------------------------
Change in expected credit losses and other credit impairment
charges (337) (42)
----------------------------------------------------------------- ------------------------ ------------------------
Net operating income 5,667 3,554
----------------------------------------------------------------- ------------------------ ------------------------
Total operating expenses (1,765) (1,804)
----------------------------------------------------------------- ------------------------ ------------------------
Operating profit 3,902 1,750
Profit before tax 3,902 1,750
----------------------------------------------------------------- ------------------------ ------------------------
Tax expense (699) (281)
----------------------------------------------------------------- ------------------------ ------------------------
Profit for the period 3,203 1,469
----------------------------------------------------------------- ------------------------ ------------------------
Profit attributable to shareholders of the parent company 3,200 1,466
Profit attributable to non-controlling interests 3 3
----------------------------------------------------------------- ------------------------ ------------------------
1 Provisional gain of GBP1.24bn recognised in respect of the acquisition of SVB UK.
Reported performance
In 1H23, reported profit before tax was GBP3,902m, GBP2,152m or
123% higher than 1H22, including GBP1,240m for the provisional gain
on the acquisition of SVB UK.
Net interest income increased by GBP1,119m or 41%, due to wider
net interest margins following successive interest rate increases,
partly offset by the impact of lower deposit balances resulting
from the cost of living pressures on our customers, corporate
deleveraging in the market driven by prevailing conditions and the
competitive environment.
Net fee income increased by GBP52m or 9%, due to increased WPB
foreign exchange fees, higher Global Payments Services fees, and
new HSBC Innovation Bank Limited revenue.
Net income from financial instruments held for trading or
managed on a fair value basis increased by GBP17m or 10%, due to
increases in interest rate expectations.
Change in fair value of other financial instruments mandatorily
measured at fair value through profit or loss decreased by GBP25m,
due to a fair value gain of GBP32m in 1H22 following the
revaluation of equity investments.
Gains less losses from financial investments increased by
GBP15m, from lower disposal gains realised in 1H22 due to the
volatile market conditions.
Gain on acquisition is the provisional gain of GBP1,240m on the
acquisition of SVB UK.
Expected credit losses increased by GBP295m from GBP42m in 1H22
to GBP337m in 1H23 driven by the higher charges in CMB for a
limited number of specific exposures in 1H23 and a release of the
remaining Covid-19 related allowances in 1H22, partly offset by
lower year-on-year charges in 1H23 in WPB through a lower loss
experience and a strong employment market.
Total operating expenses decreased by GBP39m or 2%, due to
reduced restructuring costs following the completion of our
cost-saving programme at the end of 2022 partly offset by ongoing
investment in technology cost, wage inflation and new costs from
HSBC Innovation Bank Limited, including the cost of completing its
integration.
Tax expense The effective tax rate is 17.9% (1H22: 16.1%). The
effective tax rates included certain significant one-off items in
both 1H23 and 1H22, a non-taxable provisional gain arising on the
acquisition of SVB UK in 1H23 and a tax credit in 1H22 arising from
the remeasurement of the group's deferred tax balances following
the substantive enactment of legislation to reduce the UK banking
surcharge rate from 8% to 3%. The effective tax rates excluding
these items would have been 26.4% in 1H23 and 25.9% in 1H22.
Net interest income
Half-year
to
------------------------------------------------------------
30 30 Jun
Jun
2023 2022
GBPm GBPm
------------------------- ----------------------------- -----------------------------
Interest income 6,012 3,113
-------------------------- ----------------------------- -----------------------------
Interest expense (2,141) (361)
-------------------------- ----------------------------- -----------------------------
Net interest income 3,871 2,752
-------------------------- ----------------------------- -----------------------------
Average interest-earning
assets 324,356 325,781
-------------------------- ----------------------------- -----------------------------
% %
------------------------- ----------------------------- -----------------------------
Gross interest yield(1) 3.74 1.93
-------------------------- ----------------------------- -----------------------------
Less: Gross interest
payable(1) (1.72) (0.29)
-------------------------- ----------------------------- -----------------------------
Net interest spread(2) 2.02 1.64
-------------------------- ----------------------------- -----------------------------
Net interest margin(3) 2.41 1.70
-------------------------- ----------------------------- -----------------------------
1 Gross interest yield is the average annualised interest rate
earned on AIEA. Gross interest payable is the average annualised
interest cost as a percentage of average interest-bearing
liabilities.
2 Net interest spread is the difference between the average
annualised interest rate earned on AIEA, net of amortised premiums
and loan fees, and the average annualised interest rate payable on
average interest-bearing funds.
3 Net interest margin is net interest income expressed as an annualised percentage of AIEA.
Net interest margin increased from 1.70% in 1H22 to 2.41% in
1H23. This was driven by the UK interest rate increases in 2023,
with increased yields on cash at central banks and customer
lending, partly offset by an increase in interest expense on
customer accounts.
Return on average tangible equity
RoTE is measured as the profit attributable to ordinary
shareholders divided by the average reported equity adjusted for
goodwill and intangibles. A reconciliation is provided on page 46,
which details the adjustments made to the reported results and
equity in calculating RoTE.
In 1H23, our annualised RoTE was 36.4%. Excluding the impact of
the acquisition of SVB UK the annualised RoTE was 22.5%.
Alternative Performance Measures
To measure our performance, we supplement our IFRS figures with
non-IFRS measures, which constitute alternative performance
measures. All alternative performance measures are reconciled to
the closest reported performance measure.
Changes to our reporting framework
On 1 January 2023, we updated our financial reporting framework.
We no longer report 'adjusted' results, which exclude the impact of
significant items. Instead, we separately disclose 'notable items',
which are components of our income statement that management would
consider as outside the normal course of business and generally
non-recurring in nature.
The tables on page 10 detail the effects of notable items on
each of our global business segments.
Segmental reporting
The HSBC UK global businesses are our reportable segments under
IFRS 8.
The HSBC Group Chief Executive, supported by the rest of the
HSBC Group Executive Committee, is considered the CODM for the
purposes of identifying HSBC Group's and therefore HSBC UK's
reportable segments. HSBC UK's CODM is the HSBC UK Chief Executive,
supported by the HSBC UK Executive Committee.
Our operations are closely integrated and, accordingly, the
presentation of data includes internal allocations of certain items
of income and expense. These allocations include the costs of
certain support services and global functions to the extent that
they can be meaningfully attributed to global businesses. While
such allocations have been made on a systematic and consistent
basis, they necessarily involve a degree of subjectivity. Costs
which are not allocated to global businesses are included in
Corporate Centre.
Where relevant, income and expense amounts presented include the
results of inter-segment funding along with inter-company and
inter-business line transactions. All such transactions are
undertaken on arm's length terms. The intra-group elimination items
for the global business lines are presented in the Corporate
Centre.
A description of our global businesses is provided in the
Strategic Report, page 2.
Profit/(loss) before tax and balance sheet data for the period
Half-year to 30 Jun 2023
------------------------------------------------------------------------------------------------------------------------------------
Corporate
WPB CMB GBM Centre Total
GBPm GBPm GBPm GBPm GBPm
Net operating
income/(expense)
before
change in
expected credit
losses and
other credit
impairment
charges 2,429 3,545 78 (48) 6,004
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
- external 2,449 3,212 198 145 6,004
-----------------
- inter-segment (20) 333 (120) (193) -
----------------- ------------------------ ------------------------ -------------------------- ------------------------
- of which: net
interest
income/(expense) 2,091 1,816 (1) (35) 3,871
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
- of which:
provisional gain
on the
acquisition of
SVB UK - 1,240 - - 1,240
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
Change in
expected credit
losses and
other credit
impairment
charges
Change in
expected credit
losses and
other credit
impairment
charges (33) (304) - - (337)
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
Net operating
income/
(expense) 2,396 3,241 78 (48) 5,667
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
Total operating
(expenses)/
income (1,162) (654) (22) 73 (1,765)
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
Operating profit 1,234 2,587 56 25 3,902
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
Profit before tax 1,234 2,587 56 25 3,902
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
%% %% %
----------------- ------------------------ ----------------------- -------------------------- ----------------------- --------------------------
Cost efficiency
ratio 47.8 18.4 28.2 152.1 29.4
At 30 Jun 2023
------------------------------------------------------------------------------------------------------------------------------------
Balance sheet GBPm GBPm GBPm GBPm GBPm
information
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
Loans and
advances to
customers 140,490 69,319 - (243) 209,566
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
Customer accounts 174,715 99,366 - (296) 273,785
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
Half-year to 30 Jun 2022
GBPm GBPm GBPm GBPm GBPm
Net operating
income/(expense)
before
change in
expected credit
losses and
other credit
impairment
charges 1,952 1,585 71 (12) 3,596
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
- external 1,889 1,501 188 19 3,597
-----------------
- inter-segment 63 84 (117) (31) (1)
----------------- ------------------------ ------------------------ -------------------------- ------------------------
- of which: net
interest income 1,633 1,097 - 22 2,752
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
Change in
expected credit
losses and
other credit
impairment
charges
Change in
expected credit
losses and
other credit
impairment
charges (167) 125 - - (42)
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
Net operating
income/(expense) 1,785 1,710 71 (12) 3,554
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
Total operating
expenses (1,131) (545) (16) (112) (1,804)
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
Operating
profit/(loss) 654 1,165 55 (124) 1,750
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
Profit/(loss)
before tax 654 1,165 55 (124) 1,750
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
%% %% %
Cost efficiency
ratio 57.9 34.4 22.5 (933.3) 50.2
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
At 31 Dec 2022
------------------------------------------------------------------------------------------------------------------------------------
Balance sheet GBPm GBPm GBPm GBPm GBPm
information
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
Loans and
advances to
customers 138,927 65,408 - (192) 204,143
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
Customer accounts 181,785 99,622 - (312) 281,095
----------------- ------------------------ ------------------------ -------------------------- ------------------------ --------------------------
Notable items
Half-year to 30 Jun 2023
------------------------------------------------------------------------------------------------------------------------------------
Corporate
WPB CMB GBM Centre Total
GBPm GBPm GBPm GBPm GBPm
-------------- ------------------------ ------------------------ ------------------------ -------------------------- --------------------------
Revenue
-------------- ------------------------ ------------------------ ------------------------ -------------------------- --------------------------
Disposals,
acquisitions
and related
costs - 1,240 - - 1,240
-------------- ------------------------ ------------------------ ------------------------ -------------------------- --------------------------
Restructuring - - - - -
and other
related costs
-------------- ------------------------ ------------------------ ------------------------ -------------------------- --------------------------
Operating
expenses
-------------- ------------------------ ------------------------ ------------------------ -------------------------- --------------------------
Disposals,
acquisitions
and related
costs - (12) - - (12)
-------------- ------------------------ ------------------------ ------------------------ -------------------------- --------------------------
Restructuring - - - - -
and other
related costs
-------------- ------------------------ ------------------------ ------------------------ -------------------------- --------------------------
Half-year to 30 Jun 2022
Revenue
-------------- ------------------------ ------------------------ ------------------------ -------------------------- --------------------------
Disposals, - - - - -
acquisitions
and related
costs
-------------- ------------------------ ------------------------ ------------------------ -------------------------- --------------------------
Restructuring
and other
related costs - - - 1 1
-------------- ------------------------ ------------------------ ------------------------ -------------------------- --------------------------
Operating
expenses
-------------- ------------------------ ------------------------ ------------------------ -------------------------- --------------------------
Disposals, - - - - -
acquisitions
and related
costs
-------------- ------------------------ ------------------------ ------------------------ -------------------------- --------------------------
Restructuring
and other
related costs (26) (10) - (129) (165)
-------------- ------------------------ ------------------------ ------------------------ -------------------------- --------------------------
Reported Performance
Wealth and Personal Banking
Profit before tax of GBP1,234m in 1H23 was GBP580m or 89% higher
than 1H22, driven by higher revenue and lower ECL, partly offset by
higher operating costs.
Revenue increased by GBP477m or 24%, primarily due to wider
margins following successive interest rate increases, partly offset
by the impact of lower deposit balances resulting from the cost of
living pressures on our customers and the competitive
environment.
ECL decreased by GBP134m, to GBP33m in 1H23, reflecting
resilience in our unsecured lending portfolio and a strong
employment market, whilst remaining conservative regarding the
impact that higher interest rates may have on our secured lending
portfolio.
Operating expenses increased by GBP31m or 3%, due to increased
technology investment costs, partly offset by actions taken to
reduce the direct staff costs of the business and lower back-office
operations costs.
Commercial Banking
Profit before tax of GBP2,587m in 1H23 was GBP1,422m or 122%,
higher than 1H22, due to higher revenue, party offset by higher
operating expenses and ECL.
Revenue increased by GBP1,960m or 124%, due to the provisional
gain on the acquisition of SVB UK of GBP1,240m, the
post-acquisition operating revenues of HSBC Innovation Bank Limited
and wider margins following successive interest rate increases,
partly offset by the impact of lower deposit balances resulting
from the inflationary pressure, corporate deleveraging in the
market driven by prevailing conditions, and the competitive
environment on our customers. Excluding HSBC Innovation Bank
Limited, revenue increased by GBP567m or 36%.
ECL increased by GBP429m from a GBP125m release in 1H22 to a
GBP304m charge in 1H23. The 1H22 release included the release of
our remaining Covid-19 related allowances. The charge in 1H23
related to a limited number of exposures that migrated into Stage 3
or where provisions increased for existing Stage 3 exposures.
Operating expenses increased by GBP109m or 20%, driven by
increased technology investment costs and post-acquisition HSBC
Innovation Bank Limited costs, including the cost of completing its
integration.
Global Banking and Markets
GBM in HSBC UK reflects the transacting of foreign currency
exchange for WPB and CMB customers. The majority of the foreign
exchange revenue is transferred to WPB and CMB, with an element
retained in GBM.
Profit before tax of GBP56m in 1H23 was GBP1m or 2% higher than
1H22.
Corporate Centre
Profit before tax of GBP25m in 1H23 was GBP149m higher than the
loss before tax of GBP124m in 1H22, driven by lower operating
expenses due to a reduced restructuring costs following the
completion of our cost-saving programme in 2022 and the increased
benefit arising from our defined benefit pension surplus as
discount rates rose in line with the prevailing interest rate
environment.
Dividends
The consolidated reported profit for the period attributable to
the shareholder of the bank was GBP3,200m.
Interim dividends of GBP807m were paid on ordinary share capital
during the 1H23, out of which GBP539m relates to the previous
financial year and GBP268m relates to the current financial year.
GBP101m of dividends were paid in respect of additional tier 1
capital instruments.
On 19 July 2023, the Directors resolved to pay an interim
dividend of GBP948m to the ordinary shareholder of the parent
company in respect of the financial year ending 31 December
2023.
Further information regarding dividends is given in Note 5.
Summary consolidated balance sheet as at
30 Jun 31 Dec
2023 2022
GBPm GBPm
--------------------------------------------------------- ------------------------- -------------------------
Total assets 335,770 342,441
--------------------------------------------------------- ------------------------- -------------------------
* cash and balances at central banks 76,666 94,407
* financial assets mandatory measured at fair value
through profit and loss 118 108
---------------------------------------------------------
* derivative assets 422 546
---------------------------------------------------------
* loans and advances to banks 7,324 6,357
---------------------------------------------------------
* loans and advances to customers 209,566 204,143
---------------------------------------------------------
- reverse repurchase agreements - non-trading 6,781 7,406
---------------------------------------------------------
- financial investments 22,129 16,092
O - other assets 12,764 13,382
--------------------------------------------------------- -------------------------
Total liabilities 311,800 320,215
--------------------------------------------------------- ------------------------- -------------------------
* deposits by banks 10,844 10,721
---------------------------------------------------------
* customer accounts 273,785 281,095
---------------------------------------------------------
- repurchase agreements - non-trading 7,659 9,333
* derivative liabilities 206 304
---------------------------------------------------------
* debt securities in issue 1,257 1,299
- other liabilities 18,049 17,463
--------------------------------------------------------- -------------------------
Total equity 23,970 22,226
--------------------------------------------------------- ------------------------- -------------------------
* total shareholders' equity(1) 23,910 22,166
---------------------------------------------------------
* non-controlling interests 60 60
--------------------------------------------------------- -------------------------
1 Total shareholders' equity includes share capital, share
premium, additional Tier 1 instruments and reserves.
The commentary below compares the balance sheet at 30 June 2023
to that at 31 December 2022.
HSBC UK maintained a strong and liquid balance sheet. The ratio
of customer advances to customer accounts marginally increased to
76.5% compared to 72.6% at 31 December 2022.
Assets
Cash and balances at central banks decreased by GBP17.7bn due to
the decrease in customer accounts (GBP7.3bn), continued growth in
customer lending (GBP5.4bn) and an increase in financial
investments (GBP6.0bn).
Loans and advances to customers increased by GBP5.4bn, from
growth in retail mortgage lending by GBP0.9bn and an increase in
commercial lending by GBP5.4bn from the acquisition of HSBC
Innovation Bank Limited, partly offset by repayments of GBP1.6bn
mainly against government supported Covid-19 lending. Reverse
repurchase agreements decreased by GBP0.6bn mainly from
maturities/disposals as part of Markets Treasury activities to
manage liquidity and margin. Financial investments increased by
GBP5bn as it incorporates securities from the acquisition of HSBC
Innovation Bank Limited and further
diversification of the overall liquidity position of the bank
via the purchase of Asset swaps.
Liabilities
Customer accounts decreased by GBP7.3bn, across both retail
(GBP7bn) and commercial (GBP5.8bn) in line with the overall market
liquidity reduction driven by seasonal tax payments in 1Q23 by our
customers as well as heightened cost of living pressures on our
customers, corporate deleveraging, and the competitive environment.
This was partially offset by the increase in deposits by GBP5.5bn
from the acquisition of HSBC Innovation Bank Limited.
Equity
Total shareholders' equity, including non-controlling interests,
increased by GBP1.7bn or 7.8% compared with 31 December 2022.
This reflected the effects of profits generated of GBP3.2bn,
partly offset by dividend payments of GBP0.9bn and a reduction in
OCI of GBP0.6bn from cash flow hedge reserves as a result of the
impact of increasing interest rates.
Risk
Risk overview
We continuously identify, assess, manage and monitor risks. This
process, which is informed by our risk factors and the results of
our stress testing programme, gives rise to the classification of
certain financial and non-financial banking risks. Changes in the
assessment of these risks may result in adjustments to our business
strategy and our risk appetite.
The risks we manage include credit risk, treasury risk, market
risk, climate risk, resilience risk, regulatory compliance risk,
financial crime and fraud risk, and model risk.
In addition to these risks, we have identified top and emerging
risks with the potential to have a material impact on our financial
results or reputation and the sustainability of our long-term
business model.
The exposure to our risks and risk management of these are
explained in more detail in the Risk section of the Report of the
Directors on pages 17 to 28 of the Annual Report and Accounts
2022.
Managing risk
We aim to use a comprehensive risk management approach across
the organisation and across all risk types, underpinned by our
culture and values. This is outlined in our risk management
framework, including the key principles and practices that we
employ in managing material risks.
Difficult economic conditions in the UK continue to impact our
customers and our organisation in 2023. GDP growth remains slow
with the country struggling to consistently return to economic
activity levels seen before the Covid-19 pandemic. With the rate of
inflation remaining high, interest rates have continued to rise
putting additional pressures on consumers. Our balance sheet and
liquidity has remained strong which has enabled us to provide
support to our customers and we will continue to use proactive
communications to provide details of how we can help as the cost of
living crisis continues. We are seeing pressure building on our
mortgage customers that are either on variable rates or have
recently refinanced at a higher fixed rate, from increased monthly
repayments. Whilst we have seen limited signs of stress, our
mortgage portfolio remains highly resilient, but we remain vigilant
and continue to focus on supporting customers. We have agreed to
the targets of the
Mortgage Charter announced by the UK Government in June 2023
that will provide additional assistance options to customers.
Pressure on our business operations and customer support centres
remains high as the current challenging economic environment
continues.
Since HSBC UK announced the acquisition of Silicon Valley Bank
UK Limited in March 2023, now HSBC Innovation Bank Limited, we have
been working to ensure that all risks associated with integrating
HSBC Innovation Bank Limited into the group are managed
effectively. These include ensuring that the provision of customer
products and services are maintained, fully assessing all current
risk and compliance policies and procedures so that these can be
aligned to HSBC UK's frameworks and putting in place the necessary
governance and control guardrails while the integration activity is
underway.
We continue to focus on improving the quality and timeliness of
the data used to inform management decisions, through measures such
as early warning indicators, prudent active risk management of our
risk appetite, and ensuring regular communication with our Board
and key stakeholders.
Climate Risk
Climate risk relates to the financial and non-financial impacts
that may arise as a result of climate change and the move to a
greener economy. Financial impacts could materialise, for example,
through greater transactional losses and/or increased capital
requirements. Non-financial impacts could materialise if our own
assets or operations are impacted by extreme weather or chronic
changes in weather patterns, or as a result of business decisions
to help achieve the HSBC Group's climate ambition. Our most
material medium to long term risks in regards to managing climate
risk relate to corporate and retail client financing within our
banking portfolio. The Trustee of our employee pension plan, the
HSBC Bank (UK) Pension Scheme also manages climate risk in line
with its fiduciary duties and local regulatory requirements, with
global corporate policy encouraging consideration of ESG risks when
selecting investments.
We continue to monitor the impacts of climate risk and further
embed our approach across our key risk areas and business
lines.
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.
Stress tests
We regularly conduct stress tests to assess the resilience of
our balance sheet and our capital adequacy, as well as to provide
actionable insights into how key elements of our portfolios may
behave during a crisis. We use the outcomes to calibrate our risk
appetite and to 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 our 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.
For the 2022 annual cyclical scenario, the HSBC Group was asked
to submit results for HSBC UK as a ring fenced bank, on a
stand-alone basis for the first time. The stand-alone results
showed that HSBC UK is sufficiently capitalised, indicating that
its CET1 capital ratio on an IFRS 9 transitional basis would fall
to a low point of 10.1%, above its CET1 reference rate of 6.2%. On
an IFRS 9 non-transitional basis, HSBC UK's CET1 capital ratio is
projected to reach a low point of 8.9%, which is above its IFRS 9
non-transitional CET1 reference rate of 6.4%.
HSBC UK's results incorporated strategic management actions. In
practice, under such adverse economic circumstances, HSBC UK would
consider a variety of management actions depending on the
prevailing circumstances at the time.
Top and emerging risks
Our top and emerging risks report identifies forward-looking
risks so that they can be considered in determining whether any
incremental action is needed to either prevent them from
materialising or to limit their effect.
Top risks are those that may have a material impact on the
financial results, reputation or business model of HSBC UK in the
year ahead. Emerging risks are those that have large unknown
components and may form beyond a one-year horizon. If any of these
risks were to occur, they could have a material effect on HSBC
UK.
Our suite of top and emerging risks is subject to regular review
by senior governance forums. We continue to monitor closely the
identified risks and ensure robust management actions are in place,
as required. Some risks were removed as these were considered as
having been absorbed into business as usual risk management
practices, such as Ibor transition.
Our current top and emerging risks are summarised below and
discussed in more detail on page 19 of our Annual Report and
Accounts 2022.
Externally driven
---------------------------------------------------------------------------------------------
Geopolitical p Our operations and portfolios are subject to risks associated
and macroeconomic with political instability, civil unrest and military
risk conflict. This could lead to disruption of our operations,
physical risk to our staff and/or physical damage to our
assets. Geopolitical tensions remain high, although global
supply chain disruptions have abated. The impact of increased
inflation and interest rate rises in the UK, geopolitical
events such as the ongoing Russia-Ukraine war, and the
volatility seen this year in the US and Swiss banking
sectors have increased uncertainty and may affect our
customers and our business.
---------------------- ------------------------------------------------------------------
Credit risk p We remain focused on assessing and managing the impacts
of the cost of living crisis and higher interest rates
on our customers. We have put in place additional early
warning indicators to help identify segments that we believe
may be at risk due to the macroeconomic situation. This
includes our mortgage customers who may be impacted by
increased monthly payments and across our lending portfolio,
those with reduced affordability due to other cost of
living increases. We are ensuring that we have adequate
capacity within our Financial Support Team and are contacting
customers potentially at risk. We remain focused on managing
credit facilities appropriately, and adjusting policy
and strategy as needed, including regular refreshes of
our affordability models. Industry sector analysis is
regularly conducted with particular focus on the Construction
and Contracting, Commercial Real Estate, Hospitality,
Hotels, and Retail industry sectors, as well as parts
of Agriculture and Manufacturing. We have increased the
frequency and depth of our monitoring activities with
stress tests and other reviews performed to identify portfolios
or customers who are likely to experience financial difficulty.
Evolving p The regulatory and compliance risk environment is increasingly
regulatory complex, in part driven by heightened geopolitical tensions,
environment changes to the regulatory framework following the UK's
risk withdrawal from the EU, and the cost of living crisis.
There is a continued focus on protection of consumers,
particularly vulnerable ones, strategy execution, transformation,
capital management, operational resilience, recovery and
resolution and regulatory reporting. These, alongside
other regulatory priorities, may result in change requirements
across HSBC UK in the short to medium term. We continue
to monitor regulatory and wider industry developments
closely, engaging with regulators as appropriate.
Cyber threat u HSBC UK faces a risk of service disruption from external
and unauthorised and internal malicious activity. We continue to monitor
access to ongoing geopolitical events and changes to the threat
systems landscape. HSBC UK operates a continuous improvement programme
to protect our technology operations and to counter a
fast-evolving cyber threat environment.
Environmental, p We are subject to ESG risks relating to climate change,
social and greenwashing, nature and human rights. This risk continues
governance to increase owing to the pace and volume of regulatory
risk developments globally and stakeholders placing more emphasis
on financial institutions' actions and investment decisions
in respect of ESG matters. Failure to meet these evolving
expectations may result in financial and non-financial
cost for HSBC UK, including adverse reputational consequences.
Digital u Focus remains on digital currencies from governments,
currencies regulatory bodies and central banks. There have been increased
and disintermediation debate on CBDC with the BoE and HMT consultation on the
risk subject in the UK and more design studies and pilots taking
place in locations such as Hong Kong, India, the eurozone
and Japan. The cryptocurrency and stablecoin ecosystem
has seen exceedingly volatile prices with some risk of
contagion spreading beyond these markets. There is still
no suggestion that cryptocurrencies or stablecoins have
moved from being a speculative asset to being a replacement
for existing fiat currencies. We continue to monitor the
evolution of digital assets and decentralised finance
across channels including consultations, pilots and issuances
to assess the implications for our products and services
and our customers.
---------------------- ------------------------------------------------------------------
Internally driven
People risk u HSBC UK is exposed to risks associated with employee retention,
talent availability and compliance with employment laws
and regulations. Whilst overall HSBC UK attrition has
stabilised, we remain vigilant in light of external market
factors including the cost of living crisis and an active
labour market, that might impact our ability to retain
and attract talent. HSBC UK is embedding hybrid working,
with further opportunities to continuously enhance our
proposition in 2023.
IT systems p We continue to monitor and improve our IT systems and
infrastructure network resilience to minimise service disruption and
and service improve HSBC UK customer experience through, for example,
resilience HSBC Group's Vision 27 programme for digital transformation.
The significant volume of change and the complexity of
our IT environment increase the risk of service disrruption
which we work to mitigate through change management controls.
We continue to experience increased demand on customer
support centres and our business operations as a result
of the current economic environment creating additional
focus on service resilience. To support the business strategy,
we are continuing to strengthen our end-to-end service
chain mapping, and build and deploy controls and system
monitoring capabilities.
---------------------- ------------------------------------------------------------------
Model risk u Model risk arises whenever business decision making includes
reliance on models. We use models in both financial and
non-financial contexts, as well as in a range of business
applications. The model landscape continues to be impacted
by regulatory requirements driving material changes to
the way model risk is managed across the banking industry
in the UK. The focus has been extended from capital models
to all models based on the Supervisory Statement (SS 1/23)
'Model Risk Management Principles for Banks' issued by
the PRA in May 2023. The rapidly changing technology environment
including generative Artificial Intelligence and large
language models utilising AI are impacting the need for
enhanced model risk controls.
---------------------- ------------------------------------------------------------------
Financial u We are exposed to financial crime risk from our customers,
crime and staff and third-parties engaging in criminal activity.
fraud risk The financial crime risk environment continues to evolve,
affected by complex geopolitical challenges, the macroeconomy,
sanctions regulations, technological developments, and
national data privacy requirements. Fraud, which is becoming
ever-more sophisticated, continues to be an area of focus
for HSBC UK. Regulatory scrutiny has increased around
scams and the impacts from recent changes to the PSR's
reimbursement requirements. As a result, we will continue
to face the possibility of regulatory enforcement and
reputational risk.
---------------------- ------------------------------------------------------------------
Conduct u Throughout 2023, HSBC UK has been working towards meeting
and customer new Consumer Duty requirements, and a new Code of Conduct
detriment rule, seeking to ensure we act to deliver good customer
outcomes and act consistently to support customers. Work
will continue to ensure good customer outcomes on an ongoing
basis.
Data risk u HSBC UK uses data to serve our customers and run our operations,
often in real-time within digital experiences and processes.
Data risk remains a key area of focus for HSBC UK and
is receiving significant management attention as we continue
to enhance our control environment. 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 non-public data is
kept confidential, and that we comply with the growing
number of regulations that govern data privacy and cross-border
movement of data.
---------------------- ------------------------------------------------------------------
Internally driven (continued)
---------------------------------------------------------------------------------------------
Third-party p HSBC UK procures goods and services from a range of third
risk parties, who we recognise may be impacted by the same
heightened external markets factors as us. It is critical
that we have appropriate risk management policies and
processes to select and govern third parties, including
third parties' increasingly complex supply networks, particularly
for key activities that could adversely 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.
---------------------- ------------------------------------------------------------------
Execution u Failure to effectively prioritise, manage and/or deliver
risk transformation across the organisation impacts our ability
to achieve our strategic objectives. Given the increased
scale, complexity and pace of change at HSBC UK, we aim
to monitor, manage and oversee change execution risk to
ensure our change portfolio and initiatives continue to
deliver the right outcomes for our customers, people,
investors and communities.
---------------------- ------------------------------------------------------------------
Risk has heightened during the
p first half of 2023
u Risk remains at the same level
as 2022
Area of key interest
During the first half of 2023, a number of areas were identified
and considered as part of our top and emerging risks because of the
effect they may have on HSBC UK. In this section we have focused on
geopolitical and macroeconomic risk.
Geopolitical and macroeconomic risk
Geopolitical and macroeconomic risk continued to be high in the
first half of 2023 as the UK economy faced a number of challenges,
including persistently high inflation, increased interest rates and
a period of significant market volatility that followed stressed
conditions in the US and Swiss banking sectors. Consumer confidence
remains low as the cost of living crisis has deepened, partly
driven by continued high food prices and with real incomes falling.
The UK has not entered into a recession so far in 2023 but the
economic outlook remains uncertain.
The current economic environment continued to impact on ECL and
could increase the uncertainty of our modelled ECL estimates. The
combined pressure of higher inflation and interest rates may impact
the ability of our personal and business customers to repay
mortgages, loans and other forms of borrowing. In line with
existing practice we have continued to carry out enhanced
monitoring of model outputs and the use of model overlays,
including management adjustments. These adjustments are based on
the expert judgement of senior credit risk managers to reflect
current market inflation and interest rate conditions where they
have not been incorporated in the underlying macroeconomic
scenarios. Inflation and rising interest rates have been considered
both directly in certain models, and assessed via adjustments where
not directly considered.
The Russia-Ukraine war has continued to have far-reaching
geopolitical implications. It has resulted in the imposition of
significant sanctions and trade restrictions. The war's economic
impact has reduced as the global economy has adapted to the
sanctions regime. In particular, Europe is diversifying its energy
sources to reduce dependence on Russian energy supplies.
The continuation of, or any further escalation in, the
Russia-Ukraine war however, 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. HSBC UK is monitoring the
impacts of the Russia-Ukraine war and continues to respond to the
further economic sanctions and trade restrictions that have been
imposed on Russia in response.
The conclusion of the Windsor Framework between the UK and the
EU introduced a new system of checks on goods moving from the UK to
Northern Ireland, and removed a major area of friction in the
post-UK withdrawal relationship. On 27 June 2023, the UK and the EU
also signed a memorandum of understanding on regulatory cooperation
in financial services, potentially paving the way for closer
coordination of policy making for the sector. Over the medium to
long term, the UK's withdrawal from the EU may increase the
country's economic risk, which could adversely impact our
profitability. We are monitoring the situation closely, including
the potential impacts on our customers.
The relationship between China and several countries, including
the UK and the US, remains complex. The UK, the US, the EU and
other countries have imposed various sanctions and trade
restrictions on Chinese persons and companies. In response China
has imposed sanctions and introduced new laws and trade
restrictions that could impact HSBC UK and its customers. Further
sanctions or counter-sanctions may create regulatory, reputational
and market risks for HSBC UK.
Our Central macroeconomic scenario, which has the highest
probability weighting in our IFRS 9 'Financial Instruments'
calculations of ECL, assumes low growth and a higher inflation
environment. The Central scenario has been assigned a standard
weighting across all of the Group's major markets including the UK
reflecting narrowing forecast dispersion, reduced uncertainty and a
view that forecasts now sufficiently capture the weak growth
outlook. There remains continued uncertainty with respect to the
relationship between the economic drivers and the historical loss
experience, which has required adjustments to modelled ECL in cases
where we determined that the model was unable to capture the
material underlying risks. For retail portfolios where models do
not sufficiently capture the interest rate and inflation risks,
there has been a globally consistent approach developed. This is
utilised for assessing the affordability pressure on potentially
affected customers and the consequential impact this would have on
ECL and is incorporated into ECL via management judgemental
adjustments.
For further details of our Central and other scenarios, see
'Measurement uncertainty and sensitivity analysis of ECL estimates'
on page 17.
Key developments in the first half of 2023
We actively managed the risks related to macroeconomic and
geopolitical uncertainties, as well as other key risks described in
this section. In addition, we sought to enhance our risk management
in the following areas:
- We continued to embed the governance and oversight around the
IFRS9 process including financial reporting processes.
- Through our climate risk programme, we continued to embed
climate considerations throughout the organisation, including
enhancing our approach to assessing the impact of climate on
capital, and continued development of risk metrics to manage our
exposure to climate risk.
- We have continued to strengthen our third-party risk policy
and have enhanced the way third party risk is overseen and managed
across all non-financial risks. Our processes, framework and
reporting capabilities have been enhanced to improve the control
and oversight of our material third parties to help maintain our
operational resilience and to meet new and evolving regulatory
requirements.
Credit risk
Credit risk is the risk of financial loss if a customer or
counterparty fails to meet an obligation under a contract. It
arises principally from direct lending, trade finance and leasing
business, but also from off-balance sheet products such as
guarantees and credit derivatives.
A summary of our current policies and practices for the
management of credit risk is set out in 'Credit risk management' on
page 26 of the Annual Report and Accounts 2022.
Credit risk in the first half of 2023
Summary of credit risk
The disclosure below presents the gross carrying/nominal amount
of financial instruments to which the impairment requirements in
IFRS 9 are applied and the associated allowance for ECL.
On 31 December 2022, the IFRS 9 allowance for ECL was GBP2,016m.
This allowance has increased by GBP128m to GBP2,144m at 30 June
2023.
The IFRS 9 allowance for ECL at 30 June 2023 comprises GBP8m in
respect of assets held at amortised cost and GBP101m in respect of
loan commitments and financial guarantees. There is GBP1m allowance
for ECL in respect of debt instruments measured at FVOCI.
The following table provides an overview of the group's credit
risk exposure.
Summary of financial instruments to which the impairment requirements
in IFRS 9 are applied
At 30 Jun 2023 At 31 Dec 2022
-------------------------------------------------------------------------- ------------------------------------------------------------------
Gross carrying/nominal Allowance Gross carrying/nominal Allowance
amount for amount for
ECL(1) ECL(1)
GBPm GBPm GBPm GBPm
--------------- -------------------------------------- ---------------------------------- ------------------------------- ---------------------------------
Loans and
advances to
customers at
amortised cost 211,599 (2,033) 206,055 (1,912)
--------------- -------------------------------------- ---------------------------------- ------------------------------- ---------------------------------
- personal 140,034 (835) 138,626 (872)
- corporate and
commercial 64,638 (1,169) 64,955 (1,035)
---------------
- non-bank
financial
institutions 6,927 (29) 2,474 (5)
--------------- -------------------------------------- ---------------------------------- -------------------------------
Loans and
advances to
banks at
amortised
cost 7,326 (2) 6,359 (2)
--------------- -------------------------------------- ---------------------------------- ------------------------------- ---------------------------------
Other financial
assets
measured at
amortised cost 93,189 (8) 109,137 (5)
--------------- -------------------------------------- ---------------------------------- ------------------------------- ---------------------------------
- cash and
balances at
central banks 76,666 - 94,407 -
---------------
- items in the
course of
collection
from other
banks 327 - 353 -
- reverse
repurchase
agreements -
non-trading 6,781 - 7,406 -
---------------
- financial
investments 7,755 (1) 5,160 -
---------------
- prepayments,
accrued income
and
other
assets(2) 1,660 (7) 1,811 (5)
--------------- -------------------------------------- ---------------------------------- -------------------------------
Total gross
carrying
amount
on-balance
sheet 312,114 (2,043) 321,551 (1,919)
--------------- -------------------------------------- ---------------------------------- ------------------------------- ---------------------------------
Loans and other
credit-related
commitments 70,966 (98) 67,628 (91)
--------------- -------------------------------------- ---------------------------------- ------------------------------- ---------------------------------
- personal 42,101 (11) 42,059 (9)
---------------
- corporate and
commercial 25,282 (84) 24,669 (82)
---------------
- non-bank
financial
institutions 3,583 (3) 900 -
--------------- -------------------------------------- ---------------------------------- -------------------------------
Financial
guarantees 1,076 (3) 1,148 (6)
--------------- -------------------------------------- ---------------------------------- ------------------------------- ---------------------------------
- personal 313 - 342 -
---------------
- corporate and
commercial 506 (3) 518 (6)
---------------
- non-bank
financial
institutions 257 - 288 -
--------------- -------------------------------------- ---------------------------------- -------------------------------
Total nominal
amount
off-balance
sheet(3) 72,042 (101) 68,776 (97)
--------------- -------------------------------------- ---------------------------------- ------------------------------- ---------------------------------
384,156 (2,144) 390,327 (2,016)
--------------- -------------------------------------- ---------------------------------- ------------------------------- ---------------------------------
Memorandum Memorandum
allowance allowance
Fair for Fair for
value ECL(4) value ECL(4)
GBPm GBPm GBPm GBPm
--------------- -------------------------------------- ---------------------------------- ------------------------------- ---------------------------------
Debt
instruments
measured at
fair
value through
other
comprehensive
income
Debt
instruments
measured at
fair
value through
other
comprehensive
income 14,374 (1) 10,932 (1)
--------------- -------------------------------------- ---------------------------------- ------------------------------- ---------------------------------
1 Total ECL is recognised in the loss allowance for the
financial asset unless the total ECL exceeds the gross carrying
amount of the financial asset, in which case the ECL is recognised
as a provision.
2 Includes only those financial instruments which are subject to
the impairment requirements of IFRS 9. 'Prepayments, accrued income
and other assets', as presented within the consolidated balance
sheet on page 36, includes both financial and non-financial
assets.
3 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
4 Debt instruments measured at FVOCI continue to be measured at
fair value with the allowance for ECL as a memorandum item. Change
in ECL is recognised in 'Change in expected credit losses and other
credit impairment charges' in the income statement.
4
The following table provides an overview of the group's credit
risk by stage and industry, and the associated ECL coverage. The
financial assets recorded in each stage have the following
characteristics:
- Stage 1: These financial assets are unimpaired and without
significant increase in credit risk on which a 12-month allowance
for ECL is recognised.
- Stage 2: A significant increase in credit risk has been
experienced on these financial assets since initial recognition for
which a lifetime ECL is recognised.
-
Stage 3: There is objective evidence of impairment, and the
financial assets are therefore considered to be in default or
otherwise credit impaired on which a lifetime ECL is
recognised.
- POCI: Financial assets that are purchased or originated at a
deep discount are seen to reflect the incurred credit losses on
which a lifetime ECL is recognised.
-
Summary of credit risk (excluding debt instruments measured at FVOCI)
by stage distribution and ECL coverage by industry sector
Gross carrying/nominal Allowance for ECL ECL coverage %
amount(1)
------------------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
1 2 3 POCI Total 1 2 3 POCI Total 1 2 3 POCI Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % % % % %
-------------------------------------- -------------- --------------- --------------- -------- ------------------------- -------------- -------------- -------------- ----------- ------------- ---------- ---------- ----------------- ------ ----------
Loans and
advances
to customers
at amortised
cost 153,637 53,835 4,127 - 211,599 (254) (988) (791) - (2,033) 0.2 1.8 19.2 - 1.0
-------------------------------------- -------------- --------------- --------------- -------- ------------------------- -------------- -------------- -------------- ----------- ------------- ---------- ---------- ----------------- ------ ----------
* personal 104,237 34,938 859 - 140,034 (118) (521) (196) - (835) 0.1 1.5 22.8 - 0.6
-------------------------------------- ---------- ---------- ----------------- ------ ----------
* corporate and commercial 43,283 18,159 3,196 - 64,638 (124) (458) (587) - (1,169) 0.3 2.5 18.4 - 1.8
-------------------------------------- ---------- ---------- ----------------- ------ ----------
* non-bank financial institutions 6,117 738 72 - 6,927 (12) (9) (8) - (29) 0.2 1.2 11.1 - 0.4
-------------------------------------- -------------- --------------- --------------- -------- ------------------------- -------------- -------------- -------------- ----------- ------------- ---------- ---------- ----------------- ------ ----------
Loans and
advances
to banks
at amortised
cost 7,324 - 2 - 7,326 - - (2) - (2) - - 100.0 - -
-------------------------------------- -------------- --------------- --------------- -------- ------------------------- -------------- -------------- -------------- ----------- ------------- ---------- ---------- ----------------- ------ ----------
Other financial
assets measured
at amortised
cost 93,007 155 27 - 93,189 (4) - (4) - (8) - - 14.8 - -
-------------------------------------- -------------- --------------- --------------- -------- ------------------------- -------------- -------------- -------------- ----------- ------------- ---------- ---------- ----------------- ------ ----------
Loan and
other credit-related
commitments 61,678 9,062 226 - 70,966 (28) (37) (33) - (98) - 0.4 14.6 - 0.1
-------------------------------------- -------------- --------------- --------------- -------- ------------------------- -------------- -------------- -------------- ----------- ------------- ---------- ---------- ----------------- ------ ----------
* personal 38,273 3,763 65 - 42,101 (10) - (1) - (11) - - 1.5 - -
-------------------------------------- ---------- ---------- ----------------- ------ ----------
* corporate and commercial 20,221 4,900 161 - 25,282 (17) (35) (32) - (84) 0.1 0.7 19.9 - 0.3
-------------------------------------- ---------- ---------- ----------------- ------ ----------
* financial 3,184 399 - - 3,583 (1) (2) - - (3) - 0.5 - - 0.1
-------------------------------------- -------------- --------------- --------------- -------- ------------------------- -------------- -------------- -------------- ----------- ------------- ---------- ---------- ----------------- ------ ----------
Financial
guarantee
and similar
contracts 745 317 14 - 1,076 - - (3) - (3) - - 21.4 - 0.3
-------------------------------------- -------------- --------------- --------------- -------- ------------------------- -------------- -------------- -------------- ----------- ------------- ---------- ---------- ----------------- ------ ----------
* personal 304 9 - - 313 - - - - - - - - - -
-------------------------------------- ---------- ---------- ----------------- ------ ----------
* corporate and commercial 365 127 14 - 506 - - (3) - (3) - - 21.4 - 0.6
-------------------------------------- ---------- ---------- ----------------- ------ ----------
* financial 76 181 - - 257 - - - - - - - - - -
-------------------------------------- -------------- --------------- --------------- -------- ------------------------- -------------- -------------- -------------- ----------- ------------- ---------- ---------- ----------------- ------ ----------
At 30 Jun
2023 316,391 63,369 4,396 - 384,156 (286) (1,025) (833) - (2,144) 0.1 1.6 18.9 - 0.6
-------------------------------------- -------------- --------------- --------------- -------- ------------------------- -------------- -------------- -------------- ----------- ------------- ---------- ---------- ----------------- ------ ----------
Loans and
advances
to customers
at amortised
cost 154,818 46,693 4,521 23 206,055 (248) (941) (722) (1) (1,912) 0.2 2.0 16.0 4.3 0.9
-------------------------------------- ------------ ---------------- ---------------- --------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- -------------- ---------- ----------
* personal 106,745 31,041 840 - 138,626 (112) (571) (189) - (872) 0.1 1.8 22.5 - 0.6
-------------------------------------- ---------- ---------- -------------- ---------- ----------
* corporate and commercial 45,739 15,520 3,673 23 64,955 (134) (368) (532) (1) (1,035) 0.3 2.4 14.5 4.3 1.6
-------------------------------------- ---------- ---------- -------------- ---------- ----------
* non-bank financial institutions 2,334 132 8 - 2,474 (2) (2) (1) - (5) 0.1 1.5 12.5 - 0.2
-------------------------------------- ------------ ---------------- ---------------- --------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- -------------- ---------- ----------
Loans and
advances
to banks
at amortised
cost 6,354 1 4 - 6,359 - - (2) - (2) - - 50.0 - -
-------------------------------------- ------------ ---------------- ---------------- --------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- -------------- ---------- ----------
Other financial
assets measured
at amortised
cost 108,987 126 24 - 109,137 - (1) (4) - (5) - 0.8 16.7 - -
-------------------------------------- ------------ ---------------- ---------------- --------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- -------------- ---------- ----------
Loan and
other credit-related
commitments 62,581 4,806 241 - 67,628 (29) (37) (25) - (91) - 0.8 10.4 - 0.1
-------------------------------------- ------------ ---------------- ---------------- --------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- -------------- ---------- ----------
* personal 41,614 358 87 - 42,059 (9) - - - (9) - - - - -
-------------------------------------- ---------- ---------- -------------- ---------- ----------
* corporate and commercial 20,120 4,395 154 - 24,669 (20) (37) (25) - (82) 0.1 0.8 16.2 - 0.3
-------------------------------------- ---------- ---------- -------------- ---------- ----------
* financial 847 53 - - 900 - - - - - - - - - -
-------------------------------------- ------------ ---------------- ---------------- --------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- -------------- ---------- ----------
Financial
guarantee
and similar
contracts 983 147 18 - 1,148 - - (6) - (6) - - 33.3 - 0.5
-------------------------------------- ------------ ---------------- ---------------- --------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- -------------- ---------- ----------
- personal 335 7 - - 342 - - - - - - - - - -
-------------------------------------- ---------- ---------- -------------- ---------- ----------
* corporate and commercial 407 93 18 - 518 - - (6) - (6) - - 33.3 - 1.2
-------------------------------------- ---------- ---------- -------------- ---------- ----------
- financial 241 47 - - 288 - - - - - - - - - -
-------------------------------------- ------------ ---------------- ---------------- --------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- -------------- ---------- ----------
At 31 Dec
2022 333,723 51,773 4,808 23 390,327 (277) (979) (759) (1) (2,016) 0.1 1.9 15.8 4.3 0.5
-------------------------------------- ------------ ---------------- ---------------- --------- ------------------------ -------------- -------------- -------------- -------------- -------------- ---------- ---------- -------------- ---------- ----------
1 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
1
Measurement uncertainty and sensitivity analysis of ECL
estimates
There continues to be a high degree of uncertainty in relation
to economic scenarios. The increased risks of lower economic growth
with higher inflation and unemployment have been exacerbated by the
geopolitical environment and the effects of global supply chain
disruption.
As a result of this uncertainty, management judgements and
estimates continue to reflect a degree of caution both in the
selection of economic scenarios and their weightings, and in the
use of management judgemental adjustments, described in more detail
below. Additional stage 1 and 2 allowances were recorded in respect
of the heightened levels of uncertainty.
The recognition and measurement of ECL involves the use of
significant judgement and estimation. We form multiple economic
scenarios based on economic forecasts, apply these assumptions to
credit risk models to estimate future credit losses, and weigh the
results by probability to determine an unbiased ECL estimate.
Methodology
At 30 June 2023, four economic scenarios have been used to
capture the current economic environment and to articulate
management's view of the range of potential outcomes. Scenarios are
updated with new forecasts and estimates each quarter.
The Upside, Central and Downside scenarios are drawn from
consensus forecasts, market data and distributional estimates.
The fourth scenario, the Downside 2, represents management's
view of severe downside risks.
In June 2023, following a significant shift in UK policy
interest rate expectations, the Central scenario and key economic
and financial variables were updated. Outer scenario economic
variables for the UK were changed in parallel with these Central
scenario adjustments.
Economic scenarios produced to calculate ECL are aligned to
HSBC's top and emerging risks.
Description of consensus economic scenarios
The economic assumptions presented in this section have been
formed by the HSBC Group, with reference to external forecasts
specifically for the purpose of calculating ECL.
In the Central scenario, global economic forecasts have
improved, with output and consumption data from Q1, proving better
than had been expected and GDP and employment have proved resilient
to higher inflation and interest rates.
The level of UK Inflation is considered to have peaked in Q4
2022 and is expected to reduce in the coming months, although
remaining at elevated levels in 2023. Interest rate expectations
have shifted higher and additional rate rises are expected.
The Upside and Downside scenarios are designed to encompass the
potential crystallisation of a number of key macro-financial risks.
Higher inflation, tighter monetary policy and financial conditions,
and an escalation of geopolitical risks pose key downside risks to
the outlook. To the upside, a swifter decline in inflation and a
cut to interest rates would drive faster economic growth.
The four global scenarios used for the purpose of calculating
ECL at 30 June 2023 are the consensus Central scenario, the
consensus Upside scenario, the consensus Downside scenario, and the
Downside 2 scenario.
The scenarios used to calculate ECL in the Interim Report 2023
are described below.
The consensus Central scenario
HSBC Group's Central scenario features a slow down in GDP growth
through in 2023 relative to 2022 and a rise in unemployment.
GDP forecasts have been raised in recent quarters, due to
stronger-than expected 1Q23 growth, underpinned by resilience in
household consumption. Nevertheless, the outlook for the remainder
of 2023 and the beginning of 2024 remains subdued as high inflation
continues to erode disposable income and curtail investment.
The Central scenario assumes that inflation gradually declines
through 2023 and, reverts back towards the BoE's target range in
2025.
UK GDP is expected to be flat in 2023 in the Central scenario.
The average rate of UK GDP growth is expected to be 0.8% over the
forecast period, which is below the average growth rate of 1.6%
over the five-year period prior to the onset of the pandemic.
In the UK, the Central scenario assumes that persistently high
inflation and wage growth has caused a significant re-appraisal of
interest rate expectations. A substantially higher terminal rate
for interest rates implies a bigger impact on confidence,
discretionary income and investment. HSBC Group has sought to
reflect this in an updated Central scenario which incorporates a
recession for the UK that begins in the second half of 2023 and
persists into 2024. Interest rates are forecast to rise through to
year end and remain high for an extended period of time.
The Central scenario was first created from consensus forecasts
available in May, and subsequently updated in June. For the UK,
significant UK variables, including GDP, unemployment and policy
rates were updated in late June with judgemental adjustments.
The following table describes key macroeconomic variables and
the probability assigned in the consensus Central scenario at 30
June 2023.
Central scenario applied at 30 June
2023
3Q23-2Q28
%
----------------------------- ---------------------------------
GDP growth rate
----------------------------- ---------------------------------
2023: Annual average growth -
rate
----------------------------- ---------------------------------
2024: Annual average growth
rate (0.6)
----------------------------- ---------------------------------
2025: Annual average growth
rate 1.0
----------------------------- ---------------------------------
5-year average 0.8
----------------------------- ---------------------------------
Unemployment rate
----------------------------- ---------------------------------
2023: Annual average rate 4.2
----------------------------- ---------------------------------
2024: Annual average rate 4.7
----------------------------- ---------------------------------
2025: Annual average rate 4.5
----------------------------- ---------------------------------
5-year average 4.5
----------------------------- ---------------------------------
House price growth
----------------------------- ---------------------------------
2023 : Annual average growth
rate (1.3)
----------------------------- ---------------------------------
2024 : Annual average growth
rate (5.7)
----------------------------- ---------------------------------
2025: Annual average growth
rate (1.9)
----------------------------- ---------------------------------
5-year average (0.6)
----------------------------- ---------------------------------
Inflation rate
----------------------------- ---------------------------------
2023 : Annual average rate 7.5
----------------------------- ---------------------------------
2024 : Annual average rate 2.8
----------------------------- ---------------------------------
2025: Annual average rate 1.8
----------------------------- ---------------------------------
5-year average 2.5
----------------------------- ---------------------------------
Probability 75.0
----------------------------- ---------------------------------
The graphs compare the respective Central scenario at year end
2022 with current economic expectations in the second quarter of
2023.
GDP growth: Comparison of Central
scenarios
Note: Real GDP shown as year-on-year percentage change.
The consensus Upside scenario
The consensus Upside scenario features stronger growth, lower
unemployment and a faster fall in inflation compared with the
Central scenario. Asset prices, including housing also rise more
quickly. This is consistent with a number of key upside risk
themes, including falling energy and commodity prices and easing
wage growth, which allow central banks to lower interest rates; a
de-escalation in geopolitical tensions; and looser financial
conditions.
The following table describes key macroeconomic variables and
the probability assigned in the consensus Upside scenario.
Consensus Upside scenario best outcome
UK
%
---------------------- ----------- ------
GDP growth rate 8.7 (2Q28)
---------------------- ----------- ------
Unemployment rate 3.0 (2Q25)
---------------------- ----------- ------
House price growth 5.7 (2Q28)
---------------------- ----------- ------
Inflation rate 1.0 (2Q24)
---------------------- ----------- ------
Probability 5.0
---------------------- ----------- ------
Note: extreme point in the consensus Upside is 'best outcome' in
the scenario, for example, highest GDP growth and the lowest
unemployment rate, in the first two years of the scenario.
Inflation is positively correlated with GDP in the Upside scenario,
and the 'best outcome' also refers to the cyclical high point.
Downside scenarios
Downside scenarios explore the intensification and
crystallisation of a number of key economic and financial
risks.
High Inflation and the monetary policy response remain a key
concern for UK growth. While supply chain disruptions, caused by
the Covid-19 pandemic and the Russia-Ukraine war, are easing
helping to reduce headline price inflation across many markets,
core inflation remains high in the UK. This reflects a tight labour
market, which is putting upward pressure on wages, and resilience
in demand. In turn, it raises the risk of a more forceful policy
response from the BoE, encompassing a steeper trajectory for
interest rates and ultimately, economic recession.
The rapid increase in interest rates has already led to a
repricing of asset valuations, as corporate and household borrowers
face steep increases in debt service costs. Policymakers have also
raised concerns that, following the collapse of several US regional
banks, financial conditions could tighten further, acting as
another constraint on activity. Insolvencies and default rates
could rise sharply as businesses find it difficult to refinance and
cash buffers diminish amid weaker demand.
The consensus Downside scenario
In the consensus Downside scenario, economic activity is
considerably weaker compared with the Central scenario, driven by
an intensification of geopolitical risks that aggravate supply
chain disruptions and causes energy and other commodity prices to
rise. In this scenario, economies experience moderate recession,
unemployment rates increase, and asset prices fall.
The following table describes key macroeconomic variables and
the probabilities assigned in the Consensus Downside scenario.
Consensus Downside scenario worst
outcome
UK
%
------------------- ----------------------------- ------
GDP growth rate (3.2) (3Q25)
------------------- ----------------------------- ------
Unemployment rate 6.2 (4Q24)
------------------- ----------------------------- ------
House price growth (16.6) (2Q25)
------------------- ----------------------------- ------
Inflation rate 7.0 (3Q23)
------------------- ----------------------------- ------
Probability 15.0
------------------- ----------------------------- ------
Note: Extreme point in the consensus downside is 'worst outcome'
in the scenario, for example the lowest GDP growth, and the highest
unemployment rate, in the first two years of the scenario.
Inflation is positively correlated with GDP in the Downside
scenario, and the 'worst outcome' refers to the cyclical low
point.
Downside 2 scenario
The Downside 2 scenario features a deep recession and reflects
management's view of the tail of the economic risk distribution. It
incorporates the crystallisation of a number of risks
simultaneously. The narrative features an escalation in
geopolitical tensions, which leads to further disruptions to supply
chains. This creates additional upward pressure on inflation,
prompting central banks to keep interest rates higher than in the
Central scenario. However, demand subsequently falls sharply and
unemployment rises before inflation pressures subside.
The following table describes key macroeconomic variables and
the probability assigned in the Downside 2 scenario.
Downside 2 scenario worst outcome
UK
%
------------------- ----------------------------- ------
GDP growth rate (7.7) (4Q24)
------------------- ----------------------------- ------
Unemployment rate 9.0 (4Q24)
------------------- ----------------------------- ------
House price growth (40.8) (3Q25)
------------------- ----------------------------- ------
Inflation rate 10.3 (4Q23)
------------------- ----------------------------- ------
Probability 5.0
------------------- ----------------------------- ------
Note: Extreme point in the Downside 2 is 'worst outcome' in the
scenario, for example the lowest GDP growth, and the highest
unemployment rate, in first two years of the scenario. After a
temporary increase, inflation remains positively correlated with
GDP in the Downside 2 scenario, and the 'worst outcome' refers to
the scenario low point.
Scenario weightings
In reviewing the economic conjuncture, the level of uncertainty
and risk, management has considered both global and UK specific
factors. This has led management to assign scenario probabilities
that are tailored to its view of uncertainty in UK markets.
In 2Q23, the level of certainty attached to the Central scenario
was deemed to have increased. It was noted that:
- dispersion of economic forecasts have narrowed;
- the stabilisation of a number of key risk drivers. For
example, the economic implications of the Russia-Ukraine war have
diminished;
- the current Central scenario forecasts are sufficiently
reflective of weak GDP growth prospects.
Consequently, probability weights assigned to the Central
scenario have reverted back to the standard weight of 75%, from 60%
at December 2022.
For the UK, uncertainty generated by shifting interest rate
expectations was addressed with revisions to scenario variables.
The weighting assigned to the UK Central scenario therefore aligns
to the standard weight.
The following graph shows the UK historical and forecasted GDP
growth rate for the various economic scenarios.
UK GDP growth
Critical accounting estimates and judgements
The calculation of ECL under IFRS 9 involves significant
judgements, assumptions and estimates, as set out in the Annual
Report and Accounts 2022 under 'Critical accounting estimates and
judgements'. The level of estimation uncertainty and judgement has
remained high since 31 December 2022 including judgements relating
to:
- the selection and weighting of economic scenarios, given
rapidly changing economic conditions and a wide distribution of
economic forecasts; and
- estimating the economic effects of those scenarios on ECL,
particularly the effect of interest rates and inflationary
pressures in specific sectors.
How economic scenarios are reflected in ECL
The methodologies for the application of forward economic
guidance into the calculation of ECL for wholesale and retail loans
and portfolios are set out on page 36 of the Annual Report and
Accounts 2022. Models are used to reflect economic scenarios on ECL
estimates. These models are based largely on historical
observations and correlations with default.
Management judgemental adjustments
In the context of IFRS 9, management judgemental adjustments are
typically increases or decreases to the ECL at either a customer,
segment or portfolio level to account for late-breaking events,
model and data limitations and deficiencies and expert credit
judgement applied during management review and challenge.
This includes refining model inputs and outputs and using
adjustments to ECL based on management judgement and higher level
quantitative analysis for impacts that are difficult to model. The
effects of management judgmental adjustments are considered for
both balances and ECL, and will consider any changes to stage
allocation where appropriate. This is in accordance with the
internal adjustments framework.
The wholesale and retail management judgemental adjustments are
presented as part of the global and HSBC UK business impairment
committees with representation from Model Risk Management. This is
in line with the governance process for IFRS 9 as set out on page
26 of the Annual Report and Accounts 2022.
The drivers of the management judgemental adjustments continue
to evolve with the economic environment as new risks emerge.
At 30 June 2023 management judgemental adjustments reduced by
GBP126m compared with 31 December 2022. Adjustments related to
sector-specific risks were maintained. They were also maintained to
account for elevated uncertainty under the high inflation
scenarios.
We have internal governance in place to monitor management
judgemental adjustments regularly and, where possible, to reduce
the reliance on these through model recalibration or redevelopment,
as appropriate.
Given the level of economic uncertainty and idiosyncratic
events, we believe that management judgemental adjustments will
continue to be a key component of ECL for the foreseeable
future.
Management judgemental adjustments made in estimating the
reported ECL at 30 June 2023 are set out in the following
table:
Management judgemental adjustments
to ECL at 30 June 2023(1)
Retail Wholesale Total
GBPm GBPm GBPm
Corporate lending
adjustments - 5 5
Retail lending
adjustments 113 - 113
------------------ ------------------ --------------------------- --------------------
Total 113 5 118
------------------ ------------------ --------------------------- --------------------
Management judgemental adjustments
to ECL at 31 December 2022(1)
Retail Wholesale Total
GBPm GBPm GBPm
Corporate lending
adjustments - 114 114
Retail lending
adjustments 130 - 130
------------------ ------------------- ------------------------ -----------------
Total 130 114 244
------------------ ------------------- ------------------------ -----------------
1 Management judgemental adjustments presented in the table
reflect increases or (decreases) to ECL, respectively.
In the wholesale portfolio, management judgemental adjustments
were an ECL increase of GBP5m comprising GBP(46)m relating to
Corporate portfolios and GBP51m relating to Retail SME portfolios
which use Retail models (31 December 2022: GBP114m increase
including GBP67m from Retail SME).
Supported by credit experts' input, portfolio risk metrics and
quantitative analyses, these adjustments principally reflected the
outcome of management judgements to account for sensitivity to
challenging macro-economic environment.
In the retail portfolio, management judgemental adjustments were
an ECL increase of GBP113m at 30 June 2023 (31 December 2022:
GBP130m increase).
These adjustments were primarily in relation to macroeconomic
impacts, including adjustments to address inflation and interest
rate risks which were not fully captured by the modelled output,
with a number of other smaller retail lending adjustments relating
to data and models.
Economic scenarios sensitivity analysis of ECL estimates
Management considered the sensitivity of the ECL outcome against
the economic forecasts as part of the ECL governance process by
recalculating the ECL under each scenario described above for
selected portfolios, applying a 100% weighting to each scenario in
turn. The weighting is reflected in both the determination of a
significant increase in credit risk and the measurement of the
resulting ECL.
The ECL calculated for the Upside and Downside scenarios should
not be taken to represent the upper and lower limits of possible
ECL outcomes. The impact of defaults that might occur in the future
under different economic scenarios is captured by recalculating ECL
for loans in stages 1 and 2 at the balance sheet date. The
population of stage 3 loans (in default) at the balance sheet date
is unchanged in these sensitivity calculations. Stage 3 ECL would
only be sensitive to changes in forecasts of future economic
conditions if the loss-given default of a particular portfolio was
sensitive to these changes.
There is a particularly high degree of estimation uncertainty in
numbers representing tail risk scenarios when assigned a 100%
weighting.
For wholesale credit risk exposures, the sensitivity analysis
excludes ECL for financial instruments related to defaulted
obligors because the measurement of ECL is relatively more
sensitive to credit factors specific to the obligor than future
economic scenarios. Therefore, it is impracticable to separate the
effect of macroeconomic factors in individual assessments.
For retail credit risk exposures, the sensitivity analysis
includes ECL for loans and advances to customers related to
defaulted obligors. This is because the retail ECL for secured
mortgage portfolios, including loans in all stages, is sensitive to
macroeconomic variables.
Wholesale and retail sensitivity
The wholesale and retail sensitivity analysis is stated
inclusive of management judgemental adjustments, as appropriate to
each scenario. The results tables exclude some small portfolios,
and as such cannot be directly compared with personal and wholesale
lending presented in other credit risk tables.
Wholesale analysis
IFRS 9 ECL sensitivity to future
economic conditions(1)
30 Jun 31 Dec
2023 2022
GBPm GBPm
----------------------------- ------------------- -------------------
ECL of financial instruments
subject to significant
measurement uncertainty
at
30 June 2023
----------------------------- ------------------- -------------------
Reported ECL 657 559
----------------------------- ------------------- -------------------
Consensus scenarios
----------------------------- ------------------- -------------------
Central scenario 569 458
----------------------------- ------------------- -------------------
Upside scenario 406 354
----------------------------- ------------------- -------------------
Downside scenario 772 606
Downside 2 scenario 1,988 1,604
----------------------------- ------------------- -------------------
1 ECL sensitivity includes off-balance sheet financial
instruments that are subject to significant measurement
uncertainty.
At 30 June 2023, a significant level of ECL sensitivity was
observed. This higher ECL impact was largely driven by significant
exposure in downside risks of specific sectors.
Compared with 31 December 2022, the Downside 2 ECL impact was
higher, reflective of the heightened macroeconomic uncertainty
driven by the high inflation and interest rate environment.
Retail analysis
IFRS 9 ECL sensitivity to future
economic conditions(1)
30 Jun 31 Dec
2023 2022
GBPm GBPm
-------------------------- -------------------- ------
ECL of loans and advances
to customers at
30 June 2023
-------------------------- -------------------- ------
Reported ECL 821 860
-------------------------- -------------------- ------
Consensus scenarios
-------------------------- -------------------- ------
Central scenario 780 799
-------------------------- -------------------- ------
Upside scenario 654 715
-------------------------- -------------------- ------
Downside scenario 864 848
Downside 2 scenario 1,454 1,443
-------------------------- -------------------- ------
1 ECL sensitivities exclude portfolios utilising less complex modelling approaches.
At 30 June 2023, a significant level of 100% scenario-weighted
ECL sensitivity was observed. Mortgages reflected the lowest level
of ECL sensitivity as collateral values remain resilient.
Credit cards and other unsecured lending, as these products
generally have higher ECL, are more sensitive to economic
forecasts, which have reflected deteriorations during the first
half of 2023. Compared with 31 December 2022, the Downside 2 ECL
impact was higher due to the deterioration in the macroeconomic
forecast.
Reconciliation of changes in gross carrying/nominal amount and
allowances for loans and advances to banks and customers including
loan commitments and financial guarantees
The following disclosure provides a reconciliation by stage of
the group's gross carrying/nominal amount and allowances for loans
and advances to banks and customers, including loan commitments and
financial guarantees. Movements are calculated on a quarterly basis
and therefore fully capture stage movements between quarters. If
movements were calculated on a year-to-date basis they would only
reflect the opening and closing position of the financial
instrument.
The transfers of financial instruments represent the impact of
stage transfers upon the gross carrying/nominal amount and
associated allowance for ECL.
The net remeasurement of ECL arising from stage transfers
represents the increase or decrease due to these transfers, for
example, moving from a 12-month (stage 1) to a lifetime (stage 2)
ECL measurement basis. Net remeasurement excludes the underlying
CRR/PD movements of the financial instruments transferring stage.
This is captured, along with other credit quality movements in the
'changes in risk parameters - credit quality' line item.
The 'new financial assets originated or purchased', 'net further
lending' and 'assets derecognised (including final repayments)'
represent the gross carrying/nominal amount and associated
allowance ECL impact from volume movements within the group's
lending portfolio.
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees(1)
Non-credit impaired Credit impaired
------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Total
------------------------------------------ ----------------------------------------- ----------------------------------------- ------------------------------------------ ------------------------------------------
Gross Gross Gross Gross Gross
carrying/nominal carrying/ Allowance carrying/ carrying/ carrying/
amount Allowance nominal for nominal Allowance nominal Allowance nominal Allowance
for ECL amount ECL amount for ECL amount for ECL amount for ECL
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ------------------ ---------------------- ----------------- ---------------------- ----------------- ---------------------- ------------------ ---------------------- ------------------ ----------------------
At 1 Jan 2023 223,956 (277) 51,572 (978) 4,784 (755) 23 (1) 280,335 (2,011)
Transfers of
financial instruments: (14,120) (122) 13,217 179 903 (57) - - - -
---------------------------------------- ------------------ ---------------------- ----------------- ---------------------- ----------------- ---------------------- ------------------ ---------------------- ------------------ ----------------------
* transfers from stage 1 to stage 2 (28,200) 85 28,200 (85) - - - - - -
----------------------------------------
* transfers from stage 2 to stage 1 14,309 (204) (14,309) 204 - - - - - -
----------------------------------------
* transfers to stage 3 (364) 2 (1,000) 79 1,364 (81) - - - -
----------------------------------------
* transfers from stage 3 135 (5) 326 (19) (461) 24 - - - -
---------------------------------------- ------------------ ---------------------- ----------------- ---------------------- ----------------- ---------------------- ------------------ ---------------------- ------------------
Net remeasurement
of ECL arising
from transfer
of stage - 117 - (143) - (2) - - - (28)
New financial
assets originated
or purchased 30,439 (100) - - - - - - 30,439 (100)
---------------------------------------- ------------------ ---------------------- ----------------- ---------------------- ----------------- ---------------------- ------------------ ---------------------- ------------------ ----------------------
Asset derecognised
(including final
repayments) (10,932) 15 (2,838) 55 (909) 33 - - (14,679) 103
---------------------------------------- ------------------ ---------------------- ----------------- ---------------------- ----------------- ---------------------- ------------------ ---------------------- ------------------ ----------------------
Changes to risk
parameters -
further lending/repayment (7,871) 41 1,142 4 (165) 29 (23) - (6,917) 74
---------------------------------------- ------------------ ---------------------- ----------------- ---------------------- ----------------- ---------------------- ------------------ ---------------------- ------------------ ----------------------
Changes to risk
parameters -
credit quality - 47 - (150) - (321) - 1 - (423)
---------------------------------------- ------------------ ---------------------- ----------------- ---------------------- ----------------- ---------------------- ------------------ ---------------------- ------------------ ----------------------
Changes to model
used for ECL
calculation - (2) - 8 - - - - - 6
---------------------------------------- ------------------ ---------------------- ----------------- ---------------------- ----------------- ---------------------- ------------------ ---------------------- ------------------ ----------------------
Assets written
off - - - - (244) 244 - - (244) 244
Others 24 (1) - - - - - - 24 (1)
---------------------------------------- ------------------ ---------------------- ----------------- ---------------------- ----------------- ---------------------- ------------------ ---------------------- ------------------ ----------------------
At 30 Jun 2023 221,496 (282) 63,093 (1,025) 4,369 (829) - - 288,958 (2,136)
---------------------------------------- ------------------ ---------------------- ----------------- ---------------------- ----------------- ---------------------- ------------------ ---------------------- ------------------ ----------------------
ECL release/(charge)
for the period 118 (226) (261) 1 (368)
---------------------------------------- ------------------ ---------------------- ----------------- ---------------------- ----------------- ---------------------- ------------------ ---------------------- ------------------ ----------------------
Recoveries 37
Others (6)
---------------------------------------- ------------------ ---------------------- ----------------- ---------------------- ----------------- ---------------------- ------------------ ---------------------- ------------------ ----------------------
Total change
in ECL for the
period (337)
---------------------------------------- ------------------ ---------------------- ----------------- ---------------------- ----------------- ---------------------- ------------------ ---------------------- ------------------ ----------------------
Reconciliation of changes in gross carrying/nominal amount and allowances
for loans and advances to banks and customers including
loan commitments and financial guarantees(1) (continued)
Non-credit impaired Credit impaired
------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Total
------------------------------------------ ---------------------------------------- ------------------------------------------- -------------------------------------------- ------------------------------------------
Gross Gross Gross Gross Gross
carrying/ carrying/ carrying/ carrying/ carrying/
nominal Allowance nominal Allowance nominal Allowance nominal Allowance nominal Allowance
amount for ECL amount for ECL amount for ECL amount for ECL amount for ECL
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ----------------- ----------------------- ----------------- --------------------- ------------------ ----------------------- ------------------- ----------------------- ----------------- -----------------------
At 1 Jan 2022 240,386 (348) 22,039 (718) 4,283 (860) 20 (5) 266,728 (1,931)
Transfers of
financial instruments: (34,718) (175) 32,900 245 1,818 (70) - - - -
---------------------------------------- ----------------- ----------------------- ----------------- --------------------- ------------------ ----------------------- ------------------- ----------------------- ----------------- -----------------------
* transfers from stage 1 to stage 2 (57,652) 177 57,652 (177) - - - - - -
----------------------------------------
* transfers from stage 2 to stage 1 23,349 (337) (23,349) 337 - - - - - -
----------------------------------------
* transfers to stage 3 (638) 3 (2,125) 153 2,763 (156) - - - -
----------------------------------------
* transfers from stage 3 223 (18) 722 (68) (945) 86 - - - -
---------------------------------------- ----------------- ----------------------- ----------------- --------------------- ------------------ ----------------------- ------------------- ----------------------- -----------------
Net remeasurement
of ECL arising
from transfer
of stage - 214 - (264) - (3) - - - (53)
New financial
assets originated
or purchased 55,066 (154) - - - - - - 55,066 (154)
---------------------------------------- ----------------- ----------------------- ----------------- --------------------- ------------------ ----------------------- ------------------- ----------------------- ----------------- -----------------------
Asset derecognised
(including final
repayments) (30,601) 36 (3,700) 98 (781) 20 - - (35,082) 154
---------------------------------------- ----------------- ----------------------- ----------------- --------------------- ------------------ ----------------------- ------------------- ----------------------- ----------------- -----------------------
Changes to risk
parameters -
further lending/repayment (10,027) 76 333 13 (46) 105 3 - (9,737) 194
---------------------------------------- ----------------- ----------------------- ----------------- --------------------- ------------------ ----------------------- ------------------- ----------------------- ----------------- -----------------------
Changes to risk
parameters -
credit quality - 70 - (214) - (449) - 4 - (589)
---------------------------------------- ----------------- ----------------------- ----------------- --------------------- ------------------ ----------------------- ------------------- ----------------------- ----------------- -----------------------
Changes to model
used for ECL
calculation - 4 - (138) - 12 - - - (122)
---------------------------------------- ----------------- ----------------------- ----------------- --------------------- ------------------ ----------------------- ------------------- ----------------------- ----------------- -----------------------
Assets written
off - - - - (490) 490 - - (490) 490
Others(2) 3,850 - - - - - - - 3,850 -
---------------------------------------- ----------------- ----------------------- ----------------- --------------------- ------------------ ----------------------- ------------------- ----------------------- ----------------- -----------------------
At 31 Dec 2022 223,956 (277) 51,572 (978) 4,784 (755) 23 (1) 280,335 (2,011)
---------------------------------------- ----------------- ----------------------- ----------------- --------------------- ------------------ ----------------------- ------------------- ----------------------- ----------------- -----------------------
ECL release/(charge)
for the period 246 (505) (315) 4 (570)
---------------------------------------- ----------------- ----------------------- ----------------- --------------------- ------------------ ----------------------- ------------------- ----------------------- ----------------- -----------------------
Recoveries 71
Others 22
---------------------------------------- ----------------- ----------------------- ----------------- --------------------- ------------------ ----------------------- ------------------- ----------------------- ----------------- -----------------------
Total change
in ECL for the
period (477)
---------------------------------------- ----------------- ----------------------- ----------------- --------------------- ------------------ ----------------------- ------------------- ----------------------- ----------------- -----------------------
1 The Reconciliation excludes loans and advances and commitments
to other HSBC Group companies. As at 30 June 2023, these amounted
to GBP1.6bn (2022: GBP0.5bn) and were classified as stage 1 with no
ECL.
2 GBP3.8bn of gross carrying amounts of stage 1 loans and
advances to banks, representing the balance maintained with the BoE
to support BACS along with Faster Payments and the
cheque-processing Image Clearing System in the UK as at 30 June
2022 when it was reclassified from 'Cash and balances at central
banks'. Comparatives have not been restated.
Credit quality of financial instruments
We assess the credit quality of all financial instruments that
are subject to credit risk. The credit quality of financial
instruments is a point-in-time assessment of the PD, whereas stages
1 and 2 are determined based on relative deterioration of credit
quality since initial recognition. Accordingly, for
non-credit-impaired financial instruments, there is no direct
relationship between the credit quality assessment and stages 1 and
2, though typically the lower credit quality bands exhibit a higher
proportion in stage 2.
The five credit quality classifications each encompass a range
of granular internal credit rating grades assigned to wholesale and
personal lending businesses and the external ratings attributed by
external agencies to debt securities, as shown in the following
table. Personal lending credit quality is disclosed based on a
12-month point-in-time PD adjusted for multiple economic scenarios.
The credit quality classifications for wholesale lending are based
on internal credit risk ratings.
Credit quality classification
Debt securities
and other Wholesale Retail
bills lending lending
---------------- ----------------------------------- ------------------------
12-month 12 month
Basel probability Internal probability-
External Internal of default credit weighted PD
credit rating credit rating % rating %
---------------------------- ---------------- --------------- ------------------ -------- --------------
Quality classification(1,2)
---------------------------- ---------------- --------------- ------------------ -------- --------------
Strong A- and above CRR 1 to 0 - 0.169 Band 1 0.000 - 0.500
CRR 2 and 2
---------------------------- ---------------- --------------- ------------------ -------- --------------
Good BBB+ to BBB- CRR 3 0.170 - Band 3 0.501 - 1.500
0.740
---------------------------- ---------------- --------------- ------------------ -------- --------------
BB+ to B
and CRR 4 to 0.741 - Band 4
Satisfactory unrated CRR 5 4.914 and 5 1.501 - 20.000
---------------------------- ---------------- --------------- ------------------ -------- --------------
Sub-standard B- to C CRR 6 to 4.915 - Band 6 20.001 -
CRR 8 99.999 99.999
---------------------------- ---------------- --------------- ------------------ -------- --------------
CRR 9 to
Credit impaired Default CRR 10 100 Band 7 100
---------------------------- ---------------- --------------- ------------------ -------- --------------
1 Customer risk rating.
2 12-month point-in-time probability-weighted PD.
Distribution of financial instruments to which the impairment requirements
in IFRS 9 are applied, by credit quality and stage allocation
Gross carrying/notional amount
----------------------------------------------------------------------------------------------------------------------------------------------
Allowance
Sub- Credit for
Strong Good Satisfactory standard impaired Total ECL Net
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------------------- -------------------- --------------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------
Loans and
advances to
customers at
amortised
cost 121,881 45,007 35,617 4,967 4,127 211,599 (2,033) 209,566
--------------- ------------------- -------------------- --------------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------
- stage 1 102,668 26,589 23,500 880 - 153,637 (254) 153,383
---------------
- stage 2 19,213 18,418 12,117 4,087 - 53,835 (988) 52,847
---------------
- stage 3 - - - - 4,127 4,127 (791) 3,336
---------------
- POCI - - - - - - - -
--------------- ------------------- -------------------- --------------------------- ---------------------- ---------------------- ---------------------- ----------------------
Loans and
advances to
banks at
amortised cost 6,964 6 354 - 2 7,326 (2) 7,324
--------------- ------------------- -------------------- --------------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------
- stage 1 6,964 6 354 - - 7,324 - 7,324
---------------
- stage 2 - - - - - - - -
---------------
- stage 3 - - - - 2 2 (2) -
---------------
- POCI - - - - - - - -
--------------- ------------------- -------------------- --------------------------- ---------------------- ---------------------- ---------------------- ----------------------
Other financial
assets
measured at
amortised
cost 92,730 201 228 3 27 93,189 (8) 93,181
--------------- ------------------- -------------------- --------------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------
- stage 1 92,696 154 157 - - 93,007 (4) 93,003
---------------
- stage 2 34 47 71 3 - 155 - 155
---------------
- stage 3 - - - - 27 27 (4) 23
---------------
- POCI - - - - - - - -
--------------- ------------------- -------------------- --------------------------- ---------------------- ---------------------- ---------------------- ----------------------
Loan and other
credit-related
commitments 44,445 13,916 11,698 681 226 70,966 (98) 70,868
--------------- ------------------- -------------------- --------------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------
- stage 1 40,547 11,442 9,499 190 - 61,678 (28) 61,650
---------------
- stage 2 3,898 2,474 2,199 491 - 9,062 (37) 9,025
---------------
- stage 3 - - - - 226 226 (33) 193
---------------
- POCI - - - - - - - -
--------------- ------------------- -------------------- --------------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financial
guarantees 557 222 209 74 14 1,076 (3) 1,073
--------------- ------------------- -------------------- --------------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------
- stage 1 425 173 144 3 - 745 - 745
---------------
- stage 2 132 49 65 71 - 317 - 317
---------------
- stage 3 - - - - 14 14 (3) 11
---------------
- POCI - - - - - - - -
--------------- ------------------- -------------------- --------------------------- ---------------------- ---------------------- ---------------------- ----------------------
At 30 Jun 2023 266,577 59,352 48,106 5,725 4,396 384,156 (2,144) 382,012
--------------- ------------------- -------------------- --------------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------
Debt
instruments at
FVOCI(1) 15,773 - - - - 15,773 (1) 15,772
--------------- ------------------- -------------------- --------------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------
- stage 1 15,773 - - - - 15,773 (1) 15,772
---------------
- stage 2 - - - - - - - -
---------------
- stage 3 - - - - - - - -
---------------
- POCI - - - - - - - -
--------------- ------------------- -------------------- --------------------------- ---------------------- ---------------------- ---------------------- ----------------------
At 30 Jun 2023 15,773 - - - - 15,773 (1) 15,772
--------------- ------------------- -------------------- --------------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------
Distribution of financial instruments to which the impairment requirements
in IFRS 9 are applied, by credit quality and stage allocation (continued)
Gross carrying/notional amount
---------------------------------------------------------------------------------------------------------------------------------------------------
Sub- Credit Allowance
Strong Good Satisfactory standard impaired Total for ECL Net
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------------------- --------------------- --------------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
Loans and
advances to
customers at
amortised
cost 129,503 32,452 34,283 5,273 4,544 206,055 (1,912) 204,143
--------------- -------------------- --------------------- --------------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
- stage 1 105,529 24,826 23,794 669 - 154,818 (248) 154,570
---------------
- stage 2 23,974 7,626 10,489 4,604 - 46,693 (941) 45,752
---------------
- stage 3 - - - - 4,521 4,521 (722) 3,799
---------------
- POCI - - - - 23 23 (1) 22
--------------- -------------------- --------------------- --------------------------- ----------------------- ----------------------- ----------------------- -----------------------
Loans and
advances to
banks at
amortised cost 6,355 - - - 4 6,359 (2) 6,357
--------------- -------------------- --------------------- --------------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
- stage 1 6,354 - - - - 6,354 - 6,354
---------------
- stage 2 1 - - - - 1 - 1
---------------
- stage 3 - - - - 4 4 (2) 2
---------------
- POCI - - - - - - - -
--------------- -------------------- --------------------- --------------------------- ----------------------- ----------------------- ----------------------- -----------------------
Other financial
assets
measured at
amortised
cost 108,783 126 201 3 24 109,137 (5) 109,132
--------------- -------------------- --------------------- --------------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
- stage 1 108,737 105 145 - - 108,987 - 108,987
---------------
- stage 2 46 21 56 3 - 126 (1) 125
---------------
- stage 3 - - - - 24 24 (4) 20
---------------
- POCI - - - - - - - -
--------------- -------------------- --------------------- --------------------------- ----------------------- ----------------------- ----------------------- -----------------------
Loan and other
credit-related
commitments 42,289 14,141 10,407 550 241 67,628 (91) 67,537
--------------- -------------------- --------------------- --------------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
- stage 1 41,874 12,551 8,030 126 - 62,581 (29) 62,552
---------------
- stage 2 415 1,590 2,377 424 - 4,806 (37) 4,769
---------------
- stage 3 - - - - 241 241 (25) 216
---------------
- POCI - - - - - - - -
--------------- -------------------- --------------------- --------------------------- ----------------------- ----------------------- ----------------------- -----------------------
Financial
guarantees 642 186 264 38 18 1,148 (6) 1,142
--------------- -------------------- --------------------- --------------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
- stage 1 632 182 166 3 - 983 - 983
---------------
- stage 2 10 4 98 35 - 147 - 147
---------------
- stage 3 - - - - 18 18 (6) 12
---------------
- POCI - - - - - - - -
--------------- -------------------- --------------------- --------------------------- ----------------------- ----------------------- ----------------------- -----------------------
At 31 Dec 2022 287,572 46,905 45,155 5,864 4,831 390,327 (2,016) 388,311
--------------- -------------------- --------------------- --------------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
Debt
instruments at
FVOCI(1) 12,384 - - - - 12,384 (1) 12,383
--------------- -------------------- --------------------- --------------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
- stage 1 12,384 - - - - 12,384 (1) 12,383
---------------
- stage 2 - - - - - - - -
---------------
- stage 3 - - - - - - - -
---------------
- POCI - - - - - - - -
--------------- -------------------- --------------------- --------------------------- ----------------------- ----------------------- ----------------------- -----------------------
At 31 Dec 2022 12,384 - - - - 12,384 (1) 12,383
--------------- -------------------- --------------------- --------------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
1 For the purposes of this disclosure gross carrying value is
defined as the amortised cost of a financial asset, before
adjusting for any loss allowance. As such the gross carrying value
of debt instruments at FVOCI as presented above will not reconcile
to the balance sheet as it excludes fair value gains and
losses.
Wholesale lending
This section provides further detail on the industries in
wholesale loans and advances to customers and banks. Industry
granularity is also provided by stage.
Total wholesale lending for loans and advances to banks and customers
by stage distribution
Gross carrying amount Allowance for ECL
------------------------------------------------------------------------------ ----------------------------------------------------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 POCI Total 1 2 3 POCI Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- --------------- -------------- --------------- ------------ -------------- -------------- -------------- -------------- ------------ --------------
Corporate and commercial 43,283 18,159 3,196 - 64,638 (124) (458) (587) - (1,169)
---------------------------------- --------------- -------------- --------------- ------------ -------------- -------------- -------------- -------------- ------------ --------------
- agriculture, forestry and
fishing 3,012 1,047 178 - 4,237 (5) (31) (23) - (59)
----------------------------------
- mining and quarrying 444 164 37 - 645 (1) (5) (17) - (23)
----------------------------------
- manufacture 4,969 2,431 397 - 7,797 (10) (56) (69) - (135)
----------------------------------
- electricity, gas, steam
and air-conditioning supply 376 256 1 - 633 (1) (8) - - (9)
----------------------------------
- water supply, sewerage,
waste management and remediation 623 322 9 - 954 (1) (8) (3) - (12)
----------------------------------
- construction 2,236 1,001 226 - 3,463 (9) (22) (38) - (69)
----------------------------------
* wholesale and retail trade,
repair of motor vehicles
and motorcycles 6,271 4,062 579 - 10,912 (24) (74) (112) - (210)
----------------------------------
- transportation and storage 1,396 682 68 - 2,146 (3) (15) (7) - (25)
----------------------------------
- accommodation and food 3,076 2,930 309 - 6,315 (14) (81) (24) - (119)
----------------------------------
- publishing, audiovisual
and broadcasting 2,627 393 170 - 3,190 (7) (26) (71) - (104)
----------------------------------
- real estate 8,386 1,772 545 - 10,703 (22) (30) (128) - (180)
----------------------------------
- professional, scientific
and technical activities 3,218 680 167 - 4,065 (9) (35) (30) - (74)
----------------------------------
- administrative and support
services 3,336 1,620 131 - 5,087 (9) (36) (16) - (61)
- education 502 146 65 - 713 (2) (4) (20) - (26)
----------------------------------
- health and care 1,365 304 117 - 1,786 (1) (14) (10) - (25)
----------------------------------
- arts, entertainment and
recreation 699 89 59 - 847 (3) (5) (14) - (22)
----------------------------------
- other services 743 260 138 - 1,141 (3) (8) (5) - (16)
----------------------------------
- activities of households 1 - - - 1 - - - - -
- government 3 - - - 3 - - - - -
Non-bank financial institutions 6,117 738 72 - 6,927 (12) (9) (8) - (29)
---------------------------------- --------------- -------------- --------------- ------------ -------------- -------------- -------------- -------------- ------------ --------------
Loans and advances to banks 7,324 - 2 - 7,326 - - (2) - (2)
---------------------------------- --------------- -------------- --------------- ------------ -------------- -------------- -------------- -------------- ------------ --------------
At 30 Jun 2023 56,724 18,897 3,270 - 78,891 (136) (467) (597) - (1,200)
---------------------------------- --------------- -------------- --------------- ------------ -------------- -------------- -------------- -------------- ------------ --------------
Total wholesale credit-related commitments and financial guarantee
by stage distribution
Nominal amount Allowance for ECL
------------------------------------------------------------- ---------------------------------------------------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 POCI Total 1 2 3 POCI Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------- --------- ----------- ------------ ------------ --------- -------------- -------------- ------------ ------------ ---------------
Corporate
and
commercial 20,586 5,027 175 - 25,788 (17) (35) (35) - (87)
----------- --------- ----------- ------------ ------------ --------- -------------- -------------- ------------ ------------ ---------------
Financial 3,260 580 - - 3,840 (1) (2) - - (3)
----------- --------- ----------- ------------ ------------ --------- -------------- -------------- ------------ ------------ ---------------
At 30 Jun
2023 23,846 5,607 175 - 29,628 (18) (37) (35) - (90)
----------- --------- ----------- ------------ ------------ --------- -------------- -------------- ------------ ------------ ---------------
Total wholesale lending for loans and advances to banks and customers
by stage distribution (continued)
Gross carrying amount Allowance for ECL
------------------------------------------------------------------------------- ----------------------------------------------------------------------------------
Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ---------------- ---------------- ---------------- --------- -------------- ---------------- ---------------- ---------------- ------------ --------------
Corporate and commercial 45,739 15,520 3,673 23 64,955 (134) (368) (532) (1) (1,035)
---------------------------------- ---------------- ---------------- ---------------- --------- -------------- ---------------- ---------------- ---------------- ------------ --------------
- agriculture, forestry and
fishing 3,018 889 152 - 4,059 (5) (26) (26) - (57)
----------------------------------
- mining and quarrying
- mining and quarrying
- mining and quarrying 507 140 34 - 681 (1) (1) (7) - (9)
----------------------------------
- manufacture 6,070 1,444 420 - 7,934 (11) (24) (88) - (123)
----------------------------------
- electricity, gas, steam
and air-conditioning supply
- electricity, gas, steam
and air-conditioning supply
- electricity, gas, steam
and air-conditioning supply 942 56 1 - 999 (1) (1) - - (2)
----------------------------------
- water supply, sewerage,
waste management and remediation
- water supply, sewerage,
waste management and remediation
- water supply, sewerage,
waste management and remediation 737 88 8 - 833 (1) (1) (2) - (4)
----------------------------------
- construction 2,256 898 234 - 3,388 (10) (24) (37) - (71)
----------------------------------
* wholesale and retail trade,
repair of motor vehicles
and motorcycles 5,915 5,137 837 - 11,889 (22) (121) (113) - (256)
----------------------------------
- transportation and storage
- transportation and storage
- transportation and storage 1,522 358 80 - 1,960 (4) (7) (6) - (17)
----------------------------------
- accommodation and food
- accommodation and food
- accommodation and food 3,840 2,359 341 - 6,540 (12) (56) (25) - (93)
----------------------------------
- publishing, audiovisual
and broadcasting
- publishing, audiovisual
and broadcasting
- publishing, audiovisual
and broadcasting 1,870 435 125 23 2,453 (10) (18) (9) (1) (38)
----------------------------------
- real estate 8,265 2,009 551 - 10,825 (22) (29) (109) - (160)
----------------------------------
- professional, scientific
and technical activities
- professional, scientific
and technical activities
- professional, scientific
and technical activities 3,349 378 132 - 3,859 (11) (21) (18) - (50)
----------------------------------
- administrative and support
services
- administrative and support
services
- administrative and support
services 3,880 651 260 - 4,791 (8) (17) (34) - (59)
- education 670 98 69 - 837 (3) (3) (17) - (23)
----------------------------------
- health and care 1,275 273 122 - 1,670 (4) (10) (6) - (20)
----------------------------------
- arts, entertainment and
recreation
- arts, entertainment and
recreation
- arts, entertainment and
recreation 700 108 92 - 900 (3) (4) (27) - (34)
----------------------------------
- other services 919 199 215 - 1,333 (6) (5) (8) - (19)
----------------------------------
- activities of households
- activities of households 1 - - - 1 - - - - -
- government 3 - - - 3 - - - - -
Non-bank financial institutions 2,334 132 8 - 2,474 (2) (2) (1) - (5)
---------------------------------- ---------------- ---------------- ---------------- --------- -------------- ---------------- ---------------- ---------------- ------------ --------------
Loans and advances to banks 6,354 1 4 - 6,359 - - (2) - (2)
---------------------------------- ---------------- ---------------- ---------------- --------- -------------- ---------------- ---------------- ---------------- ------------ --------------
At 31 Dec 2022 54,427 15,653 3,685 23 73,788 (136) (370) (535) (1) (1,042)
---------------------------------- ---------------- ---------------- ---------------- --------- -------------- ---------------- ---------------- ---------------- ------------ --------------
Total wholesale credit-related commitments and financial guarantee
by stage distribution (continued)
Nominal amount Allowance for ECL
--------------------------------------------------------------------- ---------------------------------------------------------------------------
Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------- ----------- ------------- -------------- ------------- ---------- -------------- -------------- -------------- ------------ -------------
Corporate
and
commercial 20,527 4,488 172 - 25,187 (20) (37) (31) - (88)
----------- ----------- ------------- -------------- ------------- ---------- -------------- -------------- -------------- ------------ -------------
Financial 1,088 100 - - 1,188 - - - - -
----------- ----------- ------------- -------------- ------------- ---------- -------------- -------------- -------------- ------------ -------------
At 31 Dec
2022 21,615 4,588 172 - 26,375 (20) (37) (31) - (88)
----------- ----------- ------------- -------------- ------------- ---------- -------------- -------------- -------------- ------------ -------------
Personal lending
We provide a broad range of secured and unsecured personal
lending products to meet customer needs. Personal lending includes
advances to customers for asset purchases such as residential
property where the loans are secured by the assets being acquired.
We also offer unsecured lending products such as overdrafts, credit
cards and personal loans.
The following table shows the levels of personal lending
products in the various portfolios. At 30 June 2023, Stage 2
personal lending balances increased by GBP3.9bn compared with 31
December 2022. The transfer to stage 2 balances was largely
explained by deterioration in the economic outlook on account of
rising interest rates and inflationary pressures. The quality of
the mortgage book remained high, with low levels of impairment
allowances. The average LTV ratio on new lending was 64%, compared
with an estimated 52% for the overall mortgage portfolio.
Total personal lending for loans and advances to customers at amortised
costs by stage distribution
Gross carrying amount Allowance for ECL
-------------------------------------------------------------- ----------------------------------------------------------------------------
Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------- ------------- ----------------- ------------- ------------------ ----------------- ------------------ -----------------
By portfolio
------------ ------------- ------------- ----------------- ------------- ------------------ ----------------- ------------------ -----------------
First lien
residential
mortgages 93,309 32,466 576 126,351 (18) (101) (60) (179)
------------ ------------- ------------- ----------------- ------------- ------------------ ----------------- ------------------ -----------------
- of which:
interest
only
(including
offset) 13,440 5,275 90 18,805 (5) (21) (7) (33)
Other
personal
lending 10,928 2,472 283 13,683 (100) (420) (136) (656)
------------ ------------- ------------- ----------------- ------------- ------------------ ----------------- ------------------ -----------------
- other 6,292 1,385 186 7,863 (56) (190) (80) (326)
------------
- credit
cards 4,636 1,087 97 5,820 (44) (230) (56) (330)
At 30 Jun
2023 104,237 34,938 859 140,034 (118) (521) (196) (835)
------------ ------------- ------------- ----------------- ------------- ------------------ ----------------- ------------------ -----------------
By portfolio
------------ -------------- -------------- ----------------- -------------- ------------------- ----------------- ----------------- -----------------
First lien
residential
mortgages 96,757 28,200 546 125,503 (10) (113) (62) (185)
------------ -------------- -------------- ----------------- -------------- ------------------- ----------------- ----------------- -----------------
- of which:
interest
only
(including
offset) 14,979 3,637 90 18,706 (2) (37) (10) (49)
Other
personal
lending 9,988 2,841 294 13,123 (102) (458) (127) (687)
------------ -------------- -------------- ----------------- -------------- ------------------- ----------------- ----------------- -----------------
- other 5,892 1,591 198 7,681 (56) (187) (73) (316)
------------
- credit
cards 4,096 1,250 96 5,442 (46) (271) (54) (371)
At 31 Dec
2022 106,745 31,041 840 138,626 (112) (571) (189) (872)
------------ -------------- -------------- ----------------- -------------- ------------------- ----------------- ----------------- -----------------
Total personal credit-related commitments and financial guarantees
by stage distribution
Nominal amount Allowance for ECL
--------------------------------------------------------------- ---------------------------------------------------------------------------------
Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----- ------------ --------------- ----------------- ------------- ------------------ ------------------- ------------------- -------------------
At 30
Jun
2023 38,577 3,772 65 42,414 (10) - (1) (11)
----- ------------ --------------- ----------------- ------------- ------------------ ------------------- ------------------- -------------------
At 31
Dec
2022 41,949 365 87 42,401 (9) - - (9)
----- ------------ --------------- ----------------- ------------- ------------------ ------------------- ------------------- -------------------
Treasury risk
Overview
Treasury risk is the risk of having insufficient capital,
liquidity or funding resources to meet financial obligations and
satisfy regulatory requirements, together with the financial risks
arising from the provision of pensions and other post-employment
benefits to staff and their dependants. Treasury risk also includes
the risk to our earnings or capital due to structural foreign
exchange exposures and changes in market interest rates.
Treasury risk arises from changes to the respective resources
and risk profiles driven by customer behaviour, management
decisions or the external environment.
Approach and policy
Our objective in the management of treasury risk is to maintain
appropriate levels of capital, liquidity, funding, foreign exchange
and market risk to support our business strategy, and meet our
regulatory and stress testing-related requirements.
Our approach to treasury management is driven by our strategic
and organisational requirements, considering the regulatory,
economic and commercial environment. We aim to maintain a strong
capital and liquidity base to support the risks inherent in our
business and invest in accordance with our strategy, meeting both
consolidated and local regulatory requirements at all times.
Our policy is underpinned by our risk management framework, our
ICAAP and our ILAAP. The risk framework incorporates several
measures aligned to our assessment of risks for both internal and
regulatory purposes. These risks include credit, market,
operational, pensions, non-trading book foreign exchange risk, and
interest rate risk in the banking book.
A summary of our current policies and practices regarding the
management of Treasury risk is set out on pages 55 to 58 of the
Annual Report and Accounts 2022.
Treasury risk management
Key developments in the first half of 2023
- Following high-profile US and Swiss banking failures in the
first quarter of 2023, we validated our existing risk management
practices including stress testing and limit setting. We also
reviewed our liquidity monitoring and metric assumptions as part of
our ILAAP cycle to ensure they continued to cover observed and
emerging risks.
- We made our first stand-alone submission to the BoE annual
stress testing exercise. The published results show that we
remained above the hurdle rates for CET1 and leverage throughout
the scenario.
- We continued to improve our analysis and understanding of the
drivers of capital volatility and the underlying sensitivities,
ensuring these are actively considered in our risk appetite and
limit setting processes.
- As announced by the BoE's Financial Policy Committee, the UK
countercyclical capital buffer rate increased from 1% to 2%,
effective July 2023 in line with the usual 12--month implementation
lag. The change is expected to increase our CET1 requirement by
approximately 0.91 percentage points.
- We continued to increase the stabilisation of our NII as
interest rate expectations fluctuated, driven by central bank rate
increases and a reassessment of the trajectory of inflation in
major economies.
- Following the acquisition of SVB UK (now HSBC Innovation Bank
Limited) in the first quarter of 2023, the Group launched HSBC
Innovation Banking in June, combining the expertise of SVB UK with
our international network. We are in the process of integrating the
staff, assets and liabilities of SVB UK into the group. The
acquisition was funded from existing resources, and the impact on
our liquidity and CET1 ratios is minimal.
Capital, liquidity and funding risk management processes
Assessment and risk appetite
Our capital management policy is supported by a global capital
management framework. The framework sets out our approach to
determining key capital risk appetites including CET1, total
capital, MREL, and leverage ratio. Our ICAAP is an assessment of
the group's capital position, outlining both regulatory and
internal capital resources and requirements resulting from HSBC
UK's business model, strategy, risk profile and management,
performance and planning, risks to capital, and the implications of
stress testing. Our assessment of capital adequacy is driven by an
assessment of risks. These risks include credit, market,
operational, pensions, insurance, structural foreign exchange,
interest rate risk in the banking book and Group risk. Climate risk
is also considered as part of the ICAAP, and we are continuing to
develop our approach. Subsidiaries prepare ICAAPs in line with
global guidance, while considering their local regulatory regimes
to determine their own risk appetites and ratios.
We aim to ensure that management has oversight of our liquidity
and funding risks at Group and entity level through robust
governance, in line with our risk management framework. We manage
liquidity and funding risk at an operating entity level, in
accordance with globally consistent policies, procedures and
reporting standards. This ensures that obligations can be met in a
timely manner, in the jurisdiction where they fall due. Operating
entities are required to meet internal minimum requirements and any
applicable regulatory requirements at all times. These requirements
are assessed through our ILAAP, which ensures that operating
entities have robust strategies, policies, processes and systems
for the identification, measurement, management and monitoring of
liquidity risk over an appropriate set of time horizons, including
intra-day. The ILAAP informs the validation of risk tolerance and
the setting of risk appetite. It also assesses the capability to
manage liquidity and funding effectively in each major entity.
These metrics are set and managed locally but are subject to robust
global review and challenge to ensure consistency of approach and
application of the Group's policies and controls.
Planning and performance
Capital and RWA plans, as well as funding and liquidity plans,
form part of the annual financial resource plan that is approved by
the Board. Capital and RWA forecasts are submitted to the ALCO on a
monthly basis, and capital and RWAs are monitored and managed
against the plan.
The Board-level appetite measures for funding and liquidity are
the LCR and NSFR, together with an internal liquidity metric. In
addition, we use a wider set of measures to manage an appropriate
funding and liquidity profile, including legal entity depositor
concentration limits, intra-day liquidity, forward-looking funding
assessments and other key measures.
Through our internal governance processes, we seek to strengthen
discipline over our investment and capital allocation decisions,
and to ensure that returns on investment meet management's
objectives. Our strategy is to allocate capital to businesses to
support growth objectives where returns above internal hurdle
levels have been identified, and in order to meet their regulatory
and economic capital needs. We evaluate and manage business returns
by using a return on average tangible equity measure.
Risks to capital and liquidity
Outside the stress testing framework, other risks may be
identified that have the potential to affect our RWAs, capital
and/or liquidity position. We closely monitor future regulatory
changes and continue to evaluate the impact of these upon our
capital and liquidity requirements, particularly those related to
the UK's implementation of the outstanding measures to be
implemented from the Basel III reforms ('Basel 3.1').
Regulatory developments
Future changes to our ratios will occur with the implementation
of Basel 3.1. The PRA has published its consultation paper on the
UK's implementation, with a proposed implementation date of 1
January 2025. We expect to see an RWA reduction from the initial
implementation. The RWA output floor under Basel 3.1 is proposed to
be subject to a five-year transitional provision. Any impact from
the output floor would be towards the end of the transition
period.
The PRA has published a consultation paper to remove the CET1
deduction requirement in the PRA Rulebook regarding non-performing
exposures that are treated as insufficiently covered by firms'
accounting provisions. The changes are anticipated to come into
force in the second half of 2023.
Regulatory reporting processes and controls
The quality of regulatory reporting remains a key priority for
management and regulators. We are progressing with a comprehensive
programme to strengthen our processes, improve consistency and
enhance controls across regulatory reports, focusing on our
prudential regulatory reporting.
Our ongoing programme of work on our prudential regulatory
reports is being phased over a number of years, prioritising RWA,
capital and liquidity reporting. This programme includes both data
enhancement and the transformation of the reporting systems that
they flow into. While this programme continues, there may be
further impacts on some of our regulatory ratios, such as CET1, LCR
and NSFR, as we implement recommended changes and continue to
enhance our controls. We are also establishing optimised risk
stewardship and assurance over our regulatory reports and have
developed a strategic inventory and tooling to drive consistent
standards, accountability and efficiency.
Stress testing and recovery and resolution planning
We use stress testing to inform management of the capital and
liquidity needed to withstand internal and external shocks,
including a global economic downturn or a systems failure. Stress
testing results are also used to inform risk mitigation actions,
allocation of financial resources, and recovery and resolution
planning, as well as to re-evaluate business plans where analysis
shows capital, liquidity and/or returns do not meet their
target.
In addition to a range of internal stress tests, we are subject
to supervisory stress testing by the Bank of England. The results
of regulatory stress testing and our internal stress tests are used
when assessing our internal capital and liquidity requirements
through the ICAAP and ILAAP. The outcomes of stress testing
exercises carried out by the PRA inform the setting of regulatory
minimum ratios and buffers.
We maintain a recovery plan, which sets out potential options
management could take in a range of stress scenarios that could
result in a breach of capital or liquidity buffers. The Group
recovery plan sets out the framework and governance arrangements to
support restoring the HSBC Group to a stable and viable position,
and so lowering the probability of failure from either
idiosyncratic company-specific stress or systemic market-wide
issues. HSBC UK's recovery plans provide detailed actions that
management would consider taking in a stress scenario should its
position deteriorate and threaten to breach risk appetite and
regulatory minimum levels. This is to help ensure that we can
stabilise our financial position and recover from financial losses
in a stress environment.
We also have capabilities, resources and arrangements in place
to address the unlikely event that we might not be recoverable and
would therefore need to be resolved by regulators. The Group
performed the inaugural Resolvability Assessment Framework
self-assessment during 2021 to meet the Bank of England's
requirements, which came into effect on 1 January 2022.
Overall, our recovery and resolution planning helps safeguard
the our financial and operational stability. We are committed to
further developing its recovery and resolution capabilities,
including in relation to the Bank of England's Resolvability
Assessment Framework.
Measurement of interest rate risk in the banking book
processes
Assessment and risk appetite
Interest rate risk in the banking book is the risk of an adverse
impact to earnings or capital due to changes in market interest
rates. It is generated by our non-traded assets and liabilities,
specifically loans, deposits and financial instruments that are not
held for trading intent or held in order to hedge positions held
with trading intent. Interest rate risk that can be economically
hedged may be transferred to the Markets Treasury business. Hedging
is generally executed through interest rate derivatives or
fixed-rate government bonds. Any interest rate risk that Markets
Treasury cannot economically hedge is not transferred and will
remain within the global business where the risks originate.
HSBC UK uses a number of measures to monitor and control
interest rate risk in the banking book, including:
- net interest income sensitivity;
- economic value of equity sensitivity; and
- hold-to-collect-and-sell stressed value at risk.
Net interest income sensitivity
A principal part of our management of non-traded interest rate
risk is to monitor the sensitivity of expected NII under varying
interest rate scenarios (i.e. simulation modelling), where all
other economic variables are held constant.
NII sensitivity figures represent the effect of pro forma
movements in projected yield curves based on a static balance sheet
size and structure. The exception to this is where the size of the
balances or repricing is deemed interest rate sensitive, for
example, non-interest-bearing current account migration and
fixed-rate loan early repayment. These sensitivity calculations do
not incorporate actions that would be taken by Markets Treasury or
in the business that originates the risk to mitigate the effect of
interest rate movements.
The NII sensitivity calculations assume that interest rates of
all maturities move by the same amount in the 'up-shock' scenario.
The sensitivity calculations in the 'down-shock' scenarios reflect
no floors to the shocked market rates. However, customer
product-specific interest rate floors are recognised where
applicable.
Further details of HSBC UK's risk management of interest rate
risk in the banking book can be found in HSBC UK's Pillar 3
Disclosures as at June 2023.
Economic value of equity sensitivity
EVE represents the present value of the future banking book cash
flows that could be distributed to equity providers under a managed
run-off scenario. This equates to the current book value of equity
plus the present value of future NII in this scenario. EVE can be
used to assess the economic capital required to support interest
rate risk in the banking book. An EVE sensitivity represents the
expected movement in EVE due to pre-specified interest rate shocks,
where all other economic variables are held constant. Operating
entities are required to monitor EVE sensitivities as a percentage
of capital resources.
Hold-to-collect-and-sell stressed value at risk
Hold-to-collect-and-sell stressed VaR is a quantification of the
potential losses to a 99% confidence level of the portfolio of
securities held under a held-to-collect-and-sell business model in
the Markets Treasury business. The portfolio is accounted for at
fair value through other comprehensive income together with the
derivatives held in designated hedging relationships with these
securities. This is quantified based on the worst losses over a
one-year period going back to the beginning of 2007 and the assumed
holding period is 60 days.
Hold-to-collect-and-sell stressed VaR uses the same models as
those used for trading book capitalisation and covers only the
portfolio managed by Markets Treasury under this business
model.
Capital risk
Own funds
Own funds disclosure and capital adequacy metrics(1)
At
30 Jun 31 Dec
2023 2022
GBPm GBPm
CET1 capital before regulatory adjustments 20,766 19,433
Total regulatory adjustments to common equity tier 1 (6,384) (6,914)
-------------------------------------------------------- ------------------------ ------------------------
CET1 capital 14,382 12,519
Additional tier 1 capital before regulatory adjustments 2,250 2,252
Additional tier 1 capital 2,250 2,252
-------------------------------------------------------- ------------------------ ------------------------
Tier 1 capital (T1 = CET1 + AT1) 16,632 14,771
Tier 2 capital before regulatory adjustments 3,039 3,076
Tier 2 capital 3,039 3,076
-------------------------------------------------------- ------------------------ ------------------------
Total regulatory capital 19,671 17,847
-------------------------------------------------------- ------------------------ ------------------------
Risk-weighted assets ('RWAs')
-------------------------------------------------------- ------------------------ ------------------------
Credit risk 86,746 80,740
-------------------------------------------------------- ------------------------ ------------------------
Counterparty credit risk 431 204
-------------------------------------------------------- ------------------------ ------------------------
Market risk 182 101
-------------------------------------------------------- ------------------------ ------------------------
Operational risk 11,739 11,368
-------------------------------------------------------- ------------------------ ------------------------
Total risk-weighted assets 99,098 92,413
-------------------------------------------------------- ------------------------ ------------------------
Capital ratios (%) % %
-------------------------------------------------------- ------------------------ ------------------------
Common equity tier 1 ratio 14.5 13.5
-------------------------------------------------------- ------------------------ ------------------------
Tier1 ratio 16.8 16.0
-------------------------------------------------------- ------------------------ ------------------------
Total capital ratio 19.9 19.3
-------------------------------------------------------- ------------------------ ------------------------
1 We have adopted the regulatory transitional arrangements in
CRR II for IFRS 9, including paragraph four of article 473a. These
allow banks to add back to their capital base a proportion of the
impact that IFRS 9 has upon their loan loss allowances. Our capital
and ratios are presented under these arrangements. At 30 June 2023,
the add-back to CET1 capital and the related tax charge were
immaterial.
At 30 June 2023, our CET1 capital ratio increased to 14.5% from
13.5% at 31 December 2022.
The key drivers for the increase in the CET1 capital ratio
were:
- an increase of 0.9% from GBP0.6bn of capital generation
through profit net of dividends and decrease in RWA of GBP1.4bn
(excluding the provisional gain and increase in RWA on acquisition
of SVB UK).
-
an increase of 0.1% from the provisional gain of GBP1.2bn offset
by increase of GBP8bn in RWAs on the acquisition of SVB UK.
At 30 June 2023, our Pillar 2A requirement, in accordance with
the PRA's Individual Capital Requirement based on a point-in-time
assessment, was equivalent to 3.97% of RWAs, of which 2.23% was met
by CET1 capital. Throughout the first half of 2023, we complied
with the PRA's regulatory capital adequacy requirements.
Risk-weighted assets
RWA movement by business by key driver
Credit risk, counterparty
credit risk and operational
risk
----------------------------------------------------------------------------------------------------------
WPB CMB GBM Corporate Market Total
risk RWAs
GBPm GBPm GBPm GBPm GBPm GBPm
------------- ---------------------- ---------------------- ------------------------ -------------------------------- ------------------------- ---------------------
RWAs at 1 Jan
2023 32,953 57,067 508 1,784 101 92,413
------------- ---------------------- ---------------------- ------------------------ -------------------------------- ------------------------- ---------------------
Acquisitions
and
disposals - 7,979 - - 58 8,037
------------- ---------------------- ---------------------- ------------------------ -------------------------------- ------------------------- ---------------------
Asset size 706 112 (9) (93) (10) 706
------------- ---------------------- ---------------------- ------------------------ -------------------------------- ------------------------- ---------------------
Asset quality 263 (15) 6 26 - 280
------------- ---------------------- ---------------------- ------------------------ -------------------------------- ------------------------- ---------------------
Model updates (616) - - - - (616)
- new/updated
models (616) - - - - (616)
-------------
Methodology
and policy (17) (1,288) - (51) 33 (1,323)
------------- ---------------------- ---------------------- ------------------------ -------------------------------- ------------------------- ---------------------
- internal
updates (17) (1,288) - (51) 33 (1,323)
------------- ---------------------- ---------------------- ------------------------ -------------------------------- -------------------------
Foreign
exchange
movement (21) (308) (8) (60) (2) (399)
Total RWA
movement 315 6,480 (11) (178) 79 6,685
------------- ---------------------- ---------------------- ------------------------ -------------------------------- ------------------------- ---------------------
RWAs at 30
Jun 2023 33,268 63,547 497 1,606 180 99,098
------------- ---------------------- ---------------------- ------------------------ -------------------------------- ------------------------- ---------------------
Excluding a decrease in RWAs of GBP0.4bn due to foreign currency
translation differences, RWAs increased by GBP7.1bn, predominantly
due to the acquisition of SVB UK, and lending growth and changes
in
assets quality. This was partly offset by reductions due to
changes in methodology and policy and model updates.
Acquisitions
Increase in RWAs of GBP8bn on account of acquisition of SVB
UK.
Asset size
RWAs increased in WPB by GBP0.7bn mainly as a result of
increased mortgage lending.
Model Updates
GBP616m decrease mainly driven by the new mortgage model
approved by PRA.
Methodology and policy
CMB RWAs decreased by GBP1.3bn due to risk parameter refinements
and data quality improvements.
Asset quality
Asset quality changes led to a GBP0.3bn increase in RWAs due to
credit migrations and changes in the underlying portfolio mix.
Leverage ratio
At
30 Jun 31 Dec
2023 2022
Total leverage ratio
exposure measure (GBPm) 264,561 251,500
------------------------- ---------- -------------------
Leverage ratio (%) 6.3 5.9
------------------------- ---------- -------------------
Our leverage ratio, calculated in accordance with the PRA's UK
Leverage framework implemented on 1 January 2022 was 6.3% at 30
June 2023.
The leverage ratio increased to 6.3% from 5.9%, resulting from
an increase in capital of GBP1.9bn, partly offset by an increase in
exposure
of GBP13bn. Key drivers for an overall increase in 0.4% of
Leverage ratio were:
- a 0.2% increase from the GBP0.6bn of capital generation
through profits less dividends (excluding the provisional gain on
acquisition of SVB UK) , partly offset by a GBP2.5bn increase in
lending exposures;
- a 0.2% increase from the GBP1.2bn increase in capital partly
offset by an increase in exposure of GBP10.6bn due to the
acquisition of SVB UK.
Liquidity and funding risk
Liquidity coverage ratio
At 30 June 2023, we were above regulatory minimum levels. The
following table displays the individual LCR levels for the HSBC UK
Liquidity Group on an PRA rules basis.
HSBC UK Liquidity Group LCR
As at(2)
30 Jun 31 Dec
2023 2022
% %
--------------------------- ------------ ------------------------
HSBC UK Liquidity Group(1) 213 226
--------------------------- ------------ ------------------------
1 HSBC UK Liquidity Group comprises: HSBC UK Bank plc, Marks and
Spencer Financial Services plc, HSBC Trust Company (UK) Limited,
HSBC Private Bank (UK) Limited and HSBC Innovation Bank Limited
(SVB UK included from 31 March 2023 reporting). It is managed as a
single operating entity, in line with the application of UK
liquidity regulation as agreed with the PRA.
2 The LCR ratios presented in the above table are based on average of the preceding 12 months.
Net stable funding ratio
At 30 June 2023, we maintained sufficient stable funding
relative to the required stable funding assessed using the
NSFR.
HSBC UK Liquidity Group NSFR
As at(1)
30 Jun 31 Dec
2023 2022
% %
------------------------ ------------ ------------------------
HSBC UK Liquidity Group 162 164
------------------------ ------------ ------------------------
1 The NSFR ratios presented in the above table are based on
average of the preceding four quarters.
Liquid assets
The table below shows the weighted liquidity value of assets
categorised as liquid, which is used for the purposes of
calculating the LCR metric. This reflects the stock of unencumbered
liquid assets at the reporting date, using the regulatory
definition of liquid assets.
HSBC UK Liquidity Group liquid assets
Estimated liquidity
value
-----------------------------------------------
As at(1)
30 Jun 31 Dec
2023 2022
GBPm GBPm
------------------ ---------------------- -----------------------
HSBC UK Liquidity
Group
------------------ ---------------------- -----------------------
Cash 90,026 97,199
------------------ ---------------------- -----------------------
Level 1 11,165 12,286
------------------ ---------------------- -----------------------
Level 2 1,566 1,237
------------------ ---------------------- -----------------------
Liquidity pool 102,757 110,722
------------------ ---------------------- -----------------------
1 The liquid assets presented in the above table are based on average of the preceding 12 months.
Sources of funding
Our primary sources of funding are customer current accounts and
customer savings deposits payable on demand or at short notice. The
following 'Funding sources and uses' table provides a consolidated
view of how our balance sheet is funded, and should be read in
light of the Liquidity and Funding Risk Management Framework, which
requires HSBC UK Liquidity Group to manage liquidity and funding
risk on a stand-alone basis.
The table analyses our consolidated balance sheet according to
the assets that primarily arise from operating activities and the
sources of funding primarily supporting these activities. Assets
and liabilities that do not arise from operating activities are
presented as a net balancing source or deployment of funds. In the
first six months of 2023, the level of customer accounts exceeded
the level of loans and advances to customers. The positive funding
gap was predominantly deployed in liquid assets, cash and balances
with central banks and financial investments, as required by the
LFRF.
Funding Sources Funding Uses
At At
30 Jun 31 Dec 30 Jun 31 Dec
2023 2022 2023 2022
GBPm GBPm GBPm GBPm
------------- ------------------------ ------------------------ ----------- --------------------- ---------------------
Sources Uses
------------- ------------------------ ------------------------ ----------- --------------------- ---------------------
Loans and
advances
Customer to
accounts 273,785 281,095 customers 209,566 204,143
------------- ------------------------ ------------------------ ----------- --------------------- ---------------------
Loans and
Deposits by advances
banks 10,844 10,721 to banks 7,324 6,357
------------- ------------------------ ------------------------ ----------- --------------------- ---------------------
Reverse
Repurchase repurchase
agreements agreements
- -
non-trading 7,659 9,333 non-trading 6,781 7,406
------------- ------------------------ ------------------------ ----------- --------------------- ---------------------
Cash
collateral,
margin
Debt and
securities settlement
in issue 1,257 1,299 accounts
------------- ------------------------ ------------------------ ----------- --------------------- ---------------------
Cash
collateral,
margin
and
settlement
accounts 447 315 183 231
------------- ------------------------ ------------------------ ----------- --------------------- ---------------------
Subordinated Financial
liabilities 13,066 12,349 investments 22,129 16,092
------------- ------------------------ ------------------------ ----------- --------------------- ---------------------
Cash and
balances
with
central
Total equity 23,970 22,226 banks 76,666 94,407
------------- ------------------------ ------------------------ ----------- --------------------- ---------------------
Other
Other balance balance
sheet sheet
liabilities 4,742 5,103 assets 13,121 13,805
------------- ------------------------ ------------------------ ----------- --------------------- ---------------------
335,770 342,441 335,770 342,441
------------- ------------------------ ------------------------ ----------- --------------------- ---------------------
Market risk
Overview
Market risk is the risk that movements in market risk factors,
including foreign exchange rates, commodity prices, interest rates,
credit spreads and equity prices, will reduce the group's income or
the value of its portfolios.
Market risk is measured using the standardised approach for
position risk under CRR. There were no material changes to the
policies and practices for the management of market risk in the
first half of 2023.
Directors' responsibility statement
The Directors are required to prepare the condensed consolidated
interim financial statements (the 'interim financial statements')
on a going concern basis unless it is not appropriate. They are
satisfied that the group and bank have the resources to continue in
business for the foreseeable future and that the interim financial
statements continue to be prepared on a going concern basis.
The Directors, the names of whom are set out below, confirm that
to the best of their knowledge:
- the interim financial statements have been prepared in
accordance with UK adopted IAS 34 'Interim Financial Reporting',
IAS 34 'Interim Financial Reporting' as issued by the IASB and the
Disclosure Guidance and Transparency Rules ('DTR') sourcebook of
the UK's Financial Conduct Authority;
- this Interim Report 2023 gives a true, fair, balanced and
understandable view of the assets, liabilities, financial position
and profit or loss of the group; and
- this Interim Report 2023 includes a fair review of the information required by:
- DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year ending 31 December 2023
and their impact on the interim financial statements; and
- a description of the principal risks and uncertainties for the
remaining six months of the financial year.
Dame Clara Furse(+) (Chairman), John David Stuart (Chief
Executive Officer), James Coyle(+) , Mridul Hegde(+) , David
Lister(+) , Simon Calver(+) , Janet Henry, Marie Claire Baird
(Chief Financial Officer), Jenny Goldie-Scot(+) .
On behalf of the Board
Dame Clara Furse
Chairman
31 July 2023
HSBC UK Bank plc
Registered number 9928412
+ Independent non-executive Director
Independent review report to HSBC UK Bank plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed HSBC UK Bank plc's condensed consolidated
interim financial statements (the 'interim financial statements')
in the Interim Report and Accounts of HSBC UK Bank plc and its
subsidiaries (the 'group') for the six month period ended 30 June
2023 (the 'period').
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial
Reporting', International Accounting Standard 34, 'Interim
Financial Reporting' as issued by the IASB and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
The interim financial statements comprise:
- the consolidated balance sheet as at 30 June 2023;
- the consolidated income statement and consolidated statement
of comprehensive income for the period then ended;
- the consolidated statement of cash flows for the period then ended;
- the consolidated statement of changes in equity for the period then ended; and
- the notes to the interim financial statements and certain other information(1) .
The interim financial statements included in the Interim Report
and Accounts of the group have been prepared in accordance with UK
adopted International Accounting Standard 34, 'Interim Financial
Reporting', International Accounting Standard 34, 'Interim
Financial Reporting' as issued by the IASB and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council for use in the
United Kingdom ('ISRE (UK) 2410'). A review of interim financial
information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Report and Accounts and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on
the review procedures performed in accordance with ISRE (UK) 2410.
However, future events or conditions may cause the group to cease
to continue as a going concern.
Responsibilities for the Interim financial statements and the
review
Our Responsibilities and those of the directors
The Interim Report and Accounts, including the interim financial
statements, is the responsibility of, and has been approved by the
directors. The directors are responsible for preparing the Interim
Report and Accounts in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority. In preparing the Interim Report and Accounts,
including the interim financial statements, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease the
operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Report and Accounts based on
our review. Our conclusion, including the Conclusion relating to
going concern, is based on procedures that are less extensive than
audit procedures, as described in the Basis for conclusion
paragraph of this report. This report, including the conclusion,
has been prepared for and only for the company for the purpose of
complying with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority and
for no other purpose. We do not, in giving this conclusion, accept
or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
Birmingham
31 July 2023
1 Certain other information comprises the following tables:
'Profit/(loss) before tax and balance sheet data for the period',
'Distribution of financial instruments to which the impairment
requirements in IFRS 9 are applied, by credit quality and stage
allocation' and 'Reconciliation of changes in gross
carrying/nominal amount and allowances for loans and advances to
banks and customers including loan commitments and financial
guarantees'.
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