HSBC Holdings plcAnnual Report and Accounts 2022 Opening up a world of opportunity
Our ambition is to be the preferred
international financial partner for our clients.
Our purpose, ambition and values reflect our
strategy and support our focus on execution.
Read more on our values and strategy
on pages 4 and 11.
Contents
Strategic report
Highlights
Group Chairman’s statement
Group Chief Executive’s review
2
4 Who we are
6
8
11 Our strategy
14
20 Board decision making and
ESG overview
engagement with stakeholders
(Section 172 (1) statement)
24 Remuneration
Financial overview
26
31 Global businesses
38 Risk overview
42
Long-term viability and going
concern statement
Environmental, social and
governance (‘ESG’) review
44 Our approach to ESG
46 Environmental
73 Social
85 Governance
Financial review
98 Financial summary
109 Global businesses and
geographical regions
128 Reconciliation of alternative
performance measures
Risk review
132 Our approach to risk
135 Top and emerging risks
142 Areas of special interest
142 Our material banking risks
Corporate governance report
240 Biographies of Directors and
senior management
259 Board committees
276 Directors’ remuneration report
Financial statements
313 Independent auditors’ report
324 Financial statements
335 Notes on the financial statements
Additional information
418 Shareholder information
427 Abbreviations
Our approach to ESG reporting
We embed our ESG reporting and Task Force
on Climate-related Financial Disclosures
(‘TCFD’) within our Annual Report and
Accounts. Our TCFD disclosures are
highlighted with the following symbol: TCFD
This Strategic Report was approved by the
Board on 21 February 2023.
Mark E Tucker
Group Chairman
A reminder
The currency we report in is US dollars.
Adjusted measures
We supplement our IFRSs figures with
non-IFRSs measures used by management
internally that constitute alternative
performance measures under European
Securities and Markets Authority guidance
and non-GAAP financial measures defined
in and presented in accordance with US
Securities and Exchange Commission
rules and regulations. These measures are
highlighted with the following symbol:
Further explanation may be found on page 29.
None of the websites referred to in this
Annual Report and Accounts 2022 for the year
ended 31 December 2022 (including where a
link is provided), and none of the information
contained on such websites, are incorporated
by reference in this report.
Cover image: Opening up a world of opportunity
Our cover features Stitt, one of HSBC’s two bronze lions. Touching the lion’s
paw was said to bring good luck, and that tradition continues today. The lions,
Stephen and Stitt, designed by British sculptor Henry Poole, were commissioned
to celebrate the opening of the newly-rebuilt HSBC building on the Bund in
Shanghai in 1923. Stephen and Stitt represent the strength and endurance that
is part of our heritage. Loyal and proud, they stand guard outside our offices in
Hong Kong, London and Shanghai, and symbolise good fortune and stability.
@HSBC
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HSBC Holdings plc Annual Report and Accounts 2022
HSBC Holdings plcAnnual Report and Accounts 2022
Performance in 2022
HSBC is one of the world’s leading
international banks.
We have a clear strategy to deliver revenue
and profit growth, enhance customer service
and improve returns to shareholders.
Delivery against our
financial targets
In assessing the Group’s financial
performance, we use a range of financial
measures that focus on the delivery of
sustainable returns for our shareholders
and maintaining our financial strength.
For our financial targets, we define medium
term as three to four years and long term as
five to six years, commencing 1 January 2020.
Further explanation of performance against
Group financial targets can be found on page 26.
Return on average tangible equity
Common equity tier 1 capital ratio
9.9%
Target: ≥12% from 2023 onwards.
(2021: 8.3%)
Adjusted operating expenses
$30.5bn
Target: 2022 adjusted operating expenses
broadly stable compared with 2021.
(2021: $30.1bn)
Gross risk-weighted asset reduction
$128bn
Since the start of the programme.
Target: >$110bn by the end of 2022.
14.2%
Target: >14%, managing in the range of
14% to 14.5% in the medium term; and
manage the range down further long term.
(2021: 15.8%)
Dividend per share
$0.32
2022 payout ratio: 44%
Updated target: dividend payout ratio
of 50% for 2023 and 2024, excluding
material significant items.
Previous target: sustainable cash dividends
with a payout ratio of 40% to 55% from
2022 onwards.
Strategic performance
indicators
Our strategy supports our ambition of being
the preferred international financial partner
for our clients.
We are committed to building a business
for the long term, developing relationships
that last.
Read more on our strategic progress on page 11.
Read more on how we set and define our
environmental, social and governance metrics
on page 16.
Read more on our financed emissions scope,
methodology and terminology on page 50,
and our definition of sustainable finance and
investment on page 57.
Capital allocation to Asia
Sustainable finance and investment
47%
Tangible equity as a percentage of the
Group’s (excluding associates, holding
companies, and consolidation adjustments).
(2021: 42%)
Net new invested assets
$80bn
Generated in 2022, of which $59bn were in Asia.
Gross cost saves
$5.6bn
Delivered from our cost-reduction programme,
with an expected additional $1bn in 2023, and
a total programme cost of $6.5bn.
$210.7bn
Cumulative total provided and facilitated
since January 2020.
(2021: $126.7bn)
Net zero in our own operations
58.5%
Cumulative reduction in absolute greenhouse
gas emissions from 2019 baseline.
(2021: 50.3%)
Financed emissions targets
8 sectors
Number of sectors where we have set
on-balance sheet financed emissions targets.
Gender diversity
33.3%
Women in senior leadership roles.
(2021: 31.7%)
HSBC Holdings plc Annual Report and Accounts 2022
1
Strategic report Strategic report
Highlights
Financial performance reflected net interest income growth and cost discipline,
and we continued to make progress against our four strategic pillars.
Financial performance (vs 2021)
– Reported profit before tax fell
– Reported expected credit losses and
by $1.4bn to $17.5bn, including an
impairment on the planned sale of our retail
banking operations in France of $2.4bn.
Adjusted profit before tax increased
by $3.4bn to $24.0bn. Reported profit
after tax increased by $2.0bn to
$16.7bn, including a $2.2bn credit arising
from the recognition of a deferred tax asset.
– Reported revenue increased by 4% to
$51.7bn, driven by strong growth in net
interest income, with increases in all of our
global businesses, and higher revenue from
Global Foreign Exchange in Global Banking
and Markets (‘GBM’). This was in part
offset by a $3.1bn adverse impact of foreign
currency translation differences, the
impairment on the planned sale of our retail
banking operations in France and adverse
movements in market impacts in insurance
manufacturing in Wealth and Personal
Banking (‘WPB‘). In addition, fee income
fell in both WPB and GBM. Adjusted
revenue increased by 18% to $55.3bn.
– Net interest margin (‘NIM’) of
1.48% increased by 28 basis points
(‘bps’), reflecting interest rate rises.
other credit impairment charges (‘ECL’)
were $3.6bn, including allowances to
reflect increased economic uncertainty,
inflation, rising interest rates and supply chain
risks, as well as the ongoing developments
in mainland China‘s commercial real estate
sector. These factors were in part offset
by the release of most of our remaining
Covid-19-related reserves. This compared
with releases of $0.9bn in 2021. ECL charges
were 36bps of average gross loans and
advances to customers.
– Reported operating expenses decreased
by $1.3bn or 4% to $33.3bn, reflecting
the favourable impact of foreign currency
translation differences of $2.2bn and ongoing
cost discipline, which were in part offset by
higher restructuring and other related costs,
increased investment in technology and
inflation. Adjusted operating expenses
increased by $0.4bn or 1.2% to
$30.5bn, including a $0.2bn adverse
impact from retranslating the 2022 results
of hyperinflationary economies at
constant currency.
– Customer lending balances fell by
$121bn on a reported basis. On an
adjusted basis, lending balances fell by
$66bn, reflecting an $81bn reclassification
of loans, primarily relating to the planned
sale of our retail banking operations in
France and the planned sale of our banking
business in Canada, to assets held for sale.
Growth in mortgage balances in the UK and
Hong Kong mitigated a reduction in term
lending in Commercial Banking (‘CMB’)
in Hong Kong.
– Common equity tier 1 (‘CET1’) capital
ratio of 14.2% reduced by 1.6
percentage points, primarily driven by a
decrease of a 0.8 percentage point from
new regulatory requirements, a reduction
of a 0.7 percentage point from the fall in the
fair value through other comprehensive
income (‘FVOCI’) and a 0.3 percentage
point fall from the impairment following
the reclassification of our retail banking
operations in France to held for sale. Capital
generation was mostly offset by an increase
in risk-weighted assets (‘RWAs’) net of
foreign exchange translation movements.
– The Board has approved a second interim
dividend of $0.23 per share, making a
total for 2022 of $0.32 per share.
Outlook
– The impact of our growth and
transformation programmes, as well
as higher global interest rates, give us
confidence in achieving our return on
average tangible equity (‘RoTE‘) target
of at least 12% for 2023 onwards.
– Our revenue outlook remains positive.
Based on the current market consensus
for global central bank rates, we expect
net interest income of at least $36bn in
2023 (on an IFRS 4 basis and retranslated for
foreign exchange movements). We intend to
update our net interest income guidance at or
before our first quarter results to incorporate
the expected impact of IFRS 17 ‘Insurance
Contracts’.
– While we continue to use a range of 30bps
to 40bps of average loans for planning our
ECL charge over the medium to long term,
given current macroeconomic headwinds,
we expect ECL charges to be around
40bps in 2023 (including lending balances
transferred to held for sale). We note recent
favourable policy developments in
mainland China’s commercial real
estate sector and continue to monitor
events closely.
– We retain our focus on cost discipline and
will target 2023 adjusted cost growth of
approximately 3% on an IFRS 4 basis. This
includes up to $300m of severance costs in
2023, which we expect to generate further
efficiencies into 2024. There may also be an
incremental adverse impact from retranslating
the 2022 results of hyperinflationary
economies at constant currency.
– We expect to manage the CET1 ratio
within our medium-term target range
of 14% to 14.5%. We intend to continue to
manage capital efficiently, returning excess
capital to shareholders where appropriate.
– Given our current returns trajectory, we
are establishing a dividend payout ratio
of 50% for 2023 and 2024, excluding
material significant items, with consideration
of buy-backs brought forward to our first
quarter results in May 2023, subject to
appropriate capital levels. We also intend
to revert to paying quarterly dividends from
the first quarter of 2023.
– Subject to the completion of the sale of our
banking business in Canada, the Board’s
intention is to consider the payment
of a special dividend of $0.21 per share
as a priority use of the proceeds
generated by completion of the
transaction. A decision in relation to any
potential dividend would be made following
the completion of the transaction, currently
expected in late 2023, with payment
following in early 2024. Further details in
relation to record date and other relevant
information will be published at that time.
Any remaining additional surplus capital
is expected to be allocated towards
opportunities for organic growth and
investment alongside potential share
buy-backs, which would be in addition to
any existing share buy-back programme.
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HSBC Holdings plc Annual Report and Accounts 2022
Highlights
Strategic progress
– We have made progress in implementing
– As part of our efforts to improve the
our transformation programme,
establishing a platform for future
growth.
– During 2022, we took further actions to
reshape the Group. In November 2022,
we announced the planned sale of
our banking business in Canada, which
is expected to be completed in late
2023, subject to regulatory and
governmental approvals. In addition,
we are in the process of disposing of
our retail banking operations in France, as
well as exiting our businesses in Greece
and Russia, subject to regulatory and
governmental approvals.
returns profile of the Group, we surpassed
our gross RWA reduction target,
generating cumulative gross RWA
reductions of $128bn since the start
of the programme in 2020.
– Our cost-reduction programme continued
to make progress, with a further $2.3bn
of gross cost savings recognised in 2022.
Since the start of the programme in
2020, we have realised gross savings
of $5.6bn, with cost to achieve spend
of $6.5bn. While our three-year cost to
achieve programme has now concluded,
the Group-wide focus on cost discipline
remains resolute.
– We have continued to invest and grow
in the areas in which we are strongest.
In our Wealth business in Asia, we
attracted net new invested assets
of $59bn in 2022.
ESG highlights
Transition to net zero
– We have set interim 2030 targets for
on-balance sheet financed emissions
for eight sectors. These include six
sectors for which we have reported
2019 and 2020 emissions: oil and gas;
power and utilities; cement; iron, steel and
aluminium; aviation; and automotive. We
have also set targets for thermal coal power
and thermal coal mining. We recognise that
methodologies and data for measuring
emissions will continue to evolve.
– We published an updated energy policy,
which is an important mechanism to help
phase down the financed emissions of
our energy portfolio in line with a 1.5ºC
pathway. We also updated our thermal
coal phase-out policy with new targets
to reduce absolute on-balance sheet
financed emissions from thermal
coal mining and coal-fired power,
and extended the policy to exclude
finance for the specific purposes of
new metallurgical coal mines.
– Since 2020, we have provided and
facilitated $210.7bn of sustainable
finance and investment, an increase
of $84.2bn in the past year.
– Within our own operations, we have made
a 58.5% cumulative reduction in our
absolute greenhouse gas emissions
from a 2019 baseline. We also published
supply chain emissions as part of our
scope 3 disclosures for the first time.
Act responsibly
– We conducted a review of our salient
human rights issues, including
stakeholder consultation with non-
governmental organisations (‘NGOs’)
and potentially affected groups.
– We aim to be a top-three bank for customer
satisfaction. While our net promoter scores
have improved in many of our key markets,
we have more work to do to improve our
position relative to peers, as some have
improved their performance more quickly.
– We have launched a sustainable
procurement mandatory procedure for
our employees and a new supplier code
of conduct to help ensure our sustainability
objectives are embedded in the way we
operate and do business with suppliers.
Build inclusion and resilience
– Having surpassed our 2020 target to reach
30% women in senior leadership roles, we
have made progress towards our goal
to achieve 35% by 2025, with 33.3%
achieved in 2022. We continue to make
progress towards the target we set in 2020
to at least double the number of Black senior
leaders within five years.
– We have stepped up efforts to support
customers in the face of inflation and
the rising cost of living, particularly in the
UK. We have focused on early intervention,
using data analysis to identify potentially
impacted customers in our WPB and CMB
businesses, signpost to relevant resources,
and provide tailored support.
– We are working to make the banking
experience more accessible in both physical
and digital spaces. We are committed to
ensuring that our digital channels are
usable by everyone, regardless of
ability. The introduction of features such
as safe spaces, quiet hours and talking
ATMs are helping to make our physical
spaces more accessible as well.
HSBC Holdings plc Annual Report and Accounts 2022
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Strategic report Strategic report
Who we are
HSBC is one of the largest banking and financial services organisations in the world.
We aim to create long-term value for our shareholders and capture opportunity.
Our values
Our values help define who we are as an organisation, and are key to our
long-term success.
We value difference
Seeking out different
perspectives
We succeed together
Collaborating across
boundaries
We take responsibility
Holding ourselves
accountable and
taking the long view
We get it done
Moving at pace and
making things happen
Our strategy
Our strategy supports our ambition of being the preferred international financial
partner for our clients, centred around four key areas.
Focus on our
strengths
In each of our global
businesses, we continue
to focus on areas where
we are strongest and
have opportunities
to grow.
Digitise at scale
We continue to invest
in our technology and
operational capabilities
to drive operating
productivity across
businesses and
geographies and to
offer better client
experience.
For further details on our strategy, see pages 11 to 13.
Energise for growth
We are building
a dynamic and
inclusive culture,
and empowering our
people by helping them
develop future skills.
Transition to net zero
We are helping the
transition to a net
zero economy by
transforming ourselves,
and supporting our
customers to make
their own transitions.
Our global reach
Our global businesses serve around 39 million customers worldwide
through a network that covers 62 countries and territories.
Our customers range from individual savers
and investors to some of the world’s biggest
companies, governments and international
organisations. We aim to connect them
to opportunities and help them to achieve
their ambitions.
Assets of
$3.0tn
Approximately
39m
Customers bank with us1
Operations in
We employ approximately
62
219,000
Countries and territories
Full-time equivalent staff
For further details of our customers and approach to
geographical information, see page 108.
1 Our customer numbers exclude those acquired through
our purchase of L&T Investment Management.
4
HSBC Holdings plc Annual Report and Accounts 2022
Who we are
Our global
businesses
We serve our customers through three global businesses.
On pages 31 to 37 we provide
an overview of our performance
in 2022 for each of our global
businesses, as well as our
Corporate Centre.
In each of our global businesses,
we focus on delivering growth
in areas where we have distinctive
capabilities and have significant
opportunities.
Each of the chief executive
officers of our global businesses
reports to our Group Chief
Executive, who in turn reports to
the Board of HSBC Holdings plc.
Wealth and Personal Banking
(’WPB’)
We help millions of our customers
look after their day-to-day
finances and manage, protect
and grow their wealth.
Commercial Banking
(‘CMB’)
Our global reach and expertise
help domestic and international
businesses around the world
unlock their potential.
Global Banking and Markets
(’GBM’)
We provide a comprehensive
range of financial services
and products to corporates,
governments and institutions.
For further details, see page 31.
For further details, see page 33.
For further details, see page 35.
Adjusted revenue by
global business1
Wealth and Personal Banking
Commercial Banking
Global Banking and Markets
44%
29%
27%
1 Calculation is based on adjusted revenue of our global businesses excluding Corporate Centre, which is also excluded
from the total adjusted revenue number. Corporate Centre had negative adjusted revenue of $596m in 2022.
Our stakeholders
Building strong relationships with our stakeholders helps enable us to deliver
our strategy in line with our long-term values, and operate the business in a
sustainable way.
Our stakeholders are the people
who work for us, bank with us,
own us, regulate us, and live in
the societies we serve and the
planet we all inhabit. These
human connections are complex
and overlap.
Many of our employees are
customers and shareholders,
while our business customers are
often suppliers. We aim to serve,
creating value for our customers
and shareholders.
Our size and global reach mean
our actions can have a significant
impact. We are committed to
doing business responsibly, and
thinking for the long term. This is
key to delivering our strategy.
Customers
Employees
Investors
Communities Regulators and
Suppliers
governments
For further details of how we are engaging with our stakeholders, see page 15.
Our section 172 statement, detailing our Directors’ responsibility to stakeholders, can be found on page 20.
HSBC Holdings plc Annual Report and Accounts 2022
5
Strategic report Strategic report
Group Chairman’s statement
As we signalled at our interim results, we are
committed to ensuring our shareholders share
the benefits of our improved performance. The
Board approved a second interim dividend for
2022 of $0.23 per share, bringing the full year
dividend for 2022 to $0.32 per share. We are
establishing a dividend payout ratio of 50%
of reported earnings per share for 2023 and
2024, excluding material significant items, and
we aim to restore the dividend to pre-Covid-19
levels as soon as possible. We also intend to
return to paying quarterly dividends from the
start of 2023.
Subject to completion of the planned sale
of our banking business in Canada, the
Board’s intention is to consider the payment
of a special dividend of $0.21 per share as
a priority use of the proceeds generated.
A decision in relation to any potential dividend
would be made following the completion
of the transaction, currently expected in
late 2023, with payment following in early
2024. Any remaining additional surplus
capital is expected to be allocated towards
opportunities for organic growth and
investment alongside share buy-backs,
which would be in addition to any existing
share buy-back programme.
Board operations
In 2022, the Board met in person in London,
Hong Kong, New York and Riyadh – on each
occasion also undertaking a wide range of
engagements with clients, colleagues,
government officials and regulators. The
importance of engaging with our teams was
also underlined by the appointment of José
(Pepe) Meade as Board member with specific
responsibility for employee liaison. At the
same time as holding some in-person
meetings, the continued use of virtual
meetings enabled us to retain the benefits
of greater efficiency and reduced costs.
At the 2022 Annual General Meeting, Irene
Lee and Pauline van der Meer Mohr stepped
down from the Board. I am enormously
grateful to them for their important and
valuable contributions to the Board, the
committees and the subsidiary entities on
which they have served. Irene remains an
independent non-executive Director of The
Hongkong and Shanghai Banking Corporation
Limited and independent non-executive
chair of Hang Seng Bank Limited. Geraldine
Buckingham joined the Board as an
independent non-executive Director on 1 May.
Following Ewen Stevenson’s departure,
Georges Elhedery became Group Chief
Financial Officer and joined the Board on
1 January 2023. On behalf of the Board, I
would like to again thank Ewen for all that
he has done for the bank. His leadership,
financial expertise and operational rigour
have been invaluable to HSBC, and he
leaves with our very best wishes.
Mark E Tucker
Group Chairman
The global economy remains volatile, but our strategy is
delivering improved returns for shareholders and HSBC
is well placed to compete as the economy recovers.
At the start of 2022, the ongoing impact
of Covid-19 was the most dominant
factor within the external environment.
While further outbreaks in Hong Kong
and mainland China significantly
impacted economic growth, the Russia-
Ukraine war and rising inflation and
interest rates had an even greater impact
on the global economy in 2022. They are
also likely to continue to have a greater
economic impact than the pandemic in
2023, as we are already seeing with a
cost of living crisis affecting many of
our customers and colleagues.
Strong financial performance and higher
capital distributions
We supported our customers through the
challenges that they faced at the same time as
executing our strategic plan. The first phase of
our transformation is now complete. The work
that we have done has enabled us to emerge
from the pandemic a stronger bank, better
aligned to the international needs of our
customers.
The reshaping of our portfolio continued with
the announcement of the planned sale of our
banking business in Canada. We continued to
develop our Wealth capabilities, especially in
Asia, and this strategy gained traction in 2022.
Our increased investment in technology has
improved the customer experience and made
our processes more efficient. Meanwhile, we
continued to support our clients to transition
to net zero, and also took further important
steps towards our ambition of aligning our
financed emissions to net zero by 2050. Given
the urgency of today’s global energy crisis, it is
now even more important that we continue to
actively engage our clients on how they intend
to prepare their businesses for a low-carbon
future.
In 2022, reported profit before tax was
$17.5bn, a decrease of $1.4bn compared with
2021 due to the $2.4bn impairment on the
planned sale of our French retail banking
operations. Adjusted profit before tax was
$24.0bn, an increase of $3.4bn on last year. All
of our businesses grew profits in 2022, and we
maintained our strong capital, funding and
liquidity positions.
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HSBC Holdings plc Annual Report and Accounts 2022
Group Chairman’s statement
” Given the urgency of
today’s global energy
crisis, it is now even
more important that
we continue to actively
engage our clients on
how they intend to
prepare their businesses
for a low-carbon future.”
We also recently announced some changes
to the Board. Kalpana Morparia will join the
Board as an independent non-executive
Director on 1 March. Jack Tai will retire from
the Board at the conclusion of the 2023 AGM,
and will be succeeded as Chair of the Group
Risk Committee by Jamie Forese. Jack has
made a significant and important contribution
during his time on the Board, particularly
in the strengthening of risk and conduct
governance and oversight through a period
of major change. We wish him very well in
his future endeavours.
Noel and I were delighted to meet face-to-face
with our loyal Hong Kong shareholders at our
Informal Shareholders Meeting in August. We
have always greatly valued their feedback and
engagement, and this meeting was as well
attended as ever. We were pleased to discuss
how our business has performed, our
continued support of Hong Kong, and our
commitment to growing shareholder value.
We look forward to continuing these
discussions in person in 2023.
Our strategy is working
There were reports over the course of last
year about ideas for alternative structures for
HSBC. The Board has been fully engaged in
examining these alternatives in depth, with the
benefit of independent third-party financial
and legal advice. It has been, and remains,
our judgement that alternative structural
options would not deliver increased value for
shareholders. Rather, they would have a
material negative impact on value.
For 157 years, we have followed trade and
investment flows to support our customers
as they fulfil their financial ambitions. We
have used our experience, expertise and
relationships to help our customers to
navigate the world.
to individuals and companies of all sizes
whose financial ambitions span multiple
countries and regions. Very few, if any, other
banks can rival our ability to connect capital,
ideas and people through a global network
that facilitates the international access and
collaboration required to succeed in today’s
world.
Our performance in 2022 demonstrates
that our current strategy is working and
improving returns. We are also confident
that it will deliver good returns for our
shareholders over the coming years. The
Board and management team are fully
focused on delivering it.
An uneven macroeconomic outlook
We will need to maintain this focus against
an uneven macroeconomic outlook. The
pandemic, high inflation and interest rates,
and the Russia-Ukraine war all have
implications for the global economy, including
volatility in markets, supply chain disruption,
pressure on small and medium-sized business
and squeezes on the cost of living. Different
economies also now face different challenges
and have different opportunities in 2023.
China’s reopening and package of measures
to stabilise the property market should provide
a significant boost for its economy and the
global economy, albeit with some near-term
volatility. Our economists forecast China’s
GDP will grow 5% in 2023. The reopening of
the border means that Hong Kong, and the
entire Greater Bay Area, are likely to be major
beneficiaries, and I expect to see a strong
recovery.
More broadly, Asia as a whole has proven
resilient and there is the prospect of a
strong rebound later in the year. Virtually
all economies in the region have now
recovered the output losses incurred during
the pandemic and are above 2019 levels.
The Middle East economies enjoyed a strong
2022, and we expect this momentum to
continue in 2023 on the back of the important
reforms underway to transform, diversify and
grow the region’s economies. We see strong
and growing demand to connect clients in the
Middle East with Asia’s economies, and
vice versa.
In contrast, Europe, including the UK, face
challenges from higher energy prices fuelling
inflation and necessitating higher interest
rates, driven in part by the Russia-Ukraine
war. All of these factors are contributing to
a cost of living crisis and more economic
uncertainty. We expect that any recession,
if there is one at all, will be relatively shallow.
have peaked in the US, and there is consensus
that the US will avoid recession. I expect the
US to make an important contribution to
global GDP growth in 2023.
Overall, I am optimistic about the global
economy in the second half of 2023, but there
is still a high level of uncertainty due to the
Russia-Ukraine war and recessionary fears
may yet dominate much of the year ahead.
Navigating geopolitics remains
challenging
The geopolitical environment remains
challenging for our clients to navigate. There is
sadly no end in sight to the Russia-Ukraine
war. However, the West’s relationship with
China appears to be relatively stable. The
renewed, constructive dialogue between
President Xi and President Biden at the G20
in November was clearly important. While
further US sanctions are expected this year,
capital flows between China and the West
increased during the pandemic, even with
reciprocal tariffs in place. China is also taking
an active approach to diplomatic engagement
with European nations, including the UK.
China’s reopening will also allow for the
resumption of face-to-face visits, which will
support greater dialogue between China and
important partners such as Germany, France
and the UK. We also naturally continue to
engage with governments around the world.
One of the key trends of the past three years
has been supply chain disruption, due largely
to a combination of geopolitics, pandemic and
war-related factors. Businesses are seeking to
build greater resilience into their supply chains,
reduce their dependence on sole suppliers or
regions, and take the opportunity to digitise. I
expect these trends all to continue throughout
2023. HSBC’s global network means we are
well placed to adapt to regional diversification
that takes place within supply chains.
Thank you to my colleagues
Finally, my colleagues have once again shown
great dedication, energy and care in serving
our customers and working together over the
past year. They have exemplified our purpose
of ‘opening up a world of opportunity’ and our
core values. While we want to achieve even
more in 2023 and beyond, I am very proud of
what they achieved in 2022 – and I am
extremely grateful to each of them.
Mark E Tucker
Group Chairman
21 February 2023
Today, we remain steadfastly focused on
our core purpose of ‘opening up a world of
opportunity’. Our model is particularly relevant
The US economy is proving resilient and
a hard landing appears unlikely. Some
economists believe that inflation may now
HSBC Holdings plc Annual Report and Accounts 2022
7
Strategic report Strategic report
Group Chief Executive’s review
The most significant changes to our portfolio
have been the exit and wind-down of
non-strategic assets and clients in the
Americas and Europe, and the investment
in technology and in organic and inorganic
growth in Asia, especially in Wealth and
Personal Banking. We have completed the
sale of our US mass market retail business,
and announced the planned exit of our French
retail banking operations and the planned sale
of our banking business in Canada. We have
also announced exits in other smaller
businesses, including Greece and Russia.
A key factor in assessing the strategic value
of our businesses has been whether they
capitalise on the distinct advantages that
we have, especially those derived from our
global network.
Our work to increase capital efficiency
resulted in cumulative risk-weighted asset
savings of $128bn by the end of 2022, in
excess of our original target as we accelerated
restructuring in the US and Europe. This
enabled us to reallocate capital towards
Asia and the Middle East.
Finally, we have transformed our cost base
and restored tight cost discipline across the
organisation. Our cost to achieve programme
concluded at the end of 2022, but it enabled
us to take multiple layers of inefficiency out
of the business and embed changes that we
expect to provide flow-through benefits for
years to come.
Building a good platform for future
growth
At the same time, we have invested in new
sources of value creation that provide a good
platform for future growth. Developing our
capabilities in Wealth, particularly in Asia, has
been a strategic priority as we have sought
to diversify our revenues. We have done
this organically through the build-out of our
Pinnacle business in mainland China, and
inorganically through the purchases of AXA
Singapore and L&T Investment Management
in India, by increasing our stake to 90% in
HSBC Qianhai Securities, and by taking full
ownership of our HSBC Life China insurance
business. The traction that we are gaining in
Wealth is reflected by the $80bn of net new
invested assets that we attracted in 2022,
$59bn of which were in Asia.
Noel Quinn
Group Chief Executive
The progress that we have made over the past three years
means that HSBC is well positioned to deliver higher returns
and has a good platform for future growth.
Return on average tangible
equity
9.9%
(2021: 8.3%)
Adjusted revenue
$55.3bn
(2021: $47.0bn)
We have completed the first phase of
our transformation. Our international
connectivity is now underpinned by good,
broad-based profit generation around
the world. Our focus is now on continuing
to grow our core business, while also
capitalising on the new sources of
value creation that we have built.
When we embarked on our transformation
programme in February 2020, our aim was
to address the fundamental issues that had
contributed to a decade of low returns. It was
clear to me that too much of our capital was
being used inefficiently, too many of our
businesses were loss-making and sub-scale,
and too many of our clients were low returning
and purely domestic in nature. Over the
last three years, while responding to the
challenges of the pandemic, we have
structurally repositioned our businesses and
operating model to achieve higher returns.
8
HSBC Holdings plc Annual Report and Accounts 2022
Group Chief Executive’s review
” The difference
compared with three
years ago is that
our international
connectivity is now
underpinned by good
broad-based profit
generation around
the world.”
Our core purpose is ‘opening up a world of
opportunity’ and that, in essence, is what we
do by helping our personal and corporate
customers to move money between countries
and do business across borders. This is still
the best way for us to create value, and what
makes us a world leading bank for international
and mid-market customers. We are the
number one trade finance bank, and trade
revenue was up 13% in 2022, surpassing the
good level of growth in the previous year.
Trade also increased in all regions.
We are also one of the leading global foreign
exchange houses and a leading payments
company globally, with over $600tn of
payments processed in 2022. Our global
connectivity has made international our
fastest-growing revenue segment in Wealth
and Personal Banking. Products like Global
Money and our Wealth platforms are
specifically designed to meet the international
needs of our retail and wealth customers.
These customers also provide around double
the average revenue of domestic-only
customers.
The difference compared with three years ago
is that our international connectivity is now
underpinned by good broad-based profit
generation around the world. Already the
leading bank in Hong Kong, we gained market
share last year in key products including
customer deposits, insurance and trade
finance. We are also the leading foreign bank
in mainland China by revenue and are pleased
to have received seven main licence approvals
since 2020. Our business in India delivered
$0.9bn of profit before tax last year and
facilitated the equivalent of around 9% of
India’s exports. In the Middle East, we
delivered $1.8bn of profits and were the
number one bank in capital markets league
tables. HSBC UK delivered $5bn of profits and
was the number one bank for trade finance,
while our non-ring-fenced bank in Europe
delivered $2.1bn of profits and around 35%
of its client business was booked outside the
region. Our US business has now had nine
consecutive quarters of profitability after its
turnaround, while our business in Mexico
delivered a return on tangible equity of 18%.
The cost savings that we have made have
been reinvested in technology, which has in
turn enabled us to change the way we operate
as a business. Technology spending was 19%
higher in 2022 than in 2019. Much of this
investment has been used to rebuild and
upgrade platforms, which we have then rolled
out globally. Our upgraded mobile banking
app is available in 24 markets and has around
13 million active users, while our upgraded
digital trade finance platform has been rolled
out in the UK and Hong Kong, ensuring that
market-leading businesses are well positioned
for the next 10 years. In 2022, we launched
HSBC Orion, our new proprietary tokenisation
platform using blockchain technology for bond
issuances. We’re also partnering with fintechs
around the world to use their capabilities in
our products. Finally, we are investing in
greater automation, which we expect to
reap the benefits from for years to come.
Empowering our people has underpinned
everything that we have achieved over the
past three years – and it will underpin the
next phase of our strategy too. Reducing
management layers has helped to increase
our speed and agility. In our last staff survey,
the number of colleagues who report that
work processes allow them to work efficiently
was 6 percentage points above the sector
benchmark. Confidence within the
organisation has also increased. 77% of
colleagues told us they are confident about
our future, which is 3 percentage points up
on 2021. We have continued to make steady
progress against our medium-term targets on
gender and ethnicity representation, while
the number of hours that colleagues spent
learning about digital and data, and
sustainability also increased by 13% last
year, underlining the importance of these
critical future skills.
The transition to net zero will offer increasingly
significant commercial opportunities in the
future. We have continued to make good
progress towards our ambition of providing
and facilitating $750bn to $1tn of sustainable
financing and investment by 2030. At the end
of 2022, the cumulative total for sustainable
financing and investment since 2020 had
reached more than $210bn. We published an
updated energy policy, which commits us to
no longer provide new finance or advisory
services for the specific purpose of projects
pertaining to new oil and gas fields and related
infrastructure whose primary use is in
conjunction with new fields. As per our policy,
we will continue to provide finance to maintain
supplies of oil and gas in line with declining
current and future global demand, while
accelerating our activities in support
of clean energy. We have also set interim
2030 targets for on-balance sheet financed
emissions for eight sectors. These include
six sectors for which we have reported 2019
and 2020 emissions. We recognise that
methodologies and data for measuring
emissions will continue to evolve, and our
own disclosures will therefore continue to
develop as a result. In 2023, we will publish
our first bank-wide climate transition plan.
Strong overall financial performance
in 2022
The progress that we have made transforming
HSBC and investing in growth has helped
to drive an improved financial performance
in 2022. A strong net interest income
performance reflected higher global interest
rates, but there was also good underlying
growth across the business in key areas,
particularly those linked to our international
network.
Overall, the Group delivered $17.5bn of
reported profit before tax, which was
$1.4bn lower than in 2021. This was due to
a net expected credit loss charge of $3.6bn
compared with a net release of $0.9bn last
year, as well as the impairment of $2.4bn
relating to the planned sale of our retail
banking operations in France. Adjusted
profit before tax was $24bn, up $3.4bn.
Adjusted revenue was 18% higher than the
same period last year, as net interest income
grew strongly in all of our global businesses.
There was also a strong performance in Global
Foreign Exchange. Our reported return on
tangible equity for 2022 was 9.9%. Excluding
significant items, we delivered a return on
tangible equity of 11.6%.
HSBC Holdings plc Annual Report and Accounts 2022
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Strategic report Strategic report | Group Chief Executive’s review
Future growth levers
In 2022, we continued to build new
sources of value creation.
We brought in
$80bn
of net new invested assets in Wealth.
We provided and facilitated cumulatively
$210.7bn
of sustainable finance and investment since
January 2020.
There was a good performance across our
global businesses. In Commercial Banking,
adjusted profit before tax was up by 24% to
$7.7bn, driven by revenue increases across all
products and in all regions, most notably Asia
and the UK. Within this, Global Payments
Solutions revenue grew by 104% on the back
of higher interest rates, while trade revenue
was up 14% with growth in all regions.
Global Banking and Markets delivered
adjusted profit before tax of $5.4bn, up
8% compared with 2021. Global Payments
Solutions was again the main driver, with
119% growth in net interest income from
higher interest rates, and a strong
performance in Global Foreign Exchange.
In Wealth and Personal Banking, adjusted
profit before tax of $8.5bn was 27% higher
than 2021. Net interest income growth drove a
good performance in Personal Banking, while
there was also balance sheet growth in the
UK, Asia outside Hong Kong, and Mexico.
We restricted adjusted cost growth to 1% in
2022 as a result of the significant cost-saving
actions that we have taken. This represents
a good outcome given the high inflation
environment. After good capital generation in
the fourth quarter, our CET1 ratio at the end of
2022 was 14.2% and back within our target
range of 14% to 14.5%. We are able to pay a
second interim dividend of $0.23 per share,
bringing the total 2022 dividend to $0.32
per share.
Improved returns and substantial
distribution capacity
We are firmly on track to achieve our target
of a return on tangible equity of at least 12%
from 2023 onwards. We have built up a good
level of expected credit loss provisions, and
we also expect the headwinds associated with
macroeconomic uncertainty and the ongoing
challenges within the China commercial real
estate sector to subside, enabling expected
credit losses to start to normalise.
There will be no easing off at all on costs.
Our cost to achieve programme has now
ended, but we will continue to seek and
find opportunities to create efficiencies
that will deliver sustainable cost savings
in future years. We are now considering up
to $300m of additional costs for severance
in 2023. These costs will need to be reported
in our costs line. Taking this into account, we
will aim for approximately 3% cost growth
in 2023. Tight cost discipline will remain a
priority for the whole Group.
As a result of the improving quality of our
returns, we are establishing a dividend payout
ratio of 50% of reported earnings per share for
2023 and 2024, excluding material significant
items. We will aim to restore the dividend to
pre-Covid-19 levels as soon as possible. We
also intend to revert to paying quarterly
dividends from the start of 2023. Given the
capital generation at the end of 2022, we will
bring forward the consideration of buy-backs
to the announcement of our results for the
first quarter of 2023.
Finally, subject to the completion of the
sale of our banking business in Canada, I am
pleased that the Board will consider payment
of a special dividend of $0.21 per share in
early 2024 as a priority use of the surplus
capital generated by the transaction. We
understand the importance of dividends to
our shareholders and expect them to benefit
from improved capital distributions ahead.
My colleagues are getting it done
I would like to end by thanking my colleagues
around the world. Over the last three years,
they have managed a period of substantial
change, embraced the opportunities that our
transformation has presented and gone the
extra mile to support our customers – all while
living through a global pandemic. More
recently, there have also been the Russia-
Ukraine war, the real-life financial strains
caused by high inflation and the devastating
earthquakes in Türkiye for them to deal with.
We have only made the progress that we have
because of their efforts. They are exemplifying
our value of getting it done, and I am proud to
lead them.
Overall, 2022 was another good year for
HSBC. We completed the first phase of
our transformation and our international
connectivity is now underpinned by good,
broad-based profit generation around the
world. This contributed to a strong overall
financial performance. We are on track to
deliver higher returns in 2023 and have built
a platform for further value creation. With
the delivery of higher returns, we will have
increased distribution capacity, and we will
also consider a special dividend once the
sale of HSBC Canada is completed.
Noel Quinn
Group Chief Executive
21 February 2023
10
HSBC Holdings plc Annual Report and Accounts 2022
Our strategy
Our strategy
We are implementing our strategy across the four strategic pillars
aligned to our purpose, values and ambition.
Transformation journey
We have made progress in our transformation
in six key areas, as we start to improve
financial performance and build a strong
foundation for future growth.
Capital allocation
Asia
(as a % of Group tangible equity)1
Firstly, we have retained a market leading
position in international connectivity. We
are the number one trade finance bank and
number three bank in foreign exchange
globally, based on peer analysis undertaken
by Coalition Greenwich. Across our global
businesses, international connectivity is core
to who we serve, with approximately 45% of
our wholesale client business coming from
cross-border relationships and approximately
6 million international customers banking with
Wealth and Personal Banking. International
clients remain our most attractive client base
in Wealth and Personal Banking, with revenue
around double that of domestic customers. In
addition, global transaction banking revenue,
a cornerstone of our international connectivity,
has grown 7% each year since 2019.
Secondly, we have also reshaped our portfolio
through strategic exits in continental Europe
and the Americas. We have exited our
domestic mass market retail business in the
US, and are in the process of selling our retail
banking operations in France, our banking
business in Canada, our business in Russia
and our branch operations in Greece, subject
to regulatory and governmental approvals.
We have taken actions to improve the returns
profile of the Group, including generating
cumulative gross RWA reductions of $128bn
since the start of our programme, exceeding
our target of more than $110bn. We have
continued to reallocate capital to Asia, with
the proportion of our tangible equity allocated
to Asia increasing to 47% at the end of 2022,
and we remain on track with our medium- to
long-term aspiration to increase this to 50%.
We have also invested through a series of
bolt-on acquisitions in Asia, including AXA’s
business in Singapore and L&T Investment
Management in India, and we have increased
our stakes in HSBC Life China and
HSBC Qianhai.
47%
2021
2022
Medium- to long-term aspiration
42%
47%
c.50%
1 Based on tangible equity of the Group’s major
legal entities excluding associates, holding
companies, and consolidation adjustments.
Gross RWA reduction
$128bn
Since the start of the programme.
Target: >$110bn by the end of 2022.
Technology investment
$6.1bn
(2019: $5.1bn)
Thirdly, over the last three years we have built
a broad and geographically diverse base of
profit generation. We remain the leading bank
in Hong Kong across key areas including
deposits, lending and trade finance, while in
mainland China, our business contributed
$1.0bn of adjusted profit before tax in 2022,
excluding the share of profit from our
associate, Bank of Communications Co.,
Limited. We have also grown our businesses
in the rest of Asia, with adjusted profit before
tax of $4.2bn, up 24% compared with 2019.
Outside of Asia, HSBC UK Bank plc delivered
$5.0bn of adjusted profit before tax in 2022,
while our HSBC Bank plc and US businesses
have transformed into being leaner and more
internationally focused. In the Middle East
and North Africa, we are the leading bank in
capital markets, while in Mexico, the return on
average tangible equity was 18.0% in 2022.
Fourthly, we have retained our strong focus
on cost discipline. Within the past year,
notwithstanding inflationary pressures, we
contained adjusted cost growth compared
with 2021. As a result, excluding the benefit of
a reduced UK bank levy, adjusted costs have
remained flat since 2019, with a 19% increase
in technology spend offset by gross saves
within our global businesses, operations and
other costs. Since 2019, we have taken actions
to become a more efficient organisation,
reducing our office real estate footprint by
37%, branches by 21% and operations
headcount by approximately 11%.
As we transformed, we have also built a
platform for growth and returns upon which
we will build new value creation opportunities.
We have continued to grow our balance sheet,
with our deposits growing by 4% and assets
growing by 5% each year since 2019.
Increasing fee-based revenue and growing our
Wealth and Personal Banking franchise remain
important priorities for the Group, and we have
gained traction, with Wealth revenue up 3%
and transaction banking revenue up 7% since
2019. However, given the changes to the
macroeconomic environment, together with
the implementation of IFRS 17, the metrics
‘Insurance and fees as a percentage of Group
adjusted revenue’ and ‘WPB as a percentage
of Group tangible equity’ are no longer
appropriate to measure our progress in
these areas.
We continue to view technology as a key
enabler of our growth ambitions, and
have also increased our investment from
approximately $5.1bn in 2019 to $6.1bn in
2022. During the year, we have scaled up
existing digital propositions and launched
others. Details of these can be found on the
following pages.
Fifthly, we have supported a sustainable
dividend policy with strong capital and
liquidity. Finally, the above five themes have
resulted in a strong platform for growth and
returns, upon which we will build new value
creation opportunities.
HSBC Holdings plc Annual Report and Accounts 2022
11
Strategic report Strategic report | Our strategy
Delivery in 2022
Our strategy centres on four key pillars: focus on our areas of strengths, digitise at scale to adapt our operating model for the future, energise our
organisation for growth, and support the transition to a net zero global economy.
Focus on our strengths
In our global businesses
In each of our global businesses, we continue to focus on areas where we are strongest and have opportunities to grow.
Wealth and Personal Banking
Adjusted revenue for our Wealth and Personal
Banking business was $24.4bn in 2022, up
16% compared with 2021. This was driven by
growth in Personal Banking, where adjusted
revenue was $15.9bn, up 37%. We continued
to make progress in executing our Wealth,
Asset Management and Insurance strategy,
attracting net new invested assets of $80bn,
compared with $64bn in 2021, with $59bn
coming from Asia. Our Asia Insurance value
of new business reached $1.1bn, up 24%.
We continued to grow our digital propositions
during the year. We launched Global Money in
the UK and Australia, with the proposition now
live in eight markets. This new proposition
recorded approximately $11bn of transactions
in 2022, enabling customers to make cheaper
and faster international payments. We also
signed up more than 900,000 users to our
Pinnacle financial planning app to bring the
total user base to over 1 million.
Within our Wealth business, in partnership
with BlackRock, we launched Prism, a hybrid
advisory service to help investors make more
informed investment decisions.
$80bn
Net new invested assets in 2022.
Commercial Banking
Adjusted revenue for our Commercial Banking
business reached $16.2bn in 2022, up 29%
compared with 2021. Adjusted revenue rose in
all regions, and notably in Hong Kong, which
grew by 36%. Fee income increased by 8% to
$3.7bn, reflecting growth in Global Payments
Solutions and Global Trade and Receivables
Finance.
Our digital propositions have gained
significant traction, with payments processed
on HSBCnet mobile increasing by nearly 62%
during the year. Kinetic, our digital business
banking account for SMEs in the UK, gained
approximately 29,000 customers, taking its
overall customer base to approximately
53,000. Business Go, our new global digital
platform for SMEs, has gone live and has
grown to over 95,000 users as of 2022.
In 2022, we launched our first Banking-as-a-
Service proposition in the US with Oracle
Netsuite, embedding HSBC’s banking
products within Oracle’s Cloud enterprise
resource planning platform.
We continue to actively help our clients with
their climate transition goals, and have
completed the global roll-out of our core
sustainable product suite covering loans, trade
finance and bonds. We also launched our
enhanced HSBC Sustainability Tracker for
Business Banking customers.
Global Banking and Markets
Adjusted revenue for our Global Banking
and Markets business was $15.4bn in 2022,
up 10% compared with 2021, driven by
strong performances in Global Payments
Solutions and Markets and Securities
Services, primarily from our Global Foreign
Exchange business. During the year, we
continued to drive efforts for cross-business
line collaboration through referrals and
cross-sell of products, with adjusted
collaboration revenue of approximately
$3.7bn in 2022, compared with approximately
$3.5bn in 2021. Our Global Banking and
Markets franchise remains an internationally
connected one, with our clients doing
business with us in multiple markets. In 2022,
our clients in Europe and the Americas drove
approximately $2.6bn of client business into
Asia and the Middle East, an increase of
approximately 30%.
We continued to develop our digital
propositions with the launch of HSBC Orion,
a new proprietary tokenisation platform to
issue digital bonds based on distributed
ledger technology.
We also extended our sustainable investment
product range, launching a biodiversity
screened equity index created in partnership
with biodiversity data specialist Iceberg data
lab and Euronext.
$3.7bn
Fee income in 2022.
c.$2.6bn
Client business1 booked in the
East from clients managed in
the Americas and Europe.
1 Client business differs from reported revenue as it relates to certain client-specific income, and excludes certain products (including Principal Investments,
GBM ’other’ and asset management), Group allocations, recoveries and other non-client-related and portfolio level revenue. It also excludes Hang Seng. GBM
client business includes an estimation of client-specific day-one-trade-specific revenue from Markets and Securities Services products, which excludes ongoing
mark-to-market revenue and portfolio level revenue such as hedging. Cross-border client business represents the income earned from a client’s entity domiciled
in a different geography than where the client group’s global relationship is managed. ‘Booking location’ represents the geography of the client’s entity or
transaction booking location where this is different from where the client group’s global relationship is managed.
12
HSBC Holdings plc Annual Report and Accounts 2022
Our strategy
Digitise at scale
We continued to invest in our technology and
operational capabilities to drive productivity
across businesses and geographies, and to
improve customer experience. In 2022, $6.1bn,
or 20%, of our overall adjusted operating
expenses were dedicated to technology,
up from $5.6bn in 2021.
Enhancing our digital propositions to improve
customer engagement and journeys remains a
significant priority. During the year, just under
half of our Wealth and Personal Banking
customers were active users of our mobile
applications, an increase from 42.7% in 2021,
and over 75% of our Commercial Banking
customers were active on our digital
applications, an increase from 71.0%.
Furthermore, in Wealth and Personal Banking,
nearly half of sales were generated digitally.
Our customer journeys continue to be
transformed, for example, in Singapore, our
Wealth and Personal Banking customers can
now open an account even before they arrive
in their new country via their mobile phones.
To improve our operational efficiency, we
continue to deploy technologies at scale in our
organisation. Our Cloud adoption rate, which
is the percentage of our technology services
on the private or public Cloud, increased from
27% to 35%.
Energise for growth
Empowering and energising our colleagues
is crucial for inspiring a dynamic culture. Our
Employee engagement index, our headline
measure of employee satisfaction, rose to 73%
in 2022 from 67% in 2019, our baseline year.
The participation rate of the survey also rose
from 50% to 78%.
We remained focused on creating a diverse
and inclusive environment, especially in senior
leadership roles, which are those classified as
band 3 and above in our global career band
structure. We achieved 33.3% female
representation in senior leadership positions
by the end of 2022, and are on track to achieve
our target of 35% by 2025. In 2022, we also
set a Group-wide ethnicity strategy to better
represent the communities we serve. We are
on track to meet this, with 2.5% of leadership
roles held by colleagues of Black heritage
in 2022.
We continued to help our colleagues develop
future-ready skills. In 2022, the total learning
hours spent on these future-ready skills
(digital, data, and sustainability) increased
to approximately 375,777 hours, up from
334,651 hours in 2021.
We outline how we put our purpose and
values into practice in the following ‘ESG
overview‘ section.
For further details on how we plan to energise
for growth, see the Social section in the ESG
review on page 73.
Transition to net zero
In November, we participated in COP27 to
play our part in bringing together the public
and private sector to mobilise the transition
to a net zero global economy. We also made
good progress on our ambitions, including
expanding our financed emissions targets to
eight sectors in total, reducing our greenhouse
gas emissions, and supporting our customers
in their transition to a net zero future including
the launch of new climate solutions.
Becoming a net zero bank
We continue to pursue our climate ambition
to become net zero in our operations and
supply chain by 2030, and align our financed
emissions to the Paris Agreement goal of
net zero by 2050. In 2022, we reduced our
absolute greenhouse emissions in our
operations to 285,000 tonnes CO2e, which
represents a 58.5% reduction from our
2019 baseline.
Growth and returns
So far, we have set interim 2030 targets for
on-balance sheet financed emissions for eight
sectors. We also published updated energy
and thermal coal phase-out policies during the
year, which are important mechanisms to help
phase down our financed emissions in these
areas while supporting our customers in their
own transition plans. We plan to extend our
financed emissions analysis to new sectors –
shipping, agriculture, commercial real estate
and residential real estate – in future
disclosures. We remain committed to setting
facilitated emissions targets, and aim to
continue to engage with industry initiatives
to produce a consistent and comparable
cross-industry approach.
a total of $84.2bn of sustainable finance and
investments, bringing our cumulative amount
since 1 January 2020 to $210.7bn of our
$750bn to $1tn ambition by 2030.
Unlocking new climate solutions
In 2022, Climate Asset Management, the
dedicated natural capital investment manager
formed as a joint venture with climate change
investment and advisory firm Pollination,
achieved commitments of more than $650m
across its two natural capital strategies. We
also officially launched Pentagreen, a joint
venture with Temasek, to finance the
development of sustainable infrastructure
in south-east Asia.
Supporting customers through transition
We have made progress in our ambition to
support our customers through their transition
to net zero. In 2022, we provided and facilitated
For further details on our climate ambition,
see the Environmental section in the ESG
review on page 46.
Looking ahead, we will continue to build on our areas of strength, using our international connectivity and strong geographical diversity
spanning every region. We will also continue to drive our transaction banking, wealth and digital platforms in order to grow fee income. Cost
discipline remains a priority for us, while we drive investment in technology to increase productivity and growth. As a result, we expect to
achieve more than 12% RoTE from 2023 onwards – the highest in a decade – and have substantial distribution capacity in 2023 and 2024.
HSBC Holdings plc Annual Report and Accounts 2022
13
Strategic report Strategic report
ESG overview
We conduct our business to support the sustained success
of our customers, people and other stakeholders.
Our approach
We are guided by our purpose: to open up
a world of opportunity for our colleagues,
customers and communities. Our purpose is
underpinned by our values: we value difference;
we succeed together; we take responsibility;
and we get it done. Our purpose and values
help us to deliver our strategy and unlock
long-term value for our stakeholders.
Our approach to ESG is shaped by our purpose
and values and a desire to create sustainable
long-term value for our stakeholders. As an
international bank with significant breadth
and scale, we understand that our climate,
economies, societies, supply chains and
people’s lives are interconnected. We recognise
we can play an important role in tackling ESG
challenges. We focus our efforts on three
areas: the transition to net zero, building
inclusion and resilience, and acting responsibly.
Transition to net zero
The transition to net zero is one of the biggest
challenges for our generation. Success will
require governments, customers and finance
providers to work together. Our global footprint
means that many of our clients operate in
high-emitting sectors and regions that face the
greatest challenge in reducing emissions. This
means that our transition will be challenging
but is an opportunity to make an impact.
We recognise that to achieve our climate
ambition we need to be transparent on the
opportunities, challenges, related risks and
progress we make. To deliver on our ambition,
we require enhanced processes, systems,
controls, governance and new sources of data.
We continue to invest in our climate resources
and skills, and develop our business
management process to integrate climate
impacts. As we enhance our systems,
processes, controls and governance, certain
aspects of our reporting will rely on manual
sourcing and categorisation of data. Given the
challenges on data sourcing as well as the
evolution of our processes as mentioned
above, this has had an impact on certain
climate disclosures including thermal coal. In
2023, we will continue to review our approach
to our disclosures, with our reporting needing
to evolve to keep pace with market
developments.
We set out in more detail the steps we are
taking on our climate ambitions in the ESG
review on page 47.
Build inclusion and resilience
Building inclusion and resilience helps us to
create long-term value. By removing barriers
and being a fair and equitable bank, we can
attract the best talent, serve a wider customer
base and support our communities.
diversity, and we focus on employee sentiment,
and support our colleagues’ resilience through
well-being and learning resources.
We strive to provide inclusive and accessible
banking for our customers. We help our
customers to build financial resilience by
providing resources that help them manage
their finances, and services that help them
protect what they value. This is critical in
challenging times, as we continue to support
our stakeholders in the wake of Covid-19 and
in the face of a rising cost of living.
Finally, we give back to our communities
through philanthropic giving, disaster relief
and volunteering.
Act responsibly
We are focused on running a strong and
sustainable business that puts the customer
first, values good governance, and gives our
stakeholders confidence in how we do what
we do. Our conduct approach guides us to do
the right thing and to focus on the impact we
have for our customers and the financial
markets in which we operate. Customer
experience is at the heart of how we operate.
We aim to act responsibly and with integrity
across the value chain.
An inclusive, healthy and stimulating
environment for our people helps us to succeed.
We have set goals for gender and ethnic
On page 16, we have set out ways that we
have supported our stakeholders through a
challenging year.
ESG disclosure map and directory
Transition to
net zero
Our climate ambition
Detailed Task Force on Climate-related
Financial Disclosures (‘TCFD’)
Diversity and inclusion disclosures
Pay gap disclosures
How we govern ESG
Build
inclusion
and
resilience
Act
responsibly
Human rights and modern slavery disclosures
Read more on our approach to the transition to net zero
Read more on our progress made against our ambition
to achieve net zero in our financed emissions by 2050
Read more on our progress made against our $750bn
to $1tn sustainable finance and investment ambition
Read more on our ambition to achieve net zero in our
own operations by 2030
We make disclosures consistent with Task Force
on Climate-related Financial Disclosures (‘TCFD’)
recommendations, highlighted with the symbol: TCFD
Read more on how we are building an inclusive
environment that reflects our customers and
communities, and our latest pay gap statistics
Read more on our ESG governance approach and
human rights
Page 46
Page 50
Page 57
Page 62
Page 68
Page 74
Page 75
Page 86
Page 87
How our ESG targets link to executive
remuneration
Read more on our ESG targets embedded in executive
remuneration
Page 16;
Pages 282 to 287
Our ESG Data Pack
Our ESG Data Pack provides more granular ESG
information, including the breakdown of our sustainable
finance and investment progress, and complaints volumes
www.hsbc.com/esg
14
HSBC Holdings plc Annual Report and Accounts 2022
ESG overview
Engaging with our stakeholders and our material ESG topics
Engaging with our stakeholders is core to
being a responsible business. To determine
material topics that our stakeholders are
interested in, we conduct a number of
activities throughout the year, including
engagements outlined in the table below.
Disclosure standards such as the TCFD,
World Economic Forum (‘WEF’) Stakeholder
Capitalism Metrics and Sustainability
Accounting Standards Board (‘SASB’),
as well as the ESG Guide under the Hong
Kong Stock Exchange Listing Rules and
other applicable rules and regulations, are
considered as part of the identification of
material issues and disclosures.
Our stakeholders
How we engage
Customers
Employees
Our customers’ voices are heard through our interactions with them,
surveys and by listening to their complaints
Our colleagues’ voices are heard through our employee Snapshot survey,
Exchange meetings, and our ‘speak-up’ channels, including our global
whistleblowing platform, HSBC Confidential
Investors
We engage with our shareholders through our AGMs, virtual and in-person
meetings, conferences and our annual investor survey
Communities
We welcome dialogue with external stakeholders, including non-governmental
organisations (‘NGOs’) and other civil societies groups. We engage directly on
specific issues and by taking part in external forums and working groups
Regulators and
governments
We proactively engage with regulators and governments to facilitate strong
relationships through virtual and in-person meetings and by responding to
consultations individually and jointly via industry bodies
Material topics highlighted by
the engagement1
– Customer advocacy
– Cybersecurity
– Employee training
– Diversity and inclusion
– Employee engagement
– Thermal coal policies
– Energy policies
– Becoming a net zero bank
in our own operations and
financed emissions
– Financial inclusion and
community investment
– Anti-bribery and corruption
– Conduct and product
responsibility
Suppliers
Our code of conduct for suppliers of goods and services sets out how we engage
with our suppliers on ethical and environmental performance
– Supply chain management
– Human rights
1 These form part of our ESG disclosures suite together with other requirements, and are not exhaustive or exclusive to one stakeholder group. For further details on
our disclosures, see our ESG review and ESG Data Pack, as well as our ESG reporting centre at www.hsbc.com/esg.
Supporting our customers facing a rising
cost of living
We know that many of our customers around
the world are facing increasing cost of living
pressures from higher inflation, and we are
committed to helping them.
Colleagues across our global businesses have
been reaching out to customers to provide
them with increased access to support, such
as free financial health checks, as well as
proactively contacting those who we believe
could benefit from additional assistance.
Proactive support
We have focused our support on our
customers in the UK, which is our largest
market to be affected by rising cost of
living pressures, using our guidelines
and procedures to help provide the right
outcomes. We also engage closely and
regularly with our key regulators to help
ensure we meet their expectations of financial
institutions’ activities more generally during
volatile markets.
For our personal customers in financial
difficulty, we enhanced our range of digital
resources, with the launch of a new ‘Rising
cost of living hub’ on our public website. The
hub provides useful articles and tools to help
budget, manage money and gain access to
the range of support we are providing. Other
measures in 2022 included:
– conducting a review of our existing tools
and services, helping to ensure requests
for borrowing remained affordable;
– helping those most in need with temporary
support, such as reducing overdraft
borrowing costs in eligible accounts;
and offering extensions to collection periods.
Other measures in 2022 included:
– improving our customer support and
education, including through webinars and
our financial well-being website, to guide
how best to improve financial resilience and
forecast cash flows;
– enhancing the identification of customers
exhibiting signs of financial vulnerability, by
using data and front-line insights provided
from relationship management teams;
– providing the opportunity to mortgage
– increasing the education provided to our
customers coming to the end of an existing
fixed rate to secure a new rate earlier; and
colleagues on the various forms of financial
support available to clients; and
– removing the payments of penalties for
customers in need of funds having to
close fixed-rate savers accounts early.
In our CMB business, our focus has been
towards helping Business Banking clients
exhibiting signs of financial vulnerability, as well
as participating in local government-backed
initiatives targeted at extending financial
support to SMEs. When a customer is in need
of assistance, we review on a case-by-case
basis, with potential solutions including
repayment holidays, extending loan repayments
– proactively getting in touch with customers
to help ensure awareness of available
support, including communicating with over
40,000 SMEs, and increasing the number of
outbound calls in the fourth quarter of 2022
by 190%, when compared with the previous
quarter, to those displaying signs of lower
financial resilience.
For further details on our conduct and product
responsibilities, see the ESG review on page 94.
For further details of how we are supporting our
colleagues amid rising inflation, see page 25.
HSBC Holdings plc Annual Report and Accounts 2022
15
Strategic report Strategic report | ESG overview
Our ESG ambitions, metrics and targets TCFD
We have established ambitions and targets that
guide how we do business, including how we
operate and how we serve our customers. These
include targets designed to help us achieve our
environment and social sustainability goals. They
also help us to improve employee advocacy, the
diversity of senior leadership and strengthen our
market conduct. The targets for these measures
are linked to the pillars of our ESG strategy:
transitioning to net zero, building inclusion
and resilience, and acting responsibly.
To help us achieve our ESG ambitions, a
number of measures are included in the
annual incentive and long-term incentive
scorecards of the Group Chief Executive,
Group Chief Financial Officer and Group
Executives that underpin the ESG metrics
in the table below.
We have developed a forward-looking
roadmap to consider greater use of ESG
measures in executive performance
assessment. For a summary of how all
financial and non-financial metrics link to
executive remuneration, see pages 282 to
287 of the Directors’ remuneration report.
The table below sets out some of our key
ESG metrics that we use to measure our
progress against our ambitions. For further
details of how well we are doing, see the
ESG review on page 43.
Environmental:
Transition to
net zero1
Financed
emissions2
8 sectors
Number of sectors where we have
set on-balance sheet financed
emissions targets.
Ambition: Achieve net zero in our
financed emissions by 2050.
Gender diversity5
33.3%
Women in senior leadership roles.
(2021: 31.7%)
Target: Achieve 35% women in
senior leadership roles by 2025.
Sustainable finance and
investment3
$210.7bn
Cumulative total provided and
facilitated since January 2020.
(2021: $126.7bn)
Ambition: Provide and facilitate
$750bn to $1tn of sustainable
finance and investment by 2030.
Ethnic diversity5
37% increase
Of Black colleagues in senior
leadership roles from 2020 baseline.
(2021: 17.5% increase)
Target: Double the number of Black
colleagues in senior leadership roles
between 2020 and 2025.
Net zero in our own
operations4
58.5%
Cumulative reduction in absolute
operational greenhouse gas
emissions from 2019 baseline.
(2021: 50.3%)
Ambition: Achieve net zero in our own
operations and supply chain by 2030.
Employee engagement6
73%
Employee engagement score.
(2021: 72%)
Target: Maintain 72% in the Snapshot
Employee engagement index.
Conduct training7
98%
Customer satisfaction8
4 out of 6
5 out of 6
Employees who completed conduct
training in 2022.
(2021: 99%)
Target: At least 98% of employees
complete conduct and financial
crime training each year.
WPB markets that sustained
top-three rank and/or improved
in customer satisfaction.
(2021: 5 out of 6)
Target: To be ranked top three and/or
improve customer satisfaction rank.
CMB markets that sustained
top-three rank and/or improved
in customer satisfaction.
(2021: 2 out of 6)
Target: To be ranked top three and/or
improve customer satisfaction rank
Social:
Build inclusion
and resilience
Governance:
Acting
responsibly
1 For further details of our approach to transition to net zero, methodology and PwC’s limited assurance reports, see www.hsbc.com/who-we-are/esg-and-
responsible-business/esg-reporting-centre.
2 See page 52 for further details on our targets for six of these sectors, which include oil and gas; power and utilities; cement; iron, steel and aluminium; aviation;
and automotive. See page 66 for further details about our thermal coal mining and coal fired power targets, as well as our thermal coal phase-out policy.
3 In October 2020, we announced our ambition to provide and facilitate between $750bn to $1tn of sustainable finance and investment by 2030. For further details
and breakdown, see the ESG review on page 58. For details on how this target links with the scorecards, see page 282.
4 This absolute greenhouse gas emission figure covers scope 1, scope 2 and scope 3 business travel emissions. For further details of how this target links with the
scorecards, see page 282.
5 Senior leadership is classified as those at band 3 and above in our global career band structure. The progress for the ethnicity target is tracked from a 31 December
2020 baseline against our 2020 commitment to double the number of Black senior leaders. We have since refined our approach to ethnicity by focusing on targets
by market. For further details, see the ESG review on page 75. For details on how this target links with the scorecards, see page 282.
6 For further details, see the ESG review on page 77. For details on how this target links with the scorecards, see page 282.
7 The completion rate shown relates to the financial crime ‘Take another look’ training module and conduct ‘Taking responsibility’ training module in 2022.
8 The markets where we report rank positions for WPB and CMB – the UK, Hong Kong, mainland China, India, Mexico and Singapore – are in line with the annual
executive scorecards. This represents a change from 2021, when the metric was based on all markets where benchmarking studies were run. For further details
of customer satisfaction, see the ESG review on page 89. For further details of how this target links with the scorecards, see page 282.
16
HSBC Holdings plc Annual Report and Accounts 2022
ESG overview
Task Force on Climate-related Financial Disclosures (‘TCFD’) TCFD
The Financial Stability Board’s Task Force
on Climate-related Financial Disclosures
(‘TCFD’) recommendations set an important
framework for understanding and analysing
climate-related risks, and we are committed
to regular, transparent reporting to help
communicate and track our progress. We
will advocate the same from our customers,
suppliers and the industry.
We have set out our key climate-related
financial disclosures throughout the Annual
Report and Accounts 2022 and related
disclosures. In 2022, while recognising that
further work lies ahead as we develop our
management and reporting capabilities,
we made certain enhancements to our
disclosures. These include reporting relevant
quantitative results from our first internal
climate-related scenario analysis, including
the carbon prices that we used. We also
began to incorporate climate-related
considerations into our annual financial
planning cycle, and disclosed how
management has considered the impact
of climate-related risks on our financial
position and forward-looking performance.
We have considered our ‘comply or explain’
obligation under the UK’s Financial Conduct
Authority’s Listing Rules, and confirm that we
have made disclosures consistent with the 11
TCFD Recommendations and Recommended
Disclosures save for certain items, which we
summarise below.
– For financed emissions we do not plan
– We do not fully disclose impacts from
to set 2025 targets. We set targets in line
with the Net-Zero Banking Alliance (‘NZBA‘)
guidelines by setting 2030 targets. While
the NZBA define 2030 as intermediate, we
use different time horizons for climate risk
management. We define short term as time
periods up to 2025; medium term is between
2026 and 2035; and long term is between
2036 and 2050. These time periods align
to the Climate Action 100+ disclosure
framework. In 2022, we disclose interim
2030 targets for on-balance sheet financed
emissions for eight sectors as we outline
on page 18. For the shipping sector, we
chose to defer setting a baseline and target
until there is sufficient reliable data to
support our work, allowing us to more
accurately track progress towards net zero.
In March 2022, we said we would set capital
markets emissions targets for the oil and
gas, and power and utilities sectors based
on the industry reporting standard from
the Partnership for Carbon Accounting
Financials (’PCAF’) once published. We
remain committed to setting facilitated
emissions targets, and aim to continue to
engage with industry initiatives to produce
a consistent and comparable cross-industry
approach. We intend to review the financed
emissions baselines and targets annually,
where relevant, to help ensure that they are
aligned with market practice and current
climate science.
climate-related opportunities on financial
planning and performance including on
revenue, costs and the balance sheet,
quantitative scenario analysis, detailed
climate risk exposures for all sectors and
geographies or physical risk metrics. This
is due to transitional challenges in relation
to data limitations. We expect these data
limitations to be addressed in the medium
term as more reliable data becomes
available and technology solutions are
implemented.
– We currently disclose partial scope 3
greenhouse gas emissions including
business travel, supply chain and financed
emissions. In relation to financed emissions,
we published on-balance sheet financed
emissions for six sectors as detailed on page
18. Future disclosure on financed emissions,
and related risks is reliant on our customers
publicly disclosing their carbon emissions
and related risks. We aim to disclose
financed emissions for additional sectors
in our Annual Report and Accounts 2023
and related disclosures. Our approach
to disclosure of financed emissions for
additional sectors can be found at:
www.hsbc.com/who-we-are/esg-and-
responsible-business/esg-reporting-centre.
For a full summary of our TCFD disclosures,
including detailed disclosure locations for
additional information, see pages 68 to 72.
The additional information section on
page 423 provides further detail.
Connecting international investors to sustainable solutions
We are connecting investors around the world with governments to support the transition to
net zero. In May, we helped the Indonesian government raise $3.25bn in an Islamic bond,
known as a sukuk, with $1.5bn of the proceeds dedicated to be used exclusively for eligible
spending that delivers on the UN’s Sustainable Development Goals, with guidance and
support from the UNDP. We were joint lead manager and joint bookrunner, and were also
mandated as joint green structuring adviser. The order book topped $10bn, with most of the
buyers from Asia and the Middle East.
The deal demonstrated how our specialist expertise can build trusted relationships. We have
been discussing green financing solutions with the Indonesian government since 2018 and
were previously appointed to structure both its green and sustainability financing
programmes.
HSBC Holdings plc Annual Report and Accounts 2022
17
Strategic report Strategic report | ESG overview
How we measure our net zero progress TCFD
One of our strategic pillars is to support the
transition to a net zero global economy. Our
ambition is to align our financed emissions
to the Paris Agreement goal to achieve net
zero by 2050 or sooner. The Paris Agreement
aims to limit the rise in global temperatures
to well below 2°C, preferably to 1.5°C, above
pre-industrial levels. To limit the rise in global
temperatures to 1.5°C, the global economy
would need to reach net zero greenhouse
gas emissions by 2050.
We have set interim 2030 targets for on-
balance sheet financed emissions for eight
sectors. These include six sectors for which we
have reported 2019 and 2020 emissions: oil
and gas; power and utilities; cement; iron, steel
and aluminium; aviation; and automotive. We
have also set targets for thermal coal power
and thermal coal mining. We remain
committed to setting facilitated emissions
targets, and aim to continue to engage with
industry initiatives to produce a consistent
and comparable cross-industry approach.
We also recognise that we require enhanced
capabilities and new sources of data, as set
out on page 47.
We continue to track our progress against our
ambition to provide and facilitate $750bn to
$1tn of sustainable finance and investment by
2030, aligned to our published data dictionary,
and our ambition to achieve net zero in our
own operations and supply chain by 2030. We
also recognise that green finance taxonomies
are not consistent globally, and evolving
taxonomies and practices could result in
revisions in our sustainable finance reporting
going forward.
In the year ahead we plan to set interim targets
for financed emissions across additional
sectors and will continue our transformation
programme to embed the climate transition
into our core business and risk processes. We
will continue to work on our climate transition
plan, which will bring together – in one place
– our financed emissions targets and climate
strategy, with how we plan to embed this into
our processes, infrastructure, governance and
engagement. We plan to publish this in 2023,
and update on progress annually thereafter.
We acknowledge this is a journey and
recognise that regular reassessment will be
needed to take into account climate scenarios,
better data and revisions in reporting
standards, as well as to reflect real world
developments and trends. Our modelling
inputs and assumptions will be impacted over
time by the evolution of external parameters,
such as policy and regulatory changes across
our markets, technology innovation uptake,
and macroeconomic events beyond our
control. As a result of this, certain metrics and
targets may need to be revised. In the following
table, we set out our metrics and indicators
and assess our progress against them.
For further details of our approach to
measuring financed emissions, including
scope, methodology, assumptions and
limitations, see page 50.
Climate strategic pillars
and ambition
Metrics and indicators
Progress to date
Becoming a
net zero bank
Number of sectors analysed
for financed emissions1
We have published on-balance sheet financed emissions for six
sectors including cement; iron, steel and aluminium; aviation; and
automotive. We also continue to disclose our financed emissions for
the oil and gas and power and utilities sectors2 (see pages 50 to 56).
Align our financed
emissions to achieve net
zero by 2050 or sooner
Be net zero in our
operations and supply
chain by 2030 or sooner
Absolute operational greenhouse gas
emissions (tonnes CO2e)3
58.5% cumulative reduction in absolute greenhouse gas emissions
from 2019 baseline (see page 62)
Percentage of renewable electricity
sourced across our operations
Increase from 37.5% in 2021 to 48.3% (see page 62)
Percentage of energy consumption
reduced
24.0% cumulative reduction in energy consumption from 2019
baseline (see page 62)
Supporting our
customers
Sustainable finance and investment
provided and facilitated ($bn)4
$210.7bn cumulative progress since 2020 (for further breakdown
see page 58)
Support our customers in
their transition to net zero
and a sustainable future
Unlocking new climate
solutions
Help transform
sustainable infrastructure
into a global asset class,
and create a pipeline of
bankable projects
Natural capital investment
Climate technology investment
Philanthropic investment to climate
innovation ventures, renewable energy,
and nature-based solutions
Climate Asset Management, which forms part of our goal to unlock
new climate solutions, received commitments of over $650m for its
two strategies: the Natural Capital Strategy and the Nature Based
Carbon Strategy (for further details of our approach to responsible
investment, see page 60)
Achieved our initial goal to fund $100m to climate technology
companies, and subsequently raised our target to $250m (see page 60)
Committed $95.8m to our NGO partners since 2020, as part of the
Climate Solutions Partnership (see page 84)
1 For further details of our approach and methodology, see our Financed Emissions – Approach and Methodology Update at www.hsbc.com/who-we-are/
esg-and-responsible-business/esg-reporting-centre.
2 Our disclosures for our 2019 emissions for our oil and gas, and power and utilities sectors have been revised. For further details, see page 55.
3 Our reported scope 3 greenhouse gas emissions of our own operations in 2022 are related to business travel. For further details on scope 1, 2 and 3, and our progress
on greenhouse gas emissions and renewable energy targets, see page 63 and our ESG Data Pack at www.hsbc.com/esg. For further details of our methodology and
PwC’s limited assurance report, see www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.
4 The detailed definitions of the contributing activities for sustainable finance are available in our revised Sustainable Finance and Investment Data Dictionary 2022. For
this, together with our ESG Data Pack and PwC’s limited assurance report, see www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.
18
HSBC Holdings plc Annual Report and Accounts 2022
ESG overview
Responsible business culture
We have the responsibility to help protect our
customers, our communities and the integrity
of the financial system. In this section, we
outline our requirements under the Non-
Financial Reporting Directive.
Employee matters
We are opening up a world of opportunity for
our colleagues through building an inclusive
organisation that values difference, takes
responsibility and seeks different perspectives
for the overall benefit of our customers.
At times our colleagues may need to speak
up about behaviours in the workplace. We
encourage colleagues to speak to their line
manager in the first instance, and our annual
employee Snapshot survey showed that
84% of colleagues have trust in their direct
manager. We recognise that at times people
may not feel comfortable speaking up through
the usual channels. HSBC Confidential is our
global whistleblowing channel, allowing our
colleagues past and present to raise concerns
confidentially and, if preferred, anonymously
(subject to local laws).
We promote an environment where our
colleagues can expect to be treated with
dignity and respect. We are an organisation
that acts where we find behaviours that fall
short. Our index measuring colleagues’
confidence in speaking up increased by
1 percentage point to 76% in 2022,
significantly above the industry benchmark.
We aspire to be an organisation that is
representative of the communities which
we serve. To help achieve this, we have set
commitments on the gender and ethnic
diversity of our senior leadership.
We have committed to achieving a target of
35% of senior leadership roles held by women
(classified as those at band 3 and above in our
global career band structure) by 2025. We
remain on track, having achieved 33.3%
in 2022.
In July 2020, we set out our early global
ethnicity commitments to double the number
of Black employees in senior leadership roles.
To date we have achieved a 37% increase
through leadership development, inclusive
hiring practices and developing the next
generation of high-performing talent. We have
made good progress, but we know there is
more to be done.
To support our ambition, we have placed a
strong focus on enhancing the quality and
transparency of our ethnicity data through the
expansion of our self-identification capability.
As our self-disclosures improve, we can use
this data to develop market-specific goals that
are connected to the communities we serve.
The table below outlines high-level
diversity metrics.
All employees
Male
Female
Senior leadership1
Male
Female
Holdings Board
Male
Female
48%
52%
67%
33%
67%
33%
1 Senior leadership is classified as those at band 3
and above in our global career band structure.
For further details of how we look after our people,
including our diversity targets, transformation
employee metrics and how we encourage our
employees to speak up, see the Employees
section of the ESG review on page 74.
Social matters
We have a responsibility to invest in the
long-term prosperity of the communities
where we operate. We aim to provide people
with the skills and knowledge needed to thrive
in the post-pandemic environment, and
through the transition to a sustainable future.
For this reason, we focus our support on
programmes that help develop employability
and financial capability. We also support
climate solutions and innovation, and
contribute to disaster relief when needed.
For further details of our programmes,
see the ‘Communities’ section of the ESG
review on page 83.
Human rights
Our commitment to respecting human rights,
principally as they apply to our employees, our
suppliers and through our financial services
lending and investment, is set out in our
Statement on Human Rights. This statement,
along with our statements under the UK’s
Modern Slavery Act, is available on www.
hsbc.com/who-we-are/esg-and-responsible-
business/esg-reporting-centre. For further
details, see the ‘Human rights’ section of the
ESG review on page 87.
Anti-corruption and anti-bribery
We require compliance with all applicable
anti-bribery and corruption laws in all markets
and jurisdictions in which we operate. We
set a high standard globally in our global
anti-bribery and corruption policy, which
also focuses on the spirit of relevant laws
and regulations to help demonstrate our
commitment to ethical behaviours and
conduct as part of our environmental,
social and corporate governance.
Environmental matters
For details of our climate ambition
and carbon emission metrics, see
the ESG review on page 46.
Non-financial information statement
This section primarily covers our non-
financial information as required by the
regulations. Other related information can
be found as follows:
For further details of our key performance
indicators, see page 1.
For further details of our business model,
see page 4.
For further details of our principal risks and
how they are managed, see pages 38 to 41.
Equipping our colleagues with sustainability skills
We are developing a range of sustainability-related resources and initiatives to help equip our
colleagues with the skills to be able to support our net zero ambition. We expanded mandatory
training that educates all colleagues on our approach to sustainability. In October, we launched
the Sustainability Academy to equip specific colleagues with key skills to improve their
understanding of topics ranging from climate change to biodiversity. We launched an ESG-
themed recognition campaign through the ‘At Our Best’ platform that encouraged colleagues to
recognise each other’s ESG contributions. The campaign was well supported with nearly 200,000
unique recognitions made, an increase of 50% on the previous year’s Spotlight campaign.
For further details on the Sustainability Academy, see page 82.
HSBC Holdings plc Annual Report and Accounts 2022
19
Strategic report Strategic report
Board decision making and
engagement with stakeholders
The Board is committed to effective engagement with all our
stakeholders and seeks to understand their interests and the
impacts on them when making decisions.
Section 172 (1) statement
This section, from pages 20 to 23 forms
our section 172(1) statement. It describes
how the Directors have performed their
duty to promote the success of the company,
including how they have considered and
engaged with stakeholders and, in particular,
how they have taken account of the matters
set out in section 172(1)(a) to (f) of the
Companies Act 2006.
The Board understands its fundamental
role in formulating and overseeing the Group’s
strategy to achieve long-term success and
fulfil its purpose of opening up a world of
opportunity. Every scheduled Board meeting
features the Group’s strategy as an item of
discussion. When taking principal decisions,
the Directors remain mindful that the matter
for consideration should be aligned to one of
the four strategic pillars. For further details
of our purpose, values and strategy, see
pages 4 and 11 to 13.
The Board, together with senior management,
have given high priority to the format and
content of papers presented to the Board and
its committees for their consideration. The
Group Chief Executive and the Group
Chairman promote best governance practice
by requiring that materials contain appropriate
information to allow Directors to take informed
decisions in keeping with their duties. The
Corporate Governance and Secretariat team
supports the provision of relevant information
by providing governance guidance and
direction regarding the key areas for
consideration in relation to section 172 factors
in order to help the Directors to understand the
likely consequences of their decisions
long term.
The Group Chief Executive’s regular report
to the Board provides insights into key
stakeholder sentiments by highlighting the
interactions he has held with customers,
regulators, employees and other stakeholders,
and the importance of – and learnings from
– these engagements. This informs the Board as
to how the Group fosters its relationships with
stakeholders and how the Group’s business
affects the environment and the communities
it serves. Directors also participate in a variety
of stakeholder engagement events, which
support their understanding of key issues and
challenges, which can then be factored into
future decision making.
The Board recognises that to promote the
Group’s success, the right culture must exist
throughout the organisation, be clearly
understood and be consistently applied. This is
supported by HSBC’s values, which help us
succeed together by connecting, collaborating
and acting with a shared purpose. Each Board
meeting begins with a ‘cultural moment’,
which includes observations of behaviours
within the Group aligned to our purpose and
values. The Board and its committees also
receive updates on conduct issues and any
consequences for stakeholders at its meetings,
in particular from the Group Chief Risk and
Compliance Officer and Group Human
Resources Officer. The Group’s refreshed
conduct approach, approved in 2021, also
helps to support the consistent application of
conduct principles across the organisation,
acknowledging the importance of maintaining
a good reputation for high standards of
business conduct. For further details on
the Board’s oversight of culture, see the
‘Corporate governance report’ on page 255.
Stakeholder engagement and key considerations for the Board
The Board continued to focus on its
engagement with our key stakeholders,
acknowledging that this engagement is core
to being a responsible business and furthers
the fulfilment of our strategy. In discharging
their responsibilities, the Directors sought to
understand, and have regard to, the interests
and priorities of the Group’s key stakeholders,
including in relation to material decisions that
were taken by the Board during the course of
the year.
Virtual and physical meetings
During 2022, the Board was able to resume
its active engagement with stakeholders in
person following two years of Covid-19-related
restrictions. The Board met physically in
several international locations, where it was
able to carry out engagements with a wide
range of stakeholders. For further details of
how we engaged with our stakeholders,
see pages 21 and 253.
We hosted our second hybrid AGM and
engaged directly with our investors leading
up to and during the event. The Informal
Shareholders’ Meeting in Hong Kong also
resumed for the first time since 2019 and
attracted hundreds of shareholders to attend in
person to receive an update on the Group’s
strategy and discuss the latest financial
performance with the Group Chairman, the
Group Chief Executive and the Group Chief
Financial Officer. We are focused on treating
our shareholders fairly, by having a consistent
approach to engagement and communication
with them, and this approach is demonstrated
by our refreshed shareholder communication
policy. Such a policy helps to support the
Board to act fairly between members of the
company.
Doing business responsibly
Maintaining a transparent and trusting
relationship with our regulators remains key
to helping us ensure that we do business
responsibly and that we are able to respond
to challenges appropriately. In addition to
continuous assessment meetings with the UK
regulator (including with Board committee
chairs), the Group Chairman, the Group Chief
Executive and the Group Chief Financial Officer
met with our regulators in the UK and Hong
Kong on a regular basis. These included
meetings in connection with our recovery and
resolution planning, which involved several
Board members engaging directly with the UK
regulator. The Group Chairman and the Group
Chief Executive also met regularly with
government officials globally to continue to
foster strong international relations. In addition,
certain Board members also continued to be
actively involved in climate initiatives and
attend global events such as the Group Chief
Executive’s attendance at the COP27 Summit
in Egypt.
During Board meetings, the Directors
continued to balance discussions on the
Group’s performance, emerging risks and
duties to shareholders, while remaining
conscious of responsibilities to support
communities and help customers. Feedback
from – and engagement with – stakeholders
helps inform the Board on the execution of its
responsibilities.
On pages 22 and 23, we set out four
examples that demonstrate how the Board
made certain decisions while considering
stakeholders, in accordance with the
Directors’ section 172 duties, and how the
decisions support or accelerate the delivery
of the Group’s strategy.
20
HSBC Holdings plc Annual Report and Accounts 2022
Board decision making and engagement with stakeholders
Stakeholder engagement key events in 2022
Stakeholders
Engagement
Impact
Customers
We recognise that the greater
our understanding of our
customers’ needs, the better
we can help support them to
achieve their financial aims
and succeed in our purpose
and strategy.
– Engagement events with customers ranging from small
businesses to multinational companies, in key markets.
– Meetings with business customers in key industries to
discuss plans regarding the transition to net zero.
– Board reporting on retail customer surveys including
net promoter scores and millennial retail customers’
satisfaction.
– By formally and informally engaging with customers
and potential customers, the Board can form a deeper
understanding of why clients do business with us and
how they contribute to achieving our purpose
and ambition.
– Meetings with clients help the Board to understand how
the Group can work to achieve its commitment to
transition to net zero.
– Customer surveys provide insights into how our
customers perceive our services and inform how
we can drive meaningful improvements.
Employees
We want to continue to be a
positive place to work and build
careers, with the success of the
Group’s strategy dependent
upon having motivated people
with the expertise and skills
required to deliver it.
– Employee events, including leadership forums,
webcasts, townhalls, global jams, off-sites and
employee Exchanges.
– Meeting with colleagues across jurisdictions allowed
the Board to hear directly the employee voice on
important issues.
– Extensive interaction with employee resource groups
– These interactions helped inform the Board when it
across multiple events in many jurisdictions.
– Several dedicated talent sessions, including with women
and other diverse talent pools.
– Next Gen gatherings for graduates, including dedicated
focus group interactive sessions.
considers people matters such as career development,
policies and business operations, including technology
needs. Engagement also helps the Board to
contextualise employee Snapshot survey results.
– The appointment of a dedicated workforce engagement
non-executive Director has created a different way for
the employee voice to be heard and demonstrates the
Board’s commitment to understanding what matters to
our people.
– Regular and ad hoc interactions with institutional and
retail investors allow for updates on strategy delivery,
including the transition to net zero. This in turn helps the
Board understand investor sentiment on material matters
throughout the year.
– Such engagements also serve to inform investors of key
developments so that they are well informed and able
to respond appropriately when significant events are
communicated.
– The Board recognises that the Group can influence
meaningful change in many ways, including by
educating, encouraging broader thinking, helping to
shape policy and formulating worldwide solutions,
creating safe environments and achieving net
zero ambitions.
– Frequent and varied engagement between the Board
and government officials and regulators provides an
opportunity for an open, two-way communication. It is
also critical in ensuring that the Board understands and
meets its regulatory obligations.
– Meeting with international officials allows the Board to
communicate the Group’s strategy, perspectives and
insights while ensuring that Directors remain abreast of
political and regulatory trends. It also allows the Board to
share perspectives on standards of best practice across
industries and regions.
Investors
We seek to understand investor
needs and sentiment through
ongoing dialogue and a variety
of engagements with both retail
and institutional investors.
– Numerous meetings with analysts and several
roadshows to discuss interim and year-end results.
– Remuneration Committee Chair investor meetings with
top investors and proxy advisers.
– Annual retail investor events such as the AGM in the UK
and the Informal Shareholders’ Meeting in Hong Kong.
Communities
We seek to play an important
role in supporting the
communities in which we
operate through our corporate
social responsibility and broader
engagement activities.
– Forums and summits supporting ESG causes, such as
the Glasgow Financial Alliance for Net Zero, the Financial
Services Task Force of the Sustainable Markets Initiative
and the World Economic Forum.
– The Directors’ participation at a range of community
initiatives helps them to experience first-hand the
positive effect the Group has on local communities
as an employer, sponsor, collaborator and supporter.
– Visits to local community education facilities in the
UK and Dubai to promote initiatives and collaboration,
including a ‘future coders’ event and a local
sustainability project.
Regulators and
governments
Maintaining constructive
dialogue and relations with
the relevant authorities in the
markets in which we operate
helps support the effective
functioning of economies
globally and the achievement
of our strategic aims.
– Various meetings across our key markets with
governmental officials, including leaders, ministers
and ambassadors.
– Regular meetings with our many regulators, including
in the UK and Hong Kong, and elsewhere.
– Meetings with non-government bodies and
organisations including the European Central Bank,
Bank of England, Monetary Authority of Singapore,
State Bank of India, Public Investment Fund and the
Bank for International Settlements.
Suppliers
We engage with suppliers,
which helps us operate our
business effectively and
execute our strategy.
– Regular reports and updates from the Group Chief
– Meeting with our suppliers helps Directors understand
Operating Officer on supplier matters.
– Meetings with existing and prospective auditors
as part of the audit tender process.
– A meeting with customers (who are also our suppliers)
in the Middle East.
– Interactive sessions with catering and real estate
suppliers including on their net zero plans.
our suppliers’ challenges and how we can work
collaboratively to succeed, particularly in achieving our
net zero ambitions.
– It is key for the Board to understand the Group’s supply
chain and how suppliers’ operations are aligned to our
purpose and values.
– This supports the Board when approving its Modern
Slavery Act Statement.
HSBC Holdings plc Annual Report and Accounts 2022
21
Strategic report Strategic report | Board decision making and engagement with stakeholders
Principal decisions
The Board operates having regard to the duties of the Directors, including the relevant matters
set out in section 172(1)(a)-(f) of the Companies Act 2006. The following examples demonstrate
how these Board decisions, taken in 2022, align to each of our four strategic pillars.
Focus on our strengths
The Board undertook a
strategic review of the
Group’s Canada business
in support of the Group’s
strategic aims.
Energise for growth
The Board approved
a review of its
headquarters’ office
location in London to
support its employees
in creating a more
dynamic and agile
environment in which
to work.
The Board, together with senior management,
keep under review potential inorganic
opportunities to help accelerate the delivery of
our strategy and deliver value for shareholders.
In 2022, to further the Group’s strategy and
ambition, and following a strategic review, the
Board took the decision for the Group to sell its
Canadian business to Royal Bank of Canada.
The review considered HSBC Canada’s
relatively low market share and whether it
was in the Group’s best interests to invest
in HSBC Canada’s expansion and growth in
the context of opportunities in other markets.
It was concluded that the best course of
strategic action was for the Group to sell HSBC
Canada. The Board’s decision to approve the
sale was aligned to the Group’s strategic pillar
of focus on our strengths.
The implications of the transaction for several
key stakeholders were considered and many
stakeholders were engaged with, including
Canadian government officials and regulators
in both the UK and Canada. Financial and
legal advisers were engaged throughout the
process to provide specialist advice to help
inform the Board’s understanding and allow
it to take a decision. Transaction terms were
carefully negotiated to provide certainty for
the Group’s employees in Canada. The Board
also acknowledged that completion of the
transaction would require engagement with
additional key stakeholders, including
employees, customers and suppliers.
The Board considered there to be a number of
benefits to the disposal, including simplifying
the Group structure and helping to further the
aim of becoming a market leader in wealth
management, with a particular focus on Asia.
In addition, the transaction would unlock
significant value for the Group and realise a
good return for our shareholders.
For the reasons set out above, in taking this
decision, the members of the Board exercised
their statutory duties including the duty to act
in the way that they considered, in good faith,
would be most likely to promote the long-term
success of the company for the benefit of its
members as a whole.
Our strategic pillar, energise for growth,
includes a commitment to inspire a dynamic
culture where the best talent want to work.
Throughout the Covid-19 pandemic, we saw
how we could continue to deliver our work
commitments through a hybrid working model
and the value that hybrid working brings for
our clients and colleagues. Our workstyle
approach is helping us to attract and retain
diverse talent, while enabling us to reduce
our office footprint.
We want our head office to connect
people, drive collaboration, foster alternative
workstyles and promote well-being. With
this in mind, in September 2022, the Board
considered a proposal to review the location
of our global headquarters. While we are
committed to remain in London, the success
of hybrid working has meant our workspace
requirements are changing, creating the
opportunity to drive a new real estate model
fit for a modern bank.
The views from several stakeholders helped
to shape this key decision. Employee surveys
provided evidence to support hybrid working,
which informed the decision to review the
global headquarters location. The Board
recognised the importance of taking this
decision early enough to provide sufficient
notice to relevant suppliers, including the
affected landlords, to best prepare for any
changes. Our UK regulators were also
engaged with in good time to ensure that
they were informed of our intentions to
stay in London.
An important Board consideration factored
into the new office environment review
included that it should be more digitally
enabled, so as to help us work smarter
and develop future-ready skills. The Board
also acknowledged that the new office
environment should be designed in a
sustainable way to help meet our net zero
commitments. In taking this decision, the
Board focused on its strategic aspiration to
have a more flexible and dynamic workspace
that meets the needs of everyone. The Board
took into account the section 172 factors along
with the relevant stakeholder engagement,
which informed its decision to commence the
review with a view to best promote the
success of the company for the long term.
22
HSBC Holdings plc Annual Report and Accounts 2022
Board decision making and engagement with stakeholders
Transition to net zero
The Board remained
active and directly
engaged on the Group’s
response to the climate
change agenda,
agreeing an updated
energy policy aligned to
our ambition to support
the transition to a net
zero global economy.
Digitise at scale
The Group is committed
to creating and delivering
on fast, easy, digital
customer experiences.
The Board has remained focused on
its commitments, following the climate
change resolution passed at the 2021 AGM,
to support our customers on their transitions
to a low-carbon future.
need to balance the responsibility of
facilitating a just transition, helping to ensure
continued access to affordable energy sources
in the markets we serve, and supporting an
accelerated transition.
In 2022, the Board approved an update to the
thermal coal phase-out policy. It also approved
the publication of an updated energy policy,
which was considered well aligned to our
strategic approach to transition to net zero.
The energy policy seeks to balance three
objectives: driving down global greenhouse
gas emissions; the need to enable an orderly
transition that builds resilience in the longer
term; and the need to support a just and
affordable transition. In developing this policy,
the Board was informed of the engagement
undertaken with several internal and external
stakeholders including: governments, major
clients, large institutional investors and leading
scientific and international bodies and industry
participants. The Board took into consideration
the active role we are seeking to play in
supporting and accelerating the energy
transition in the markets we serve and the
crucial importance of engaging with our
customers on their own transition plans. The
Board also considered the long-term impacts
of the policy on its stakeholders including the
The Group’s digital strategy aims to ensure
that ways of working for colleagues, as
well as the experience of our customers,
are technologically advanced and efficient.
Digitise at scale means we are focused on
creating and delivering fast, easy, digital
customer experiences by partnering with
technology innovators and working together
to enable new customer benefits. The Board’s
oversight of our digital strategies and policies
is important given that these are critical in
helping to ensure the Group’s resiliency and
customer security.
The Group Chief Executive regularly reports
to the Board on his engagements with – and
feedback from – customers on the Group’s
digital strategy progress. The Board has
engaged with many customers over the past
year, and is focused on ensuring that
our customers’ experiences meet their
expectations. Customer survey insights
throughout 2022 have been used to deepen
understanding of the digital landscape
challenges customers face, and to help drive
solutions. Consequently, the Group has led
several key digital customer deliveries in 2022,
with approximately 49% of customers being
mobile active and around 48% of retail sales
being performed through digital channels.
Delivery of these new initiatives improved
customer experiences across our global
markets in 2022, and supported the Group’s
efforts to execute at speed and automate at
scale – a cornerstone of our strategy.
Since publication of the energy policy,
stakeholder engagement has continued,
including with key institutional investors to
discuss the policy, its impacts and alignment
with our ambition to help finance our clients’
transition to net zero. Extensive engagement
also continues to take place among employees
and with clients as we begin the
implementation of the policy.
In taking the decision to approve the energy
policy and in overseeing the Group’s climate
commitments, the Board gave due regard
to the section 172 factors, in particular the
impact of the decision on the environment
and communities the company serves,
our continuing valuable relationships with
customers and investors, and the long-term
success of the company.
The Board also receives updates from the
Group Chief Operating Officer on the various
ways the Group is furthering its digital
strategy. Vision 27, which is our long-term
technology strategy, featured regularly on
the Board agenda and was launched at the
beginning of 2022. Its aim is to help transform
HSBC into a digital-first bank over the next five
years. One of the Vision 27 initiatives is the
development of a digital technology map,
which is a bespoke tool developed to capture
all of the Group’s applications and systems
and provide insight and data points on these
including usage by businesses, regions and
entities. The Board and the Technology
Governance Working Group have also
challenged management on the prioritisation
of digital initiatives, as well as the demise of
legacy and non-strategic applications, as part
of efforts to streamline the large and complex
technology architecture. This is a key focus
in helping to improve the resiliency and
efficiency of our systems for colleagues
and customers.
In taking these decisions, whether by the
Board directly, or the business through its
delegated authority, the digital needs of
customers and employees are taken into
account in order to create long-term success
of the company and become a truly data-led
organisation.
HSBC Holdings plc Annual Report and Accounts 2022
23
Strategic report Strategic report
Remuneration
Our remuneration policy supports the achievement of our strategic objectives
by aligning reward with our long-term sustainable performance.
Our remuneration
approach
We have refreshed our reward strategy and
proposition for the workforce in response to
the new or elevated challenges we are facing
as we move beyond the Covid-19 pandemic,
including the cost of living pressures many
of our colleagues are experiencing. The
commitments we make to colleagues are
critical to support us in energising for growth
and delivering sustainable performance.
For further details of what we did during 2022
to help ensure remuneration outcomes were
consistent with this approach, see page 292.
Remuneration for our
executive Directors
Our current remuneration policy for executive
Directors was approved by 96% of our
shareholders at our AGM in 2022 and will
apply for a maximum of three years until the
AGM in 2025. We made no changes to the
remuneration structure or to the maximum
opportunity payable for each element of
remuneration. Details of the policy can be
found on pages 257 to 265 of our previous
Annual Report and Accounts 2021.
The table below shows the amount our
executive Directors earned in 2022. For details
of Directors’ pay and performance for 2022, see
the Directors’ remuneration report on page 282.
Single figure of remuneration
(£000)
Base salary
Fixed pay allowance
Cash in lieu of pension
Taxable benefits
Non-taxable benefits
Total fixed
Annual incentive
Notional returns
Replacement award
Long-term incentive
Total variable
Total fixed and variable
Noel Quinn
Ewen Stevenson
2022
1,329
1,700
133
119
86
3,367
2,164
31
—
—
2,195
5,562
2021
1,288
1,700
129
95
71
3,283
1,590
22
—
—
1,612
4,895
2022
775
1,085
77
7
50
1,994
1,091
—
1,180
436
2,707
4,701
2021
751
1,062
75
3
42
1,933
978
—
754
—
1,732
3,665
Notes and commentary related to this table are provided in the Directors’ remuneration report on page 284.
24
HSBC Holdings plc Annual Report and Accounts 2022
Remuneration
Remuneration for our executive Directors continued
Variable pay for our executive Directors is
driven primarily by achievement against
performance scorecards, with measures
and targets set by the Group Remuneration
Committee at the start of the year to align pay
outcomes with the delivery of our strategy and
plan. After the formulaic scorecard outcome
was determined, the Group Remuneration
Committee applied a downward adjustment
of 5% and 15% to Noel Quinn’s and Ewen
Stevenson’s 2022 annual incentive outcomes,
respectively, to take into account specific risk
matters around capital management in the
year. Further details are provided in the
Directors’ remuneration report.
Executive Directors’ annual incentive
scorecard outcome
(% of maximum opportunity)
Group Chief Executive
Group Chief Financial Officer
75.35%
65.15%
Remuneration for our colleagues
Variable pay pool
($m)
2022
2021
3,359
3,495
The Group Remuneration Committee
determined an overall variable pay
pool for Group employees of $3,359m
2019
(2021: $3,495m). This followed a review
of our performance against financial and
non-financial metrics set out in the Group
risk framework. The Group Remuneration
Committee considered our 2022 financial
performance, with a 17% increase in adjusted
profit before tax, return on average tangible
equity of 9.9% and costs slightly up year on
year. The Group Remuneration Committee
also considered the external environment, the
challenging economic outlook and projected
outcomes across the market to ensure we
remain competitive to attract and retain talent.
The distribution of the pool was differentiated
by business performance. Overall year-on-year
variable pay outcomes were strongest in
CMB, followed by WPB but down in GBM
to reflect relative performance. There
was robust differentiation for individual
performance so that our highest performers
received meaningful variable pay increases
compared with the previous year. We have
protected variable pay for junior colleagues,
which is up on average, recognising the
inflationary and cost of living challenges
experienced across most of our markets.
In determining 2023 fixed pay increases, we
considered the impact of inflation in each
country where we operate. Increases were
targeted towards more junior and middle
management colleagues as fixed pay is a
larger proportion of their overall pay. Across
the Group, there was an overall increase of
5.5% in fixed pay, compared with 3.6% for
2022. The level of increases varies by country,
depending on the economic situation and
individual roles. There were no fixed pay
increases for most of our senior leaders,
including our executive Directors.
For details of how the Group Remuneration
Committee sets the pool, see page 276.
Supporting our colleagues during 2022
We know that many colleagues around the world are facing different pressures, and we are
committed to supporting them, adapting our approach according to the market.
For colleagues who are still significantly impacted by the pandemic, for example in mainland
China and Hong Kong, we provided care packages and increased well-being sessions. In
mainland China, we also delivered food essentials and provided inconvenience allowances.
Separately, in Argentina and Türkiye, we made regular adjustments to fixed pay given the
continuing inflationary pressures. In Sri Lanka, we made one-off payments and fixed pay
increases during the year to address high inflation. In the UK, we provided almost 17,000
junior colleagues with a one-off payment of £1,500 to help with energy cost pressures. We
have continued to provide a wide range of resources to all our colleagues globally, including
wider support on financial guidance, employee assistance programmes and access to
hardship funds.
For further details of how we are supporting colleague well-being, see page 80.
HSBC Holdings plc Annual Report and Accounts 2022
25
Strategic report Strategic report
Financial overview
In assessing the Group’s financial performance, management uses a range
of financial measures that focus on the delivery of sustainable returns for
our shareholders and maintaining our financial strength.
Executive summary
Group financial targets
Financial performance in 2022 was
supported by a rise in global interest rates,
which materially improved our net interest
income, and we maintained our strong
focus on cost discipline, despite inflationary
pressures and continued investment. While
our revenue outlook remains positive, there
are continued risks around inflation and
increasing macroeconomic uncertainty in
many of the markets in which we operate.
Reported profit after tax for 2022 of
$16.7bn was 13% higher, which included
an effective tax rate charge of 4.9% due
to the benefit of credits related to the
recognition of deferred tax assets. Our
return on average tangible equity (‘RoTE’)
improved by 1.6 percentage points to
9.9%. Reported profit before tax of
$17.5bn decreased by 7%, which included
an impairment of $2.4bn following the
reclassification of our retail banking
operations in France to held for sale, as
well as a more normalised charge for
expected credit losses (‘ECL’), compared
with a net release in 2021. These reductions
were mitigated by the favourable impact of
higher interest rates on reported revenue
and a reduction in reported operating
expenses, primarily due to the favourable
impact of foreign currency translation
differences.
The Group CET1 capital ratio fell
1.6 percentage points to 14.2% at
31 December 2022. In addition, customer
deposit and lending balances both fell
compared with 31 December 2021,
reflecting the reclassification to held for
sale of balances, notably from our retail
banking operations in France and our
banking business in Canada, as well
as from the adverse impact of foreign
currency translation differences.
Notwithstanding these impacts, there
was mortgage growth in the UK and
Hong Kong, which mitigated a reduction
in term lending in CMB in Hong Kong.
Return on average tangible equity
9.9%
(2021: 8.3%)
In 2022, RoTE was 9.9%, an increase of
1.6 percentage points from 2021.
Despite increasing macroeconomic uncertainty,
the impact of our growth and transformation
programmes, together with the positive revenue
outlook, give us confidence in achieving our
RoTE target of at least 12% for 2023 onwards.
Adjusted operating expenses
$30.5bn
(2021: $30.1bn)
During 2022, we continued to demonstrate
strong cost discipline, despite inflationary
pressures. We achieved 1% growth in adjusted
operating expenses compared with 2021,
relative to our target of broadly stable adjusted
operating expenses.
Our cost to achieve programme concluded on
31 December 2022. Cumulatively, since the start
of the programme in 2020, we have realised gross
savings of $5.6bn, with cost to achieve spend
of $6.5bn. We expect approximately $1bn of
additional gross cost saves from this programme
in 2023, due to actions taken in 2022.
We retain our focus on cost discipline and will
target 2023 adjusted cost growth of approximately
3% on an IFRS 4 basis. This includes up to $300m
of additional severance costs in 2023, which we
expect to generate further efficiencies into 2024.
There may also be an incremental adverse
impact from retranslating the 2022 results of
hyperinflationary economies at constant currency.
Gross risk-weighted asset reductions
$128bn
Since the start of the programme.
At 31 December 2022, the Group had delivered
cumulative gross RWA reductions of $128bn,
relative to our target to achieve gross RWA
reductions of $110bn or more by the end of
2022. This included accelerated saves of
$9.6bn made in 2019. This programme
concluded on 31 December 2022.
Capital and dividend policy
CET1 ratio
Dividend payout ratio
14.2%
44%
At 31 December 2022, our common equity
tier 1 (‘CET1’) capital ratio was 14.2%, down
1.6 percentage points from 31 December 2021.
Having fallen below 14% during 2022, we are
back within our medium-term CET1 target
range of 14% to 14.5%. We intend to continue
to manage capital efficiently, returning excess
capital to shareholders where appropriate.
The Board has approved a second interim
dividend for 2022 of $0.23 per ordinary share.
The total dividend per share in 2022 of $0.32
results in a dividend payout ratio of 44%,
relative to our 2022 target range of between
40% and 55% from 2022 onwards. In
determining our dividend payout ratio for 2022,
the impairment on the planned sale of our retail
banking operations in France, the $1.8bn
impact from the recognition of a deferred tax
asset for the UK tax group and HSBC Canada’s
financial results from the 30 June 2022 net
asset reference date are excluded from the
reported earnings per share.
We are establishing a dividend payout ratio of
50% for 2023 and 2024, excluding material
significant items (including the planned sale
of our retail banking operations in France and
the planned sale of our banking business in
Canada), with consideration of buy-backs
brought forward to our first quarter results in
May 2023, subject to appropriate capital levels.
We also intend to revert to paying quarterly
dividends from the first quarter of 2023.
Subject to the completion of the sale of our
banking business in Canada, the Board’s
intention is to consider the payment of a
special dividend of $0.21 per share as a priority
use of the proceeds generated by completion
of the transaction. A decision in relation to any
potential dividend would be made following
the completion of the transaction, currently
expected in late 2023, with payment following
in early 2024. Further details in relation to
record date and other relevant information
will be published at that time. Any remaining
additional surplus capital is expected to be
allocated towards opportunities for organic
growth and investment alongside potential
share buy-backs, which would be in addition
to any existing share buy-back programme.
26
HSBC Holdings plc Annual Report and Accounts 2022
Financial overview
Key financial metrics
Reported results
Reported profit before tax ($m)
Reported profit after tax ($m)
Cost efficiency ratio (%)
Net interest margin (%)
Basic earnings per share ($)
Diluted earnings per share ($)
Dividend per ordinary share (in respect of the period) ($)
Dividend payout ratio (%)1
Alternative performance measures
Adjusted profit before tax ($m)
Adjusted cost efficiency ratio (%)
Expected credit losses and other credit impairment charges (‘ECL’) as % of average
gross loans and advances to customers (%)
Expected credit losses and other credit impairment charges (‘ECL’) as % of average
gross loans and advances to customers, including held for sale (%)2
Return on average ordinary shareholders’ equity (%)
Return on average tangible equity (%)
Balance sheet
Total assets ($m)
Net loans and advances to customers ($m)
Customer accounts ($m)
Average interest-earning assets ($m)
Loans and advances to customers as % of customer accounts (%)
Total shareholders’ equity ($m)
Tangible ordinary shareholders’ equity ($m)
Net asset value per ordinary share at period end ($)
Tangible net asset value per ordinary share at period end ($)
Capital, leverage and liquidity
Common equity tier 1 capital ratio (%)3
Risk-weighted assets ($m)3,4
Total capital ratio (%)3,4
Leverage ratio (%)3,4
High-quality liquid assets (liquidity value) ($bn)4,5
Liquidity coverage ratio (%)4,5
Net stable funding ratio (%)4,5
Share count
For the year ended
2022
17,528
16,670
64.4
1.48
0.75
0.74
0.32
44
2021
18,906
14,693
69.9
1.20
0.62
0.62
0.25
40
2020
8,777
6,099
68.3
1.32
0.19
0.19
0.15
79
24,010
20,603
11,695
55.0
0.36
0.35
8.7
9.9
64.0
(0.08)
(0.08)
7.1
8.3
62.3
0.87
0.87
2.3
3.1
At 31 December
2022
2021
2020
2,966,530
924,854
1,570,303
2,203,639
58.9
187,484
149,355
8.50
7.57
2,957,939
1,045,814
1,710,574
2,209,513
61.1
198,250
158,193
8.76
7.88
2,984,164
1,037,987
1,642,780
2,092,900
63.2
196,443
156,423
8.62
7.75
14.2
15.8
839,720
838,263
15.9
857,520
19.3
5.8
647
132
136
21.2
5.2
688
139
N/A
21.5
5.5
678
139
N/A
Period end basic number of $0.50 ordinary shares outstanding (millions)
Period end basic number of $0.50 ordinary shares outstanding and dilutive potential
ordinary shares (millions)
19,739
19,876
20,073
20,189
20,184
20,272
Average basic number of $0.50 ordinary shares outstanding (millions)
19,849
20,197
20,169
For reconciliations of our reported results to an adjusted basis, including lists of significant items, see page 109. Definitions and calculations of other alternative
performance measures are included in our ‘Reconciliation of alternative performance measures’ on page 128.
1 Dividend per share, in respect of the period, as a percentage of earnings per share adjusted for certain items (recognition of certain deferred tax assets: $0.11 reduction
in EPS; planned sales of the retail banking operations in France and banking business in Canada: $0.09 increase in EPS). No items were adjusted in 2021 or 2020.
2 Includes average gross loans and advances to customers reported within ‘assets held for sale’.
3 Unless otherwise stated, regulatory capital ratios and requirements are based on the transitional arrangements of the Capital Requirements Regulation in force at the
time. These include the regulatory transitional arrangements for IFRS 9 ‘Financial Instruments’, which are explained further on page 208. Leverage ratios are reported
based on the disclosure rules in force at that time, and include claims on central banks. Current period leverage metrics exclude central bank claims in accordance with
the UK leverage rules that were implemented on 1 January 2022. 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 liquidity coverage ratio is based on the average value of the preceding 12 months. The net stable funding ratio is based on the average value of four preceding
quarters. The LCR in December 2021 has been restated for consistency. We have not restated the prior periods for NSFR as no comparatives are available.
HSBC Holdings plc Annual Report and Accounts 2022
27
Strategic report Strategic report | Financial overview
Reported results
Reported profit
Reported profit after tax of $16.7bn was
$2.0bn or 13% higher than in 2021, and
included a $2.2bn credit arising from the
recognition of a deferred tax asset from
historical tax losses in HSBC Holdings. It
also benefited from other deferred tax asset
and uncertain tax position reassessments,
resulting in an effective tax rate of 5%.
Reported profit before tax of $17.5bn was
$1.4bn or 7% lower than in 2021. The decrease
reflected a net ECL charge of $3.6bn in 2022,
which included stage 3 charges of $2.2bn,
in part relating to the commercial real estate
sector in mainland China, as well as from
the impact of heightened economic
uncertainty, inflation and rising interest rates.
This compared with a net release of $0.9bn in
2021. This adverse movement in reported ECL
was partly offset by higher reported revenue
and lower reported operating expenses.
The increase in reported revenue primarily
reflected higher net interest income from the
positive impact of interest rate rises on all of
our global businesses. This was partly offset
by an impairment of $2.4bn recognised
following the reclassification of our retail
banking operations in France as held for sale
on 30 September 2022, an adverse impact of
foreign currency translation differences and
unfavourable market impacts in life insurance
manufacturing in WPB. Lower reported
operating expenses primarily reflected
the favourable impact of foreign currency
translation differences, while restructuring
and other related costs increased.
Effective 1 January 2023, IFRS 17 ‘Insurance
Contracts’ sets the requirements that an entity
should apply in accounting for insurance
contracts it issues and reinsurance contracts it
holds. IFRS 17 replaces IFRS 4 and could have
a significant adverse impact on the profitability
of our insurance business on transition. For
further details of the impact of IFRS 17 on
the results of our insurance operations,
see page 335.
Reported revenue
Reported revenue of $51.7bn was $2.2bn
or 4% higher than in 2021, primarily due to
an increase in net interest income from the
positive impact of interest rate rises, mainly
in Global Payments Solutions (‘GPS’) in CMB
and GBM, and in Personal Banking in WPB.
In GBM, Global Foreign Exchange revenue
benefited from increased client activity due to
elevated levels of market volatility. In addition,
there were strong sales in our life insurance
manufacturing business in WPB, with growth
in the value of new business, while insurance
revenue also included a gain following a
pricing update for our policyholders‘ funds
held on deposit with us in Hong Kong to
reflect the cost to provide this service.
Reported results
Net operating income before change in
expected credit losses and other credit
impairment charges (‘revenue’)
Change in expected credit losses and other
credit impairment charges
Net operating income
Total operating expenses
Operating profit
Share of profit in associates and joint ventures
Profit before tax
Tax expense
Profit after tax
These increases were partly offset by an
impairment of $2.4bn recognised following the
reclassification of our retail banking operations
in France as held for sale on 30 September
2022, as well as losses of $0.4bn associated
with the planned sales of our branch
operations in Greece and our business in
Russia. Reported revenue included an adverse
impact of foreign currency translation
differences of $3.1bn, and unfavourable market
impacts in life insurance manufacturing in
WPB of $1.0bn, compared with favourable
movements in 2021 of $504m. There was also
a decrease in Markets Treasury revenue, which
is allocated to our global businesses, due to
lower net interest income from the impact of
rising interest rates on our funding costs and
flattening yield curves across all regions, as
well as from lower disposal gains related to
risk management activities.
Lower net fee income reflected a reduction
in investment distribution income in WPB
due to muted customer sentiment resulting
in reduced activity in equity markets, and
Covid-19-related restrictions in Hong Kong in
early 2022, which resulted in the temporary
closure of parts of our branch network. Since
then, restrictions have substantially been
eased. Additionally in GBM, there were lower
fees in Capital Markets and Advisory, in line
with the reduced global fee pool. In Principal
Investments, lower revaluation gains resulted
in a reduction in revenue relative to 2021.
Reported ECL
Reported ECL were a net charge of $3.6bn,
which included stage 3 charges of $2.2bn,
in part relating to the commercial real estate
sector in mainland China. We also recognised
additional stage 1 and stage 2 allowances
to reflect heightened levels of economic
uncertainty, inflation, supply chain risks and
rising interest rates, in part offset by the release
of most of our remaining Covid-19-related
allowances. This compared with a net release
of $0.9bn in 2021 relating to Covid-19-related
allowances previously built up in 2020.
For further details of the calculation of ECL,
see pages 153 to 162.
2022
$m
2021
$m
2020
$m
51,727
49,552
50,429
(3,592)
928
(8,817)
48,135
(33,330)
14,805
2,723
17,528
(858)
16,670
50,480
(34,620)
15,860
3,046
18,906
(4,213)
14,693
41,612
(34,432)
7,180
1,597
8,777
(2,678)
6,099
Reported operating expenses
Reported operating expenses of $33.3bn
were $1.3bn or 4% lower than in 2021,
primarily as foreign currency translation
differences resulted in a favourable impact of
$2.2bn, as well as from the non-recurrence of
a 2021 goodwill impairment of $0.6bn related
to our WPB business in Latin America.
Reported operating expenses also reflected
the impact of ongoing cost discipline across
the Group. This helped mitigate the cost
of increased investment in technology of
$0.5bn, which included investments in our
digital capabilities, as well as the impact of
business volume growth and inflation.
Restructuring and other related costs
increased by $1.0bn.
Reported share of profit from associates
and joint ventures
Reported share of profit from associates
and joint ventures of $2.7bn was $0.3bn or
11% lower than in 2021, primarily as 2021
included a higher share of profit from Business
Growth Fund (‘BGF’) due to the recovery in
asset valuations. This was partly offset by
an increase in the share of profit from
The Saudi British Bank (‘SABB’).
Tax expense
Tax in 2022 was a charge of $0.9bn and
included a $2.2bn credit arising from the
recognition of a deferred tax asset from
historical tax losses in HSBC Holdings.
This was a result of improved profit forecasts
for the UK tax group, which accelerated
the expected utilisation of these losses
and reduced uncertainty regarding their
recoverability. We also benefited from other
deferred tax asset and uncertain tax position
reassessments during 2022. Excluding these,
the effective tax rate for 2022 was 19.2%,
which was 3.1 percentage points lower than
in 2021. The effective tax rate for 2022 was
decreased by the remeasurement of deferred
tax balances following the substantive
enactment in the first quarter of 2022 of
legislation to reduce the rate of the UK banking
surcharge from 8% to 3% from 1 April 2023.
28
HSBC Holdings plc Annual Report and Accounts 2022
Financial overview
Adjusted performance
Our reported results are prepared in
accordance with IFRSs, as detailed in
the financial statements on page 335.
We also present alternative performance
measures (non-GAAP financial measures).
These include adjusted performance, which
we use to align internal and external reporting,
identify and quantify items management
believes to be significant, and provide insight
into how management assesses period-on-
period performance. Alternative performance
measures are highlighted with the following
symbol:
To derive adjusted performance, we adjust for:
– the year-on-year effects of foreign currency
translation differences; and
– the effect of significant items that distort
year-on-year comparisons, which are
excluded to improve understanding of
the underlying trends in the business.
The results of our global businesses are
presented on an adjusted basis, which is
consistent with how we manage and assess
global business performance.
For reconciliations of our reported results to an
adjusted basis, including lists of significant items,
see page 109. Definitions and calculations of
other alternative performance measures are
included in our ‘Reconciliation of alternative
performance measures’ on page 128.
Adjusted results
Net operating income before change in expected credit losses
and other credit impairment charges (‘revenue’)
2022
$m
2021
$m
2020
$m
55,345
47,020
48,848
2022 vs 2021
$m
8,325
%
18
Change in expected credit losses and other credit impairment charges
(3,592)
754
(8,815)
(4,346)
>(200)
Total operating expenses
Operating profit
Share of profit in associates and joint ventures
Profit before tax
Tax
Profit after tax
Adjusted profit before tax
Adjusted profit after tax of $19.7bn was $3.4bn
or 21% higher than in 2021.
Adjusted profit before tax of $24.0bn was
$3.4bn or 17% higher than in 2021, reflecting
higher adjusted revenue, mainly from net
interest income growth following global
interest rate rises. This increase was partly
offset by an ECL charge in 2022, compared
with a net release in 2021. The ECL charge in
2022 reflected stage 3 charges, as well as the
impact of heightened economic uncertainty,
inflation, supply chain risks and rising interest
rates. Adjusted profit from associates and joint
ventures decreased, while adjusted operating
expenses increased by 1% compared with
2021, reflecting investment in technology
mitigated by continued cost discipline.
Adjusted revenue
Adjusted revenue of $55.3bn was $8.3bn or
18% higher than in 2021. The increase was
driven by net interest income growth of $7.7bn
following global interest rate rises, mainly in
GPS in CMB and GBM, and Personal Banking
in WPB. Global Foreign Exchange in GBM
benefited from increased client activity due to
elevated levels of market volatility, and there
were strong sales in our insurance business in
WPB, with the value of new business up by
$0.2bn or 23%. In addition, insurance revenue
included a $0.3bn gain following a pricing
update for our policyholders‘ funds held on
deposit with us in Hong Kong to reflect the
cost to provide this service.
(30,466)
(30,104)
(30,445)
21,287
2,723
24,010
17,670
2,933
20,603
(4,287)
(4,241)
19,723
16,362
9,588
2,107
11,695
(3,274)
8,421
(362)
3,617
(210)
3,407
(46)
3,361
Reconciliation of reported profit before tax to adjusted profit after tax
Reported profit before tax
Currency translation
Significant items:
– customer redress programmes
– disposals, acquisitions and investment in new
businesses
– fair value movements on financial instruments
– impairment of goodwill and other intangibles
– past service costs of guaranteed minimum pension
benefits equalisation
2022
$m
2021
$m
17,528
18,906
—
6,482
(39)
2,817
579
(4)
—
(1,180)
2,877
38
—
242
587
—
– restructuring and other related costs
3,129
2,143
– settlements and provisions in connection with legal and
regulatory matters
– goodwill impairment (share of profit in associates and
joint ventures)
– currency translation on significant items
—
—
—
—
—
(1)
20
(7)
17
(1)
21
2020
$m
8,777
(303)
3,221
(33)
10
(264)
1,090
17
2,078
12
462
(133)
(151)
Adjusted profit before tax
Adjusted tax charge1
Adjusted profit after tax
24,010
20,603
11,695
(4,287)
(4,241)
19,723
16,362
(3,274)
8,421
1 For a reconciliation of reported to adjusted tax charge, see page 109.
HSBC Holdings plc Annual Report and Accounts 2022
29
Strategic report
Strategic report | Financial overview
Adjusted performance continued
These increases in adjusted revenue
were partly offset by a net unfavourable
movement in market impacts in life insurance
manufacturing in WPB of $1.4bn. In addition,
lower net fee income reflected a reduction
in investment distribution income, as muted
customer sentiment led to reduced activity
in equity markets, and Covid-19-related
restrictions in Hong Kong in early 2022
resulted in the temporary closure of parts of
our branch network. Since then, restrictions
have substantially been eased. In GBM, there
were lower fees in Capital Markets and
Advisory revenue, in line with the reduced
global fee pool. In Principal Investments,
revenue fell due to lower revaluation gains
relative to 2021.
Revenue relating to Markets Treasury
decreased by $0.7bn due to lower net interest
income from the impact of rising interest
rates on our funding costs and flattening
yield curves across all regions, as well as
from lower disposal gains related to risk
management activities. This revenue is
allocated to our global businesses.
Adjusted ECL
Adjusted ECL were a net charge of $3.6bn,
which included stage 3 charges of $2.2bn,
in part relating to the commercial real estate
sector in mainland China. The charge also
included stage 1 and stage 2 allowances to
reflect heightened economic uncertainty,
inflation, supply chain risks and rising interest
rates, in part offset by the release of most of
our remaining Covid-19-related allowances.
The net ECL release of $0.8bn in 2021 related
to Covid-19 allowances previously built up
in 2020.
Adjusted operating expenses
Adjusted operating expenses of $30.5bn were
1% higher compared with 2021, as we actively
managed the impact of inflation on our cost
base through ongoing cost discipline. These
reductions helped mitigate an increase from
continued investment in technology of $0.5bn,
which included investments in our digital
capabilities, as well as growth due to
business volume-related cost growth and
the impact of inflation. Adjusted operating
expenses also included the adverse impact
of retranslating the prior year results of our
operations in hyperinflationary economies
at 2022 average rates of foreign exchange.
The number of employees expressed
in full-time equivalent staff (‘FTE’) at
31 December 2022 was 219,199, a decrease
of 498 compared with 31 December 2021.
The number of contractors at 31 December
2022 was 6,047, a decrease of 145.
Adjusted share of profit from associates
and JVs
Adjusted share of profit from associates and
joint ventures of $2.7bn was 7% lower than
in 2021, primarily as 2021 included a higher
share of profit from BGF due to the recovery in
asset valuations. This was partly offset by an
increase in the share of profit from SABB.
Balance sheet and capital
Balance sheet strength
At 31 December 2022, our total assets
of $3.0tn were broadly unchanged from
31 December 2021 on a reported basis,
which included adverse effects of foreign
currency translation differences of $152bn.
On a constant currency basis, total assets
increased $161bn, primarily from a growth
in derivative asset balances.
Reported loans and advances to customers
decreased by $121bn. On a constant currency
basis, loans and advances fell by $66bn,
primarily due to the reclassification of $81bn of
balances to held for sale, notably associated
with our retail banking operations in France
and our banking business in Canada. While
our near-term outlook on lending growth
remains cautious, we expect mid-single-digit
percentage annual loan growth in the medium
to long term.
Reported customer accounts of $1.6tn
decreased by $140bn, and by $52bn on
a constant currency basis, mainly due to
the reclassification to held for sale.
Reported loans and advances to customers
as a percentage of customer accounts was
58.9%, which was lower compared with
61.1% at 31 December 2021.
Distributable reserves
The distributable reserves of HSBC Holdings
at 31 December 2022 were $35.2bn,
compared with $32.2bn at 31 December 2021.
The increase was primarily driven by profits
generated of $12.4bn and a foreign exchange
gain on the redemption of additional tier 1
securities of $0.4bn, offset by ordinary
dividend payments and additional tier 1
coupon distributions of $6.5bn, other reserves
movements of $2.3bn and $1bn related to
our share buy-back programme.
Capital position
We actively manage the Group’s capital
position to support our business strategy and
meet our regulatory requirements at all times,
including under stress, while optimising our
capital efficiency. To do this, we monitor our
capital position using a number of measures.
These include our capital ratios and the impact
on our capital ratios as a result of stress.
Our CET1 ratio at 31 December 2022 was
14.2%, down 1.6 percentage points from
2021. Capital generation was more than offset
by new regulatory requirements, a fall in the
fair value through other comprehensive
income (‘FVOCI’), dividends, share buy-backs
and foreign exchange movements. RWAs
were relatively stable with growth broadly
offset by foreign exchange movements.
Liquidity position
We actively manage the Group’s liquidity and
funding to support our business strategy and
meet regulatory requirements at all times,
including under stress. To do this, we monitor
our position using a number of risk appetite
measures, including the liquidity coverage ratio
and the net stable funding ratio. During 2022,
the average high-quality liquid assets we held
was $647bn. This excludes high-quality liquid
assets in legal entities which are not
transferable due to local restrictions.
For further details, see page 205.
Total assets
($bn)
$2,967bn
2022
2021
2020
2019
Common equity tier 1 ratio
(%)
14.2%
2022
2021
2020
2019
2,967
2,958
2,984
14.2
15.8
15.9
30
HSBC Holdings plc Annual Report and Accounts 2022
Global businesses
Wealth and Personal Banking
We serve around 38 million customers globally, including
6 million of whom are international, from retail customers
to ultra high net worth individuals and their families.
Contribution to Group adjusted profit
before tax
$8.5bn
(36%)
Creating a seamless
digital journey for our
international customers
To deliver on our strategic focus on
better serving and growing our 6 million
international customers, we have enhanced
our proposition for customers with
international needs.
In 2022, we launched digital international
account opening in Singapore, the UK
and Australia, and made enhancements to
the existing onboarding journeys in Hong
Kong, the US, Canada, mainland China and
the Channel Islands, allowing customers
to open their accounts even before they
arrive in their new country. Global Money
Transfers offers customers an easy, quick,
and competitively priced way for foreign
currency payments, and is now live in eight
markets. In addition, a partnership-enabled
innovation allows customers in Singapore
to access their credit history from other
markets, using this information to expedite
credit card limit decisions.
To meet our customers’ needs, we
offer a full suite of products and services
across transactional banking, lending
and wealth.
WPB continued to invest in our key strategic
priorities of expanding our Wealth franchise in
Asia, developing our transactional banking
and lending capabilities, and addressing our
customers’ international needs. Performance
benefited from our product diversification in
the context of rising interest rates mitigating
adverse movements in market impacts in
insurance and lower customer activity in
equity markets. The results included a more
normalised level of adjusted ECL charges in
2022, compared with releases in 2021.
Adjusted results
Net operating income
Change in expected credit
losses and other credit
impairment charges
Operating expenses
Share of profit in
associates and JVs
Profit before tax
RoTE excluding significant
items (%)1
2022
$m
2021
$m
24,367
20,963
(1,137)
213
2020
$m
21,481
(2,878)
2022 vs 2021
$m
3,404
%
16
(1,350) >(200)
(14,726)
(14,489)
(14,536)
29
34
6
8,533
18.5
6,721
15.2
4,073
9.1
(237)
(5)
(2)
(15)
1,812
27
1 Since 1 January 2021, the UK bank levy has been included in the calculation of this measure. Comparative
data have not been re-presented.
Divisional highlights
$80bn
WPB net new invested assets in 2022,
up 25% compared with 2021.
6 million
International customers at 31 December 2022,
an increase of 7% compared with 2021.
Adjusted profit before tax
($bn)
$8.5bn
Net operating income
($bn)
$24.4bn
2022
2021
2020
2019
8.5
2022
6.7
4.1
2021
2020
2019
24.4
21.0
21.5
International customers are those who bank in more than one market, those whose address is different
from the market we bank them in and customers whose nationality, or country of birth for non-resident
Indians and overseas Chinese, is different to the market we bank them in. Customers may be counted
more than once when banked in multiple countries. Customer numbers exclude those acquired through
our purchase of L&T Investment Management.
HSBC Holdings plc Annual Report and Accounts 2022
31
Strategic report
Strategic report | Global businesses | Wealth and Personal Banking
Management view of adjusted revenue
Wealth
– investment distribution
– Global Private Banking
net interest income
non-interest income
– life insurance manufacturing
– asset management
Personal Banking
– net interest
– non-interest income
Other1
Net operating income2
2022
$m
8,091
3,066
1,978
946
1,032
1,914
1,133
15,911
14,610
1,301
365
24,367
2021
$m
8,783
3,377
1,746
620
1,126
2,508
1,152
11,587
10,258
1,329
593
20,963
2020
$m
7,737
3,177
1,712
661
1,051
1,838
1,010
12,683
11,472
1,211
1,061
21,481
2022 vs 2021
$m
(692)
(311)
232
326
(94)
(594)
(19)
4,324
4,352
(28)
(228)
3,404
%
(8)
(9)
13
53
(8)
(24)
(2)
37
42
(2)
(38)
16
1 ‘Other’ includes the distribution (where applicable) of retail and credit protection insurance, disposal gains and other non-product-specific income. It also includes
allocated revenue from Markets Treasury (2022: $494m, 2021: $807m, 2020: $1,048m), HSBC Holdings interest expense and hyperinflation.
2 ’Net operating income’ means net operating income before change in expected credit losses and other credit impairment charges (also referred to as ‘revenue’).
Financial performance
Adjusted profit before tax of $8.5bn was
$1.8bn or 27% higher than in 2021. Despite
an adverse movement of $1.4bn in market
impacts in life insurance manufacturing,
adjusted revenue increased primarily from
rising interest rates. There was also a net
adjusted ECL charge in 2022 of $1.1bn,
compared with a net release of $0.2bn in 2021.
Adjusted revenue of $24.4bn was $3.4bn
or 16% higher. Net interest income grew in
Personal Banking by $4.4bn due to rising
interest rates and balance sheet growth in
the UK, Asia, Mexico and the Middle East.
This was partly offset by lower Wealth revenue
due to adverse market impacts of $1.4bn in
life insurance manufacturing, despite strong
insurance sales and an increase in net interest
income of $0.3bn in Global Private Banking.
In Personal Banking, revenue of $15.9bn was
up $4.3bn or 37%.
– Net interest income was $4.4bn or 42%
higher due to the positive impact of rising
interest rates. This was supported by strong
balance sheet growth in the UK, Asia,
Mexico and the Middle East. Compared with
2021, deposit balances in Asia increased by
$6bn. Mortgage lending increased in the UK
by $9bn and in Hong Kong by $3bn. In
addition, unsecured lending increased in
Asia by 5% and Mexico by 18%.
In Wealth, revenue of $8.1bn was down
$0.7bn or 8%, notably from lower life
insurance manufacturing as described above.
However, our investments in Asia contributed
to the generation of net new invested assets
of $80bn during 2022.
– Life insurance manufacturing revenue was
$0.6bn or 24% lower due to a net adverse
movement in market impacts of $1.4bn.
In 2022, an adverse movement of $1.0bn
compared with favourable impacts of
$0.5bn in 2021, reflecting a weaker
performance in equity markets. However,
the value of new business written increased
by $0.2bn or 23%, reflecting the launch
of new products. In addition, there was a
$0.3bn gain following a pricing update for
our policyholders’ funds held on deposit
with us in Hong Kong to reflect the cost to
provide this service. We also recognised
a $0.1bn gain on the completion of our
acquisition of AXA Singapore.
– Investment distribution revenue was
$0.3bn or 9% lower, as muted customer
sentiment led to lower activity in equity
markets, which compared with a strong
2021, and as Covid-19-related restrictions
in Hong Kong in early 2022 resulted in the
temporary closure of parts of our branch
network. Since then, restrictions have
substantially been eased.
– Global Private Banking revenue was $0.2bn
or 13% higher due to the positive impact of
rising interest rates on net interest income.
This increase was partly offset by a decline
in brokerage and trading revenue, reflecting
reduced client activity compared with a
strong 2021.
– Asset management revenue was $19m or
2% lower, as adverse market conditions led
to unfavourable valuation movements.
This was in part mitigated by growth in
management fees from net new invested
assets of $45bn in 2022 and improved
performance fees.
32
HSBC Holdings plc Annual Report and Accounts 2022
Other revenue fell by $0.2bn or 38%, notably
from a lower allocation of revenue from
Markets Treasury.
Adjusted ECL were a net charge of $1.1bn,
reflecting a more normalised level of ECL
charges, including provisions relating to a
deterioration in the forward economic outlook
from heightened levels of uncertainty and
inflationary pressures. This compared with a
net release of $0.2bn in 2021 from Covid-19-
related allowances previously built up in 2020.
Adjusted operating expenses of $14.7bn were
$0.2bn or 2% higher, mainly due to continued
investments, notably in wealth in Asia
including the costs related to our AXA
Singapore acquisition, and from the impact of
higher inflation. These increases were partly
offset by the benefits of our cost-saving
initiatives.
The reported results of our WPB business
included an impairment of $2.4bn recognised
following the reclassification of our retail
banking operations in France as held for
sale on 30 September 2022. This impairment
is excluded from our adjusted results. At
31 December 2022, loans and advances
to customers of $52.4bn and customer
accounts of $56.6bn were classified as
held for sale, notably relating to our retail
banking operations in France and our
banking business in Canada.
Global businesses
Commercial Banking
We support businesses in 54 countries and territories, ranging from small
enterprises to large companies operating globally.
Contribution to Group adjusted profit
before tax
$7.7bn
(32%)
Funding digital growth
and innovation
We are helping technology companies
to grow in Asia by providing them with
specialist financing solutions. These
include Grab, a leading south-east Asian
platform, which has been on a journey
of growth over the last decade.
Based in Singapore, the company started
as a ride-hailing app in 2012, and has
since expanded to provide transport,
food delivery and digital payments
services. It has become an everyday,
multi-use platform for more than
33 million consumers every month.
We help businesses grow by supporting
their financial needs, facilitating cross-
border trade and payments, and
providing access to products and
services. We help them access
international markets, provide expert
financial advice and offer access to
a full suite of HSBC solutions from
across the Group’s other businesses.
We continued our investment in technology,
launching new products to support customers
and make banking with us easier. With our
clients and partners we have made progress in
delivering our sustainability strategy. We act as
a trusted transition partner, seeking to provide
sustainable supply chain solutions, and aim to
capture growth opportunities as we transition
into a new low-carbon economy. Strong
performance in Global Payments Solutions
(‘GPS’) continued due to interest rate rises and
19% growth in fee income. This was partly
offset by an adjusted ECL charge in 2022
relative to a net release in 2021.
Adjusted results
2022
$m
2021
$m
2020
$m
Net operating income
16,215
12,538
12,889
2022 vs 2021
$m
3,677
%
29
Change in expected credit
losses and other credit
impairment charges
(1,858)
225
(4,710)
(2,083) >(200)
Operating expenses
(6,642)
(6,554)
(6,475)
Share of profit in associates
and JVs
Profit before tax
RoTE excluding significant
items (%)1
1
1
(1)
7,716
14.2
6,210
10.8
1,703
1.3
(88)
—
(1)
—
1,506
24
1 Since 1 January 2021, the UK bank levy has been included in the calculation of this measure. Comparative
data have not been re-presented.
Divisional highlights
19%
Growth in adjusted net fee income
in GPS, supported by repricing and
strategic initiatives.
Adjusted profit before tax
($bn)
$7.7bn
43%
Growth in adjusted net interest income
across all CMB products, notably in
GPS (up 149%) and GTRF (up 24%).
Net operating income
($bn)
$16.2bn
2022
2021
2020
2019
7.7
2022
6.2
1.7
2021
2020
2019
16.2
12.5
12.9
HSBC Holdings plc Annual Report and Accounts 2022
33
Strategic report
Strategic report | Global businesses | Commercial Banking
Management view of adjusted revenue
Global Trade and Receivables Finance
Credit and Lending
Global Payments Solutions
Markets products, Insurance and Investments and Other1
– of which: share of revenue for Markets and Securities
Services and Banking products
2022
$m
2,084
5,722
6,839
1,570
1,185
2021
$m
1,829
5,667
3,354
1,688
1,005
2020
$m
1,687
5,465
4,040
1,697
898
2022 vs 2021
$m
255
55
%
14
1
3,485
>100
(118)
180
(7)
18
29
Net operating income2
16,215
12,538
12,889
3,677
1 Includes CMB’s share of revenue from the sale of Markets and Securities Services and Banking products to CMB customers. GBM’s share of revenue from the sale
of these products to CMB customers is included within the corresponding lines of the GBM management view of adjusted revenue. Also includes allocated
revenue from Markets Treasury, HSBC Holdings interest expense and hyperinflation.
2 ’Net operating income’ means net operating income before change in expected credit losses and other credit impairment charges (also referred to as ‘revenue’).
– In Markets products, Insurance and
Investments and Other, revenue decreased
by $0.1bn or 7%, reflecting the adverse
effects of hyperinflation accounting in
Türkiye and Argentina, as well as lower
Markets Treasury and insurance revenue.
This was partly offset by an 18% increase in
collaboration revenue from GBM products,
notably Foreign Exchange.
Adjusted ECL were a net charge of $1.9bn,
compared with a net release of $0.2bn in 2021.
The charge in 2022 primarily related to stage 3
charges in Asia, mainly in the commercial real
estate sector in mainland China, and higher
charges in the UK reflecting heightened levels
of uncertainty and inflationary pressures.
This compared with a net release in 2021 of
Covid-19-related allowances previously built
up in 2020.
Adjusted operating expenses of $6.6bn
remained broadly stable (up 1%). The
continued investment in technology and
the impact of higher inflation were mitigated
by continued cost discipline on discretionary
spend and through hiring efficiencies, as
well as from the impact of our cost-saving
initiatives.
At 31 December 2022, loans and advances to
customers of $25.1bn and customer accounts
of $22.1bn relating to our banking business in
Canada were reclassified as held for sale.
Financial performance
Adjusted profit before tax of $7.7bn was
$1.5bn or 24% higher than in 2021. This was
driven by an increase in adjusted revenue
across all CMB products and in all regions,
notably in Asia and the UK, and included a
149% increase in GPS net interest income.
This was partly offset by a net adjusted ECL
charge compared with a net release of
adjusted ECL in 2021. Adjusted operating
expenses remained stable, as increased
investment spend was mitigated by continued
cost discipline.
Adjusted revenue of $16.2bn was $3.7bn or
29% higher:
– In GPS, revenue increased by $3.5bn, with
growth in all regions, particularly in Asia and
the UK, driven by higher margins, reflecting
interest rate rises and business repricing
actions. Revenue also benefited from a 6%
increase in average deposit balances. There
was a 19% increase in fee income, notably
in cards and payments, with growth in all
regions, notably in the UK, supported by
the delivery of our strategic fee initiatives.
– In Global Trade and Receivables Finance
(‘GTRF‘), revenue increased by $0.3bn or
14%, with growth in all regions, notably in
the UK and Asia, driven by an increase in
average balances, which rose by 17%
compared with 2021 at improved margins.
In addition, fee income grew by 4%
compared with 2021.
– In Credit and Lending, revenue increased
by $0.1bn or 1%, notably in Canada and
Latin America, driven by a 3% growth in
average balances. In addition, fee income
grew by 1%.
34
HSBC Holdings plc Annual Report and Accounts 2022
Global businesses
Global Banking and Markets
We support multinational corporates, financial institutions and institutional
clients, as well as public sector and government bodies.
Contribution to Group adjusted profit
before tax
$5.4bn
(23%)
Connecting the world to
the biggest IPO in UAE
In April 2022, the initial public offering
(‘IPO’) of Dubai Electricity and Water
Authority raised $6.1bn for the
Government of Dubai, which sold shares
in the largest IPO ever to be carried out
in the UAE, and the largest IPO focused
on the utility sector in 2022. As joint
global coordinator and joint bookrunner,
we supported the state-owned utility
company through the transaction,
which attracted $85.7bn of demand.
This demonstrated the depth of interest
from international, regional and local
investors, and the capacity for growth
opportunities in the Middle East. We
supported the company to articulate
its energy transition plans to investors.
The company is a supporter of the Dubai
Clean Energy Strategy 2050, which aims
to provide 100% of Dubai’s energy
production capacity from clean energy
sources by 2050.
We are leaders in facilitating global
trade and payments, particularly into
and within Asia and the Middle East,
enabling our clients in the East and West
to achieve their objectives by accessing
our expertise and geographical reach.
Our product specialists deliver a
comprehensive range of transaction
banking, financing, capital markets and
advisory, and risk management services.
GBM adjusted profit before tax increased in
2022, reflecting a strong revenue performance
due to higher client activity related to volatility
and rising interest rates. This was partly offset
by adjusted ECL charges, which included a
build-up of reserves, reflecting heightened
levels of economic uncertainty, compared with
releases in 2021. We continued to invest in
technology to modernise our infrastructure,
innovate product capabilities and to support
our clients.
Adjusted results
2022
$m
2021
$m
2020
$m
Net operating income
15,359
13,982
14,696
2022 vs 2021
$m
1,377
%
10
Change in expected credit
losses and other credit
impairment charges
(587)
313
(1,227)
(900) >(200)
Operating expenses
(9,325)
(9,250)
(8,895)
Share of profit in associates
and JVs
(2)
—
—
(75)
(2)
(1)
—
Profit before tax
5,445
5,045
4,574
400
8
RoTE excluding significant
items (%)1
10.7
8.6
6.7
1 Since 1 January 2021, the UK bank levy has been included in the calculation of this measure. Comparative
data have not been re-presented.
Divisional highlights
50%
Adjusted revenue generated in Asia in 2022.
$94bn
Cumulative gross RWA reductions since the start
of our RWA programme in 2020. This included
accelerated saves of $9.6bn made in 2019.
Adjusted profit before tax
($bn)
$5.4bn
Net operating income
($bn)
$15.4bn
2022
2021
2020
2019
5.4
2022
5.0
4.6
2021
2020
2019
15.4
14.0
14.7
HSBC Holdings plc Annual Report and Accounts 2022
35
Strategic report
Strategic report | Global businesses | Global Banking and Markets
Management view of adjusted revenue
Markets and Securities Services
– Securities Services1
– Global Debt Markets
– Global Foreign Exchange
– Equities
– Securities Financing
– Credit and funding valuation adjustments
Banking
– Global Trade and Receivables Finance
– Global Payments Solutions
– Credit and Lending
– Capital Markets and Advisory1
– Other2
GBM Other
– Principal Investments
– Other3
Net operating income4
2022
$m
8,926
2,072
706
4,215
1,007
920
6
7,282
742
3,131
2,363
748
298
(849)
57
(906)
2021
$m
7,810
1,799
838
3,158
1,156
827
32
6,244
675
1,727
2,465
1,188
189
(72)
371
(443)
2020
$m
8,489
1,724
1,399
3,917
790
929
(270)
6,392
668
1,932
2,550
1,002
240
(185)
112
(297)
2022 vs 2021
$m
1,116
273
(132)
1,057
(149)
93
(26)
1,038
67
1,404
(102)
(440)
109
(777)
(314)
(463)
15,359
13,982
14,696
1,377
%
14
15
(16)
33
(13)
11
(81)
17
10
81
(4)
(37)
58
>(100)
(85)
>(100)
10
1 From 1 June 2020, Issuer Services was transferred to Global Banking. This resulted in revenue of $80m being recorded in Securities Services in 2020.
2 Includes portfolio management, earnings on capital and other capital allocations on all Banking products.
3 Includes notional tax credits and Markets Treasury, HSBC Holdings interest expense and hyperinflation.
4 ‘Net operating income’ means net operating income before change in expected credit losses and other credit impairment charges (also referred to as ‘revenue’).
Financial performance
Adjusted profit before tax of $5.4bn was
$0.4bn or 8% higher than in 2021. Growth in
adjusted revenue of $1.4bn or 10% was partly
offset by a net adjusted ECL charge in 2022 of
$0.6bn, compared with a net release in 2021
of $0.3bn, and from an increase of $0.1bn in
adjusted operating expenses.
Adjusted revenue of $15.4bn was $1.4bn or
10% higher, reflecting a more than 100%
growth in GPS net interest income from higher
interest rates, and a strong Markets and
Securities Services performance driven by
increased client activity and disciplined risk
management.
In Markets and Securities Services, revenue
increased by $1.1bn or 14%.
– In Securities Services, revenue grew by
$0.3bn or 15% from higher net interest
income as global interest rates rose, partly
offset by reduced fee income from lower
market levels.
– In Global Debt Markets, revenue fell by
$0.1bn or 16%, reflecting lower primary
issuances and challenging market
conditions.
– In Global Foreign Exchange, revenue
growth of $1.1bn or 33% reflected
increased client activity due to elevated
market volatility and the combined
macroeconomic impacts of rising inflation,
higher interest rates and a strengthening of
the US dollar, as well as a strong trading
performance.
– In Equities, revenue fell by $0.1bn or 13% in
the context of a strong prior year and lower
client activity in 2022.
– In Securities Financing, revenue increased
by $0.1bn or 11%, driven by client franchise
growth and a strong trading performance.
In Banking, revenue increased by $1.0bn
or 17%.
– In GPS, revenue increased by $1.4bn or
81%, driven by margin growth as a result of
the rising global interest-rate environment
and business pricing actions, together with
active portfolio management and average
balance growth. Fee income grew in all
regions from the continued delivery of our
strategic initiatives.
– Capital Markets and Advisory revenue
decreased $0.4bn or 37%, primarily from
lower fees in line with the reduced global fee
pool and adverse valuation movements on
leveraged loans, net of hedging.
In GBM Other, Principal Investments revenue
declined by $0.3bn or 85%, as 2022 included
lower valuation gains compared with 2021.
There was also a reduction in revenue
from Markets Treasury and the impact of
hyperinflationary accounting, which are
allocated to the global businesses. GBM
Other also included a loss of $0.1bn from
a buy-back of legacy securities.
Adjusted ECL were a net charge of $0.6bn.
This included stage 3 charges predominantly
in the commercial real estate sector in
mainland China, and in Europe, which also
reflected allowances due to a deterioration
in the forward economic outlook given
the heightened levels of uncertainty and
inflationary pressures. This compared with
the net release of $0.3bn in 2021 of Covid-19-
related allowances previously built up in 2020.
Adjusted operating expenses of $9.3bn
increased by $0.1bn or 1% as the impact
of higher inflation and strategic investments
were in part mitigated by our ongoing cost
discipline.
36
HSBC Holdings plc Annual Report and Accounts 2022
Global businesses
Corporate Centre
Contribution to Group adjusted profit
before tax
$2.3bn
(9%)
The results of Corporate Centre primarily
comprise the share of profit from our
interests in our associates and joint
ventures. It also includes Central
Treasury, stewardship costs and
consolidation adjustments.
Corporate Centre performance in 2022
reflected a lower share of profit from our
associates, an increase in hedging costs and
revaluation losses on investment properties.
These reductions were in part mitigated by
a favourable allocation of the UK bank levy
and related prior year credits.
Financial performance
Adjusted profit before tax of $2.3bn was
$0.3bn or 12% lower than in 2021 due to
a reduction in adjusted share of profit in
associates and joint ventures, and lower
adjusted revenue.
Adjusted revenue was $0.1bn or 29% lower,
primarily reflecting revaluation losses on
investment properties, compared with gains
in 2021, and an increase in costs associated
with hedging foreign exchange exposure.
The reduction also included the consideration
paid in respect of an exchange offer for
subordinated notes undertaken by
HSBC Holdings plc.
Adjusted operating expenses decreased
by $38m or 20%, reflecting a favourable
allocation of the UK bank levy and related prior
year credits. Since 2021, the UK bank levy and
any related credits have been allocated across
our global businesses and Corporate Centre,
primarily to GBM.
Adjusted share of profit from associates
and joint ventures of $2.7bn decreased by
$0.2bn or 7%, primarily as 2021 included a
higher share of profit from BGF in the UK, due
to a recovery in asset valuations. This was
partly offset by an increase in the share of
profit from SABB.
Adjusted results
Net operating income
Change in expected credit losses and other
credit impairment charges
Operating expenses
Share of profit in associates and JVs
Profit before tax
RoTE excluding significant items (%)1
2022
$m
(596)
(10)
227
2,695
2,316
5.4
2021
$m
(463)
3
189
2,898
2,627
5.6
2020
$m
(218)
–
(539)
2,102
1,345
3.1
2022 vs 2021
$m
(133)
(13)
38
(203)
(311)
%
(29)
>(200)
20
(7)
(12)
1 Since 1 January 2021, the UK bank levy has been included in the calculation of this measure. Comparative data have not been re-presented.
Management view of adjusted revenue
Central Treasury1
Legacy portfolios
Other2,3
Net operating income4
2022
$m
(77)
(17)
(502)
(596)
2021
$m
(99)
(31)
(333)
(463)
2020
$m
151
(19)
(350)
(218)
2022 vs 2021
$m
22
14
(169)
(133)
%
22
45
(51)
(29)
1 Central Treasury includes adverse valuation differences on issued long-term debt and associated swaps of $77m (2021: losses of $99m; 2020: gains of $151m).
2 Other comprises consolidation adjustments, funding charges on property and technology assets, revaluation gains and losses on investment properties and
property disposals and other revenue items not allocated to global businesses. The reduction in 2022 related primarily to adverse revaluation gains and losses on
investment properties.
3 Revenue from Markets Treasury, HSBC Holdings net interest expense and hyperinflation impacts were allocated to the global businesses, to align them better with
their revenue and expense. The total Markets Treasury revenue component of this allocation for 2022 was $1,549m (2021: $2,202m; 2020: $2,699m).
4 ’Net operating income’ means net operating income before change in expected credit losses and other credit impairment charges (also referred to as ‘revenue’).
HSBC Holdings plc Annual Report and Accounts 2022
37
Strategic report Strategic report
Risk overview
Active risk management helps us to achieve our strategy,
serve our customers and communities and grow our
business safely.
Managing risk
Geopolitical tensions have resulted in an
increasingly fragmented macroeconomic,
trade and regulatory environment. The global
economic slowdown and high inflationary
pressures are exacerbating the risks linked to
this fragmentation.
Global commodity markets have been
significantly impacted by the Russia-Ukraine
war, leading to supply chain disruptions and
increased prices for both energy and non-
energy commodities. This, combined with
extensive monetary policy loosening at the
height of the Covid-19 pandemic, contributed
to a sharp increase in inflation, creating
further challenges for central banks and our
customers. The continuation of – or any further
escalation in – the Russia-Ukraine war could
have additional economic, social and political
consequences. These include further sanctions
and trade restrictions, longer-term changes in
the macroeconomic environment, and the risk
of higher and sustained inflation, including
continued increases in energy and non-energy
prices. Interest rates have increased in reaction
to inflationary pressures and we have adapted
our interest rate risk management strategy
in response.
China’s policy measures issued at the end of
2022 have increased liquidity and the supply
of credit to the mainland China commercial
real estate sector. Recovery in the underlying
domestic residential demand and improved
customer sentiment will be necessary to
support the ongoing health of the sector. We
will continue to monitor the sector closely,
notably the risk of further idiosyncratic real
estate defaults and the potential associated
impact on wider market, investor and
consumer sentiment. Given that parts of the
global economy are in, or close to, recession,
the demand for Chinese exports may
also diminish.
We continued to focus on improving the
quality and timeliness of the data used to
inform management decisions, through
measures such as early warning indicators,
prudent active management of our risk
appetite, and ensuring regular communication
with our Board and key stakeholders.
While the financial performance of our
operations varied in different geographies, our
balance sheet and liquidity remained strong.
Key risk appetite metrics
Component
Measure
Capital
CET1 ratio – end point basis
Change in
expected credit
losses and
other credit
impairment
charges1
Change in expected credit losses and other credit
impairment charges as a % of advances: (WPB)
Change in expected credit losses and other credit
impairment charges as a % of advances:
wholesale (GBM, CMB)
Risk
appetite
≥13.0%
≤0.50%
2022
14.2%
0.24%
≤0.45%
0.40%
1 Includes change in expected credit losses and other impairment charges and advances related to assets
that are held for sale.
Our risk appetite
Our risk appetite defines our desired forward-
looking risk profile, and informs the strategic
and financial planning process. It provides an
objective baseline to guide strategic decision
making, helping to ensure that planned
business activities provide an appropriate
balance of return for the risk assumed, while
remaining within acceptable risk levels. Risk
appetite supports senior management in
allocating capital, funding and liquidity
optimally to finance growth, while monitoring
exposure to non-financial risks.
Capital and liquidity remain at the core of our
risk appetite framework, with forward-looking
statements informed by stress testing. We
continue to develop our climate risk appetite as
we engage with businesses on including climate
risk in decision making and starting to embed
climate risk appetite into business planning.
At 31 December 2022, our CET1 ratio and ECL
charges were within their defined risk appetite
thresholds. Wholesale ECL charges increased
towards the end of 2022, with additional stage
1 and 2 allowances recorded, as a result of the
uncertain macroeconomic environment.
Monitoring of measures against our risk
appetite remains a key focus. During 2022,
we enhanced the monitoring and forecasting
of our CET1 ratio through regular reviews in
periods of high volatility.
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 the Group’s
financial stability under various macroeconomic
scenarios. The selection of stress scenarios is
based upon the identification and assessment
of our top risks, emerging risks and our risk
appetite. During 2022, assessments were made
of the impact on the Group of the Russia-
Ukraine war and the consequences from
the deteriorating global economic outlook.
The results of the most recent stress test,
referred to as the solvency stress test,
published by the Bank of England (‘BoE’) in
December 2021 confirmed the Group was
sufficiently capitalised.
The BoE’s 2022 annual cyclical scenario stress
test, originally due for submission in June
2022, was rescheduled to commence in
September 2022 in light of the uncertainty
related to the Russia-Ukraine war, and was
submitted in January 2023.
As a result of this postponement, our own
internal stress test will now be conducted in
the first quarter of 2023, and will explore the
potential impacts of key vulnerabilities to which
we are exposed across certain key regions,
including a lower interest-rate environment,
additional macroeconomic headwinds including
lower oil prices and the introduction of foreign
exchange shocks. This focused internal stress
test will consider the impacts of the various risk
scenarios on those specific regions across all
risk types and on capital resources.
38
HSBC Holdings plc Annual Report and Accounts 2022
Risk overview
Managing risk continued
Climate risk
To support the requirements for assessing
the impacts of climate change, we have
developed a set of capabilities to execute
climate stress testing and scenario analysis.
These are used to help improve our
understanding of our risk exposures for risk
management and business decision making.
In 2021, the Prudential Regulation Authority
requested all major UK banks to run a
climate-related stress test to explore the
impacts of a set of scenarios: an early policy
action, a late policy action and no additional
policy action scenario. This was followed in
the first half of 2022 with a second round to
explore our strategic responses to such
scenarios. We also conducted climate change
stress testing exercises for the European
Central Bank and the Monetary Authority of
Singapore, and in the second half of 2022 we
ran an internal climate scenario analysis to
identify challenges and opportunities to our
net zero strategy, as well as to inform capital
planning and risk appetite.
For further details of our approach to climate
risk stress testing, see ‘Insights from scenario
analysis’ on page 67.
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. Climate risk can impact us
either directly or through our relationships with
our clients. This includes potential climate risk
arising as a result of our net zero ambition,
which could lead to reputational concerns,
and potential legal and/or regulatory action if
we are perceived to mislead stakeholders on
our business activities or if we fail to achieve
our stated net zero targets. Our most material
exposure to climate risk relates to corporate
and retail client financing activity within our
banking portfolio. We also have significant
responsibilities in relation to asset ownership
by our insurance business, employee pension
plans, and asset management business.
We seek to manage climate risk across all
our businesses in line with our Group-wide
risk management framework, and are
incorporating climate considerations within
our existing risk types to reflect our strategic
ambition to align to net zero.
For further details of our approach to climate risk
management, see ‘Climate risk‘ on page 221.
For further details of our TCFD disclosures, see
the ‘ESG review‘ on page 43.
Our operations
We remain committed to investing in the
reliability and resilience of our IT systems
and critical services, including those provided
by third parties, that support all parts of
our business. We do so to help protect our
customers, affiliates and counterparties, and to
help ensure that we minimise any disruption to
services that could result in reputational, legal
and regulatory consequences. In our approach
to defending against these threats, we invest in
business and technical controls to help us
detect, manage and recover from issues,
including data loss, in a timely manner.
We have made progress with the
implementation of our business transformation
plans. We seek to manage change execution
risk so we can prioritise, manage and deliver
change initiatives effectively and safely, and
at the scale, complexity and pace required.
For further details on our risk management
framework and risks associated with our banking
and insurance manufacturing operations, see
pages 142 to 144.
Geopolitical and macroeconomic risks
The Russia-Ukraine war has continued to
elevate geopolitical instability and has resulted
in the use of significant sanctions and trade
restrictions against Russia by the UK, the
US and the EU, as well as other countries.
In response to such sanctions and trade
restrictions, Russia has implemented
certain countermeasures.
The Russia-Ukraine war, alongside the
economic impacts that continue to result from
the Covid-19 pandemic, has contributed to
increased commodity prices, which, combined
with extensive monetary policy loosening
during the height of the Covid-19 pandemic,
has led to a sharp increase in inflation. In
response, central banks both in developed and
emerging markets tightened monetary policy
sharply in 2022. Inflation is expected to abate
in the coming months, albeit only gradually as
the ongoing Russia-Ukraine war is likely to
keep energy and food prices at high levels.
Fiscal deficits are likely to remain high in
both developed and emerging markets as
further public spending is rolled out to help the
private sector manage rising prices, against a
backdrop of slower growth and higher interest
rates. This could increase the strains on highly
leveraged sovereigns, corporates and
households. While the average maturity of
sovereign debt in developed markets has
lengthened, rising interest rates could reduce
the affordability of debt and may eventually
bring into question its sustainability in some
countries. Among emerging markets, countries
that need to refinance maturing US dollar-
denominated debt in the context of a strong
dollar may face increasing difficulties.
Our businesses also continue to consider the
impact of the increasing cost of living on our
customers. We are engaging closely with our
key regulators to help ensure we continue to
meet their expectations of financial institutions’
activities at a time of market volatility.
Higher inflation and interest rate expectations
around the world – and the resulting economic
uncertainty – have had an impact on ECL.
The combined pressure of higher inflation and
interest rates may impact the ability of our
customers to repay debt. We have continued
to carry out enhanced monitoring of model
outputs and the use of model overlays. This
includes management adjustments based
on the expert judgement of senior credit
risk managers to reflect the uncertainty in
current market inflation and interest rate
conditions in the forecasts from 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.
While many of the government programmes
implemented during the Covid-19 pandemic
to support businesses and individuals have
ceased, this has impacted the level of credit
losses, which in turn may have impacted
the longer-term reliability of loss and
capital models.
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, and may continue
to impose further measures. In response to
foreign sanctions and trade restrictions, China
has imposed sanctions and introduced new
laws and trade restrictions that could impact
the Group and its customers. Further
sanctions and counter-sanctions, whether in
connection with Russia or China, may affect
the Group and its customers by creating
regulatory, reputational and market risks.
Negotiations between the UK and the EU over
the operation of the Northern Ireland Protocol
are continuing. While there are signs that
differences may be diminishing, failure to
reach agreement could have implications for
the future operation of the EU-UK Trade and
Cooperation Agreement.
HSBC Holdings plc Annual Report and Accounts 2022
39
Strategic report Strategic report | Risk overview
Geopolitical and macroeconomic risks continued
In August 2022, the US Inflation Reduction
Act introduced a minimum tax of 15% with
effect from 1 January 2023. It is possible that
a minimum tax could result in an additional
US tax liability over our regular US federal
corporate tax liabilities in a given year, based on
differences between the US book and taxable
income (including as a result of temporary
differences). Given its recent pronouncement,
it is unclear at this time what, if any, impact
the US Inflation Reduction Act will have on
HSBC’s US tax rate and US financial results,
and HSBC will continue to evaluate its impact
as further information becomes available. In
addition, potential changes to tax legislation
and tax rates in the countries and territories in
which we operate could increase our effective
tax rate in the future.
We continue to monitor, and seek to manage,
the potential implications of all the above
developments on our customers and our
business.
For further details on our approach to
geopolitical and macroeconomic risks,
see ‘Top and emerging risks’ on page 135.
We continue to monitor the situation closely
and, given the remaining uncertainties related
to the post-pandemic landscape, additional
mitigating actions may be required.
For further details on our approach to the risks
related to Covid-19, see ‘Areas of special interest’
on page 142.
Risks related to Covid-19
While the immediate impact of the Covid-19
pandemic on the global economy has largely
abated in most markets, it continues to disrupt
economic activity in mainland China and Hong
Kong despite the easing in December 2022 of
the domestic Covid-19 restrictions that have
adversely impacted China’s economy, Asia
tourism and global supply chains. The return
to pre-pandemic levels of social interaction
across all our key markets continues to vary
as governments respond differently to new
waves of infection.
Ibor transition
The publication of sterling, Swiss franc,
euro and Japanese yen Libor interest rate
benchmarks, as well as Euro Overnight Index
Average (‘Eonia’), ceased from the end of
2021. Our interbank offered rate (‘Ibor’)
transition programme – which is tasked with
the development of new near risk-free rate
(‘RFR’) products and the transition of legacy
Ibor products – has continued to support the
transition of the limited number of remaining
contracts in sterling and Japanese yen Libor,
which were published using a ‘synthetic’
interest rate methodology during 2022. We are
prepared for the cessation of the publication of
these ‘synthetic’ interest rates from March
2023 and March 2024.
Additionally, prior to the cessation of the
publication of US dollar Libor from 30 June
2023, we have implemented the majority of
required processes, technology and RFR
product capabilities throughout the Group, in
preparation for upcoming market events and
the continued transition of legacy US dollar
Libor and other demising Ibor contracts.
We continue to be exposed to risks associated
with Ibor transition, which include regulatory
compliance risk, resilience risk, financial
reporting risk, legal risk, model risk and market
risk. The level of these key risks is diminishing
in line with our process implementation and
the transition of our legacy contracts. We have
sought to implement mitigating controls,
where required, and continue to actively
manage and monitor these risks.
For further details on our approach to Ibor
transition, see ‘Top and emerging risks’ on
page 135.
Top and emerging risks
Our top and emerging risks report identifies
forward-looking risks so that they can be
considered in determining whether any
incremental action is needed to either prevent
them from materialising or to limit their effect.
Top risks are those that have the potential
to have a material adverse impact on the
financial results, reputation or business model
of the Group. We actively manage and take
actions to mitigate our top risks. Emerging
risks are those that, while they could have a
material impact on our risk profile were they
to occur, are not considered immediate and
are not under active management.
Our suite of top and emerging risks is subject
to regular review by senior governance
forums. We continue to monitor closely the
identified risks and ensure management
actions are in place, as required.
40
HSBC Holdings plc Annual Report and Accounts 2022
Risk overview
Risk
Trend Description
Externally driven
Geopolitical and
macroeconomic
risks
Technology and
cybersecurity risk
Evolving regulatory
environment risk
Financial crime risk
Ibor transition risk
Environmental,
social and
governance (‘ESG’)
risks
Digitalisation and
technological
advances
Internally driven
Risks associated
with workforce
capability, capacity
and environmental
factors with potential
impact on growth
Risks arising from
the receipt of
services from
third parties
Model risk
Data risk
Change execution
risk
Our operations and portfolios are subject to risks associated with political instability, civil unrest and military
conflict, which could lead to disruption of our operations, physical risk to our staff and/or physical damage to
our assets. Heightened geopolitical tensions, alongside other factors, have also disrupted supply chains globally.
Inflation, rising interest rates and slower Chinese economic activity may prompt a global recession that would
affect our credit portfolio.
We face a risk of service disruption resulting from technology failures or malicious activities by internal or
external threats. We continue to monitor ongoing geopolitical events and changes to the threat landscape.
We operate a continuous improvement programme to protect our technology operations and to counter a
fast-evolving cyber threat environment.
The regulatory and compliance risk environment has become more complex, in part due to heightened geopolitical
tensions. There has been increased regulatory focus on operational and cyber resilience, crypto-asset-related risks
and sanctions. These, alongside other regulatory priorities, may result in change requirements across the Group in
the short to medium term. We continue to monitor regulatory and wider industry developments closely, and
engage with regulators as appropriate.
We continue to support our customers against a backdrop of increasingly complex geopolitical, socio-economic
and technological challenges, including the Russia-Ukraine war. HSBC is monitoring the impacts of the war on the
Group, and using its sanctions compliance capabilities to respond to evolving sanctions regulations, noting the
challenges that arise in implementing the unprecedented volume and diverse set of sanctions and trade restrictions.
We remain exposed to regulatory compliance, legal and resilience risks as contracts transition away from the
remaining demising Ibor benchmarks to new reference rates. We continue to consider the fairness of client
outcomes, our compliance with regulatory expectations and the operation of our systems and processes. The
key risks are diminishing in line with our process implementation and we are progressing well in transitioning
contracts in the remaining demising Ibors, specifically US dollar Libor.
We are subject to ESG risks relating to climate change, nature and human rights. These risks have increased
owing to the pace and volume of regulatory developments globally, and due to stakeholders placing more
emphasis on financial institutions’ actions and investment decisions in respect of ESG matters. Failure to meet
these evolving expectations may result in financial and non-financial costs, including adverse reputational
consequences.
Developments in technology and changes in regulations have enabled new entrants to the banking industry and
new products and services offered by competitors. Along with opportunities, new technology can introduce new
risks. This challenges us to continue to innovate to take advantage of new digital capabilities to best serve our
customers by adapting our products, and to attract and retain customers and employee talent, while ensuring
that the risks are understood and managed with appropriate controls.
Our businesses, functions and geographies are exposed to risks associated with employee retention and talent
availability, and compliance with employment laws and regulations. Heightened demand for talent in key labour
markets and continuing Covid-19-related challenges have led to increased attrition and attraction challenges,
and continuing pressure on employees. We monitor hiring activities and levels of employee attrition, and each
business and function has workforce plans in place to aim to ensure effective workforce forecasting to meet
business demands.
We procure goods and services from a range of third parties. It is critical that we have appropriate risk
management policies and processes to select and govern third parties, including third parties’ supply
networks, particularly for key activities that could affect our operational resilience. Any deficiency in the
management of risks associated with our third parties could affect our ability to support our customers
and meet regulatory expectations.
Model risk 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 such as customer selections,
product pricing, financial crime transaction monitoring, creditworthiness evaluation and financial reporting.
Evolving regulatory requirements are driving material changes to the way model risk is managed across the
banking industry, with particular focus on capital models. New technologies such as machine learning are
driving changes to the model landscape.
We use data to serve our customers and run our operations, often in real-time within digital experiences and
processes. If our data is not accurate and timely, our ability to serve customers, operate with resilience or meet
regulatory requirements could be impacted. We need to ensure that 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.
Failure to effectively prioritise, manage and/or deliver transformation across the organisation impacts our ability
to achieve our strategic objectives. We aim to monitor, manage and oversee change execution risk to ensure our
change portfolios and initiatives continue to deliver the right outcomes for our customers, people, investors and
communities.
Risk heightened during 2022
Risk remained at the same level as 2021
Risk decreased during 2022
HSBC Holdings plc Annual Report and Accounts 2022
41
Strategic report
Strategic report
Long-term viability and going
concern statement
Under the UK Corporate Governance Code,
the Directors are required to provide a viability
statement that must state whether the Group
will be able to continue in operation and meet
its liabilities, taking into account its current
position and the principal risks it faces. They
must also specify the period covered by, and
the appropriateness of, this statement.
The Directors have specified a period of three
years to 31 December 2025. They are satisfied
that a forward-looking assessment of the
Group for this period is sufficient to enable a
reasonable statement of viability. In addition,
this period is covered by the Group’s stress
testing programmes, and its internal
projections for profitability, key capital ratios
and leverage ratios. Notwithstanding this,
our stress testing programmes also cover
scenarios out to five years and our assessment
of risks are beyond three years where
appropriate (see page 135):
– This period is representative of the
time horizon to consider the impact
of ongoing regulatory changes in the
financial services industry.
– Our updated business plan covers
2023–2027.
The Board, having made appropriate enquiries,
is satisfied that the Group as a whole has
adequate resources to continue operations for
a period of at least 12 months from the date of
this report, and it therefore continues to adopt
the going concern basis in preparing the
financial statements.
Based upon their assessment, the Directors
have a reasonable expectation that the Group
will be able to continue in operation and meet
liabilities as they fall due over the next three
years.
In making their going concern and viability
assessments, the Directors have considered
a wide range of detailed information relating
to present and potential conditions, including
projections for profitability, cash flows, capital
requirements and capital resources.
The Directors carried out a robust assessment
of the emerging and principal risks facing the
Group to determine its long-term viability,
including those that would threaten its
solvency and liquidity. They determined that
the principal risks are the Group’s top and
emerging risks as set out on page 40. These
include geopolitical and macroeconomic risks,
including rising global inflationary pressures,
the Russia-Ukraine war and its impact on
sanctions and trade restrictions, disrupted
supply chains globally and slower Chinese
economic activity, all of which have
increased to a heightened level during 2022.
Digitalisation and technological advances and
environmental, social and governance risks
remained at a heightened level during 2022.
The Directors assessed that all of the top and
emerging risks identified are considered to
be material and, therefore, appropriate to
be classified as the principal risks to be
considered in the assessment of viability.
They also appraised the impact that these
principal risks could have on the Group’s risk
profile, taking account of mitigating actions
planned or taken for each, and compared this
with the Group’s risk appetite as approved
by the Board.
In carrying out their assessment of the
principal risks, the Directors considered
a wide range of information including:
– details of the Group’s business and
operating models, and strategy (see
page 12);
– details of the Group’s approach to managing
risk and allocating capital;
– a summary of the Group’s financial position
considering performance, its ability to
maintain minimum levels of regulatory
capital, liquidity funding and the minimum
requirements for own funds and eligible
liabilities over the period of the assessment.
Notable are the risks which the Directors
believe could cause the Group’s future
results or operations to adversely impact
any of the above;
– enterprise risk reports, including the
Group’s risk appetite profile (see page 132)
and top and emerging risks (see page 135);
– the impact on the Group due to the
Russia-Ukraine war; instability in China’s
commercial real estate sector; structural
changes from the Covid-19 pandemic and
strained economic and diplomatic tensions
between China and the US, the UK, the
EU and other countries;
– reports and updates regarding regulatory
and internal stress testing. The Group
internal stress test has been delayed from
the fourth quarter of 2022 to the first quarter
of 2023 and will include overlays applied
to the 2022 annual cyclical scenario for
HSBC-specific vulnerabilities, including
geopolitical issues (and related
macroeconomic headwinds) along with
the continued impact of Covid-19. It will
also consider the impacts of various risk
scenarios across all risk types and on capital
resources. The 2022 Bank of England annual
cyclical scenario, originally due in June
2022, was also postponed in light of the
uncertainty related to the Russia-Ukraine
war. The exercise commenced on 26
September 2022, with the submission
made to the Bank of England in early
January 2023 and the results due to be
published mid-2023. The initial results of this
exercise indicated the Group is sufficiently
capitalised to withstand a severe but
plausible adverse stress;
– the results of our 2022 internal climate
scenario analysis exercise. In 2022, the
Group delivered its first internal climate
scenario analysis exercise with internal
scenarios being formed with reference to
external publicly available climate scenarios.
Using these external scenarios as a
template, the Group adapted them by
incorporating unique climate risks and
vulnerabilities to which the organisation is
exposed. No issues were identified around
the going concern status of the Group.
Further details of the insights from the 2022
climate scenario analysis are explained from
page 67;
– reports and updates from management on
risk-related issues selected for in-depth
consideration;
– reports and updates on regulatory
developments;
– legal proceedings and regulatory matters
set out in Note 35 on the financial
statements; and
– reports and updates from management on
the operational resilience of the Group.
Aileen Taylor
Group Company Secretary and Chief
Governance Officer
21 February 2023
42
HSBC Holdings plc Annual Report and Accounts 2022
Environmental,
social and
governance
review
Our ESG review sets out our approach to
our environment, customers, employees
and governance. It also explains how we
aim to achieve our purpose and deliver
our strategy in a way that is sustainable
and how we build strong relationships
with all of our stakeholders.
44
46
73
85
Our approach to ESG
Environmental
Social
Governance
How we present our TCFD disclosures
Our overall approach to TCFD can be found on page 17
and additional information is included on pages 68 and
423. Further details have been embedded in this section
and the Risk review section on pages 221 to 230. Our
TCFD disclosures are highlighted with the following
symbol: TCFD
HSBC Holdings plc Annual Report and Accounts 2022
43
ESG review
Our approach to ESG
We are on a journey to incorporate environmental, social and
governance principles throughout the organisation, and are taking
steps to embed sustainability into our purpose and corporate strategy.
About the ESG review
Our purpose is: ‘Opening up a world of
opportunity’.
To achieve our purpose and deliver our
strategy in a way that is sustainable, we
are guided by our values: we value difference;
we succeed together; we take responsibility;
and we get it done.
We also need to build strong relationships
with all of our stakeholders, who are the
people who work for us, bank with us,
own us, regulate us, and live in the societies
we serve and on the planet we all inhabit.
Transition to net zero
We have continued to take steps to implement
our climate ambition to become net zero in our
operations and our supply chain by 2030, and
align our financed emissions to net zero by
2050. We have expanded our coverage
of sectors for on-balance sheet financed
emissions targets, noting the challenge of
evolving methodologies and data limitations.
In addition, our operating environment for
climate analysis and portfolio alignment is
developing. We continue work to improve our
data management processes and are setting
targets to align our provision of finance with
the goals and timelines of the Paris Agreement.
In March 2022, we announced plans to
turn our net zero ambition for our portfolio
of clients into business transformation across
the Group. The plan involves the publication of
a Group-wide climate transition plan in 2023.
We continued our work to review and update
our wider financing and investment policies
critical to achieving net zero by 2050, which
included publishing an updated energy policy
and thermal coal phase-out policy in
December 2022.
We are also working with peers and industry
bodies to help mobilise the financial services
industry to take action on climate change,
biodiversity and nature.
Building inclusion and resilience
Our social pillar is centred around building
inclusion and resilience for our colleagues
and customers, as well as in the communities
we serve.
Environmental – Transition to net zero
– Since 2020, we have provided and facilitated $210.7bn of sustainable finance and investment
towards our ambition of $750bn to $1tn by 2030. We monitor developments in taxonomies
and changing market guidelines in this space.
– In December, we updated our energy policy as an important mechanism to help deliver our
financed emissions targets and phase down fossil fuel financing in line with our net zero
ambition, and introduced further restrictions for thermal and metallurgical coal.
– We have introduced on-balance sheet financed emissions targets for eight sectors, noting
the limitations of evolving methodologies and data quality.
Read more in the Environmental section on page 46.
Social – Building inclusion and resilience
– In 2022, 33.3% senior leadership roles were occupied by women, with a target to achieve
35% by 2025. We have put in place important foundations to support our goal of doubling
the number of Black employees in senior leadership roles by 2025.
– Employee engagement, which is our headline measure, increased to 73% in 2022 following
a five-point increase from 2019, and was three points above benchmark.
Read more in the Employees section on page 74.
Governance – Acting responsibly
– We conducted a review of our salient human rights issues, including stakeholder consultation
with non-governmental organisations (‘NGOs’) and potentially affected groups.
– Our customer satisfaction performance, using the net promoter score, improved in many
markets in which we operate. However, we still have work to do to improve our rank position
against competitors, as some have accelerated their performance faster than us.
Read more in the Governance section on page 85.
We are committed to ensuring our
people – and particularly our leadership –
are representative of the communities that
we serve, and that we support their well-being
and development so they can learn and grow
in their careers. We are equally committed
to ensuring there are no unnecessary barriers
to finance for our customers. We have an
ambition to create a welcoming, inclusive
and accessible banking experience.
Inclusion goes hand-in-hand with resilience.
We build resilience for our colleagues by
supporting their physical, mental and financial
well-being, and by ensuring they are equipped
with the skills and knowledge to further their
careers during a period of significant economic
transformation. For our customers, we build
resilience primarily through education – by
helping them to understand their finances and
how to manage them effectively.
Acting responsibly
Our governance pillar focuses on
our approach to acting responsibly
and recognises topics such as human
rights, conduct and data integrity.
Our policies and procedures help us provide
the right outcomes for customers, including
those with enhanced care needs, which in
2022 took into account the current cost of
living crisis. Customer experience is at the
heart of how we operate and is measured
through customer satisfaction and customer
complaints.
We continue our journey to embed ESG
principles across the organisation, including
incorporating climate change-related risks
within the risk management framework,
training our workforce, incorporating
climate-related targets within executive
scorecards, and engaging with customers
and suppliers.
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HSBC Holdings plc Annual Report and Accounts 2022
Our approach to ESG
How we decide what to measure
We listen to our stakeholders in a number of
different ways, which we set out in more detail
within the ‘ESG overview’ on page 14. We use
the information they provide us to identify the
issues that are most important to them and
consequently also matter to our own business.
Our ESG Committee and other relevant
governance bodies regularly discuss the new
and existing themes and issues that matter to
our stakeholders. Our management team then
uses this insight, alongside the framework of
the ESG Guide (which refers to our obligations
under the Environmental, Social and
Governance Reporting Guide contained
in Appendix 27 to The Rules Governing the
Listing of Securities on the Stock Exchange
of Hong Kong Limited), and the LR9.8.6R(8)
of the Financial Conduct Authority’s (‘FCA’)
Listing Rules, and other applicable laws and
regulations to choose what we measure and
publicly report in this ESG review.
Under the ESG Guide, ’materiality’ is
considered to be the threshold at which ESG
issues become sufficiently important to our
investors and other stakeholders that they
should be publicly reported. We are also
informed by stock exchange listing and
disclosure rules globally. We know that what
is important to our stakeholders evolves over
time and we plan to continue to assess our
approach to help ensure we remain relevant
in what we measure and publicly report.
Recognising the need for a consistent
and global set of ESG metrics, we monitor
the developments related to International
Sustainability Standard Board (‘ISSB’) and
other standard setters. In the absence of a
globally consistent set of sustainability
standards, we continued to report against
the core World Economic Forum (‘WEF’)
‘Stakeholder Capitalism Metrics’ and
Sustainability Accounting Standards
Board (‘SASB’) metrics this year.
Consistent with the scope of financial
information presented in our Annual Report
and Accounts, the ESG review covers the
operations of HSBC Holdings plc and its
subsidiaries. Given the relative immaturity
of ESG-related data and methodologies in
general, we are on a journey towards
improving completeness and robustness.
For further information on our approach to
reporting, see the ‘Additional information’
section of page 422.
Our reporting around ESG
We report on ESG matters throughout our Annual Report and Accounts, including the ’ESG overview’ section of the Strategic Report (pages 14 to 19),
this ESG review (pages 44 to 96), and the ‘Climate risk’ and ‘Insights from climate scenario analysis’ sections of the Risk review (pages 221 to 230).
In addition, we have other supplementary materials, including our ESG Data Pack, which provides a more granular breakdown of ESG information.
Detailed data
Additional reports
ESG Data Pack 2022
UK Pay Gap Report 2022
Modern Slavery and Human Trafficking Statement 2022
Green Bond Report 2022
For further details of our supplementary materials, see our ESG reporting centre at www.hsbc.com/esg.
HSBC UN Sustainable Development Goals Bond and Sukuk Report 2022
Indices
SASB Index 2022
WEF Index 2022
Assurance relating to ESG data
TCFD
HSBC Holdings plc is responsible for
preparation of the ESG information and
all the supporting records, including selecting
appropriate measurement and reporting
criteria, in our Annual Report and Accounts,
ESG Data Pack and the additional reports
published on our website.
We recognise the importance of ESG
disclosures and the quality of data underpinning
it. We also acknowledge that our internal
processes to support ESG are in the process
of being developed and currently rely on manual
sourcing and categorisation of data. Certain
aspects of our ESG disclosures are subject
to enhanced verification and assurance
procedures including the first and second line
of defence. We aim to continue to enhance our
approach in line with external expectations.
For 2022, ESG data is subject to stand-alone
independent limited assurance reports
by PwC in accordance with International
Standard on Assurance Engagements 3000
(Revised) ‘Assurance Engagements other
than Audits or Reviews of Historical Financial
Information’ and, in respect of the greenhouse
gas emissions, in accordance with
International Standard on Assurance
Engagements 3410 ‘Assurance Engagements
on Greenhouse Gas Statements’, issued by
the International Auditing and Assurance
Standards Board, on the following specific
ESG-related disclosures and metrics:
– our Green Bond Report 2022 (published
in December 2022);
– our financed emissions for 2019 and 2020
for six sectors (see page 50);
– our progress towards our ambition to provide
and facilitate $750bn to $1tn of sustainable
finance and investment (see page 57);
– our own operations’ scope 1, 2 and 3
(business travel) greenhouse gas emissions
data (see page 63); and supply chain
emissions data; and
– our 2019 baseline for financed emissions
covering 38% of assets under management
for our asset management business (see
page 56).
The work performed by external parties to
support their limited assurance report is
substantially less than the work performed for
a reasonable assurance opinion, like those
provided over financial statements.
Our data dictionaries and methodologies
for preparing the above ESG-related metrics
and third-party limited assurance reports
can be found on: www.hsbc.com/who-we-
are/esg-and-responsible-business/esg-
reporting-centre.
HSBC Holdings plc Annual Report and Accounts 2022
45
ESG review ESG review | Environmental
Environmental
Transition to net zero
TCFD
We are developing new solutions to the climate crisis
and supporting the transition of our customers,
industries and markets to a net zero future, while
moving to net zero ourselves.
At a glance
Transition to net zero
Our net zero ambition represents one of our
four strategic pillars. At the core of it is an
ambition to support our customers on their
transition to net zero, so that the greenhouse
gas emissions from our portfolio of clients
reaches net zero by 2050. We also aim to be
net zero in our operations and supply chain by
2030. We have made good progress on our
net zero ambition, including publishing an
updated energy policy as an important
mechanism to meeting our financed emissions
targets, and expanding our financed emissions
targets to eight sectors in total. We aim to
provide and facilitate $750bn to $1tn of
sustainable finance and investment to support
our customers in their transition to net zero
and a sustainable future by 2030. We continue
to engage with our clients on their transition
plans and to provide them with financing
solutions to support their sustainability goals.
Our approach to climate risk
We recognise that to achieve our climate
ambition we need to enhance our approach
to managing climate risk. We have established
a dedicated programme to develop strong
climate risk management capabilities.
We manage climate risks in line with our risk
management framework and three lines of
defence model. We also use stress testing
and scenario analysis to assess how these
risks will impact our customers, business
and infrastructure. This approach gives the
Board and senior management visibility and
oversight of the climate risks that could have
the greatest impact on HSBC, and helps us
identify opportunities to deliver sustainable
growth in support of our climate ambition.
For further details on our approach to climate risk
management, see ‘Environmental, social and
governance risk’ on page 139, ‘Climate risk’ on
page 221 and ‘Insights from scenario analysis’ on
page 226.
Impact on reporting and financial
statements
We have assessed the impact of climate risk
on our balance sheet and have concluded that
there is no material impact on the financial
statements for the year ended 31 December
2022. We considered the impact on a number
of areas of our balance sheet including
expected credit losses, classification and
measurement of financial instruments,
goodwill and other intangible assets, our
owned properties, as well as our long-term
viability and going concern. As part of
assessing the impact on our financial
statements we conducted scenario analysis to
understand the impact of climate risk on our
business (see page 67). For further details on
our climate risk exposures, see page 145.
For further details of how management has
considered the impact of climate-related risks
on its financial position and performance see
our ‘Critical accounting estimates and
judgements’ in Note 1 ‘Basis of preparation and
significant accounting policies’ from page 335.
In this section
Transition
to net zero
Understanding our climate
reporting
To achieve our climate ambition we need to be transparent on the
opportunities, challenges, related risks and progress we make.
Our approach to the
transition
Financed emissions
We aim to achieve net zero in our financed emissions by 2050, and in
our own operations and supply chain by 2030.
We aim to align our financed emissions to achieve net zero by 2050
or sooner.
Supporting customers
through transition
Our ability to help finance the transformation of businesses and
infrastructure is key to building a sustainable future for our customers
and society.
Unlocking climate
solutions and innovations
We are working closely with a range of partners to help accelerate
investment in natural resources, technology and sustainable infrastructure.
Biodiversity and natural
capital strategy
By addressing nature-related risks and investing in nature, we have an
opportunity to help accelerate the transition to net zero.
Our approach to our own
operations
Part of our ambition to be a net zero bank is to achieve net zero carbon
emissions in our operations and supply chain by 2030 or sooner.
Our approach
to climate risk
Managing risk for our
stakeholders
We manage climate risk across all our businesses in line with our
Group-wide risk management framework.
Our approach to
sustainability policies
Our sustainability risk policies seek to ensure that the financial
services that we provide to customers do not contribute to
unacceptable impacts on people or the environment.
Insights from scenario
analysis
Enhancing our climate change stress testing and scenario analysis
capability is crucial in identifying and understanding climate-related
risks and opportunities.
Our approach to
climate reporting
Task Force on Climate-
related Financial
Disclosures (‘TCFD’)
Our TCFD index provides our responses to each of the 11
recommendations and summarises where additional information
can be found.
46
HSBC Holdings plc Annual Report and Accounts 2022
Page 47
Page 49
Page 50
Page 57
Page 60
Page 61
Page 62
Page 64
Page 65
Page 67
Page 68
Environmental
Transition to net zero TCFD
Understanding our climate reporting
Need for enhanced governance,
processes, systems, controls and data
Our climate ambition requires enhanced
capabilities including governance, processes,
systems and controls. We also need new
sources of data, some of which may be
difficult to assure using traditional verification
techniques. We continue to invest in our
climate resources and skills, and develop
our business management process to
integrate climate impacts. Our activities are
underpinned by efforts and investment to
develop our data and analytics capabilities and
to help ensure that we have the appropriate
processes, systems, controls and governance
in place to support our transition.
We are taking steps to establish an ESG data
utility tool to help streamline and support
data needs across the organisation. We are
enhancing our processes, systems, controls
and governance to help achieve the required
scale to meet the demands of future ESG
reporting. Certain aspects of our reporting rely
on manual sourcing and categorisation of
data. This categorisation of data is not always
aligned with how our businesses are currently
managed. We also have a dependency on
emissions data from our clients. Given the
manual nature, enhanced verification and
assurance procedures are performed on a
sample basis over this reporting including the
first and second line of defence. Our models
undergo independent review by an internal
model review group, and we obtain limited
assurance on our financed emissions and
sustainable finance disclosures from external
parties including our external auditors.
Limited international alignment on green
taxonomies
Green finance taxonomies are not consistent
globally, and evolving taxonomies and
practices could result in revisions in our
sustainable finance reporting going forward.
We recognise that there can be differing views
of external stakeholders in relation to these
evolving taxonomies, and we will seek to align
to enhanced industry standards as they
are further developed. We aim to increase
transparency across the different types of
green and transition finance and investment
categories going forward, and plan to engage
with standard setters to help evolve
sustainable finance product standards to best
incentivise science-based decarbonisation,
particularly in high transition risk sectors.
Engagement with clients on their
transition at an early stage
Success will require governments, clients
and finance providers to work together. Stable
and strong policy environments are critical
to accelerating the energy transition. Active
engagement between public and private
stakeholders is fundamental to de-risk new
technologies and markets and establish new
business structures.
We established a new process to assess client
transition plans for our largest energy sector
clients and those involved in thermal coal to
help inform areas for further engagement and
guide business decisions. We acknowledge
that our assessment of client transition plans is
in the initial stages and our engagement with
clients on their plans and progress will need
to continue to be embedded.
In December 2022, following extensive
consultation with scientific and industry
bodies, we published our updated energy
policy and an update to our thermal coal
phase-out policy. These policies acknowledge
a need to phase down financing of fossil fuels
while also investing at scale in climate
solutions to enable a transition to net zero.
The transition to net zero is one of the
biggest challenges for our generation
We recognise that our planet urgently needs
drastic and lasting action to protect our
communities, businesses and the natural
environment from the damaging effects of
climate change.
Our ability to meet our net zero ambition –
to align the financed emissions of our portfolio
to net zero by 2050, and to become net zero
in our operations and supply chain by 2030
– relies on the pace of change taking place in
the real economy and action among a broad
set of stakeholders, including policymakers.
This will include responsible actions from
both HSBC and our clients to address
climate change.
We acknowledge that to achieve our climate
ambition we need to be transparent on the
opportunities, challenges, related risks
and progress we make. Our reporting will
need to evolve to keep pace with market
developments and we will aim to overcome
challenges with regard to consistency across
different markets in which we operate. The
role of standard setters and regulators will be
important in achieving standardisation. We
have highlighted below some of the limitations
and challenges that our organisation, and the
wider industry, face with regard to climate
reporting.
Our transition will be challenging but we
have an opportunity to make an impact
Our global footprint means that many of our
clients operate in high-emitting sectors and
regions that face the greatest challenge in
reducing emissions in the critical decades
ahead to 2050. Their ability to transition
effectively will be key to reaching a global
net zero economy in time, but they are often
faced with increasingly high energy demand,
relatively new carbon-intensive assets, and
lower level of investments into clean
technologies.
Our approach is rooted in engagement
with our clients to provide them with the
capital and tools to help them transform
their business models and decarbonise. It
is also rooted in the reality that a just and
inclusive transition requires us to consider
region-specific challenges and opportunities.
Additionally, countries are moving at different
speeds and, given our geographical and
sectoral spread, we will naturally have one
of the most complex transitions.
HSBC Holdings plc Annual Report and Accounts 2022
47
ESG review ESG review | Environmental
Understanding our climate reporting continued
Capturing the full-scope of our emissions
Having set on-balance sheet 2030 emissions
targets for the oil and gas, and power and
utilities sectors, we have now expanded
our coverage to include heavy industry and
transport sectors, which are key drivers of
energy demand. These sectors cover the most
emissions-intensive parts of our portfolio.
We plan to extend our analysis to four
additional sectors – shipping, agriculture,
commercial real estate and residential real
estate – in our Annual Report and Accounts
2023 and related disclosures.
Our initial focus has been on on-balance sheet
financing, including project finance and direct
lending. We also have facilitated emissions
from our capital markets activities, through our
underwriting in debt and equity capital markets
and syndicated lending. We aim to update
our targets and baselines to include both
on-balance sheet and off-balance sheet
activities following the publication of the
industry standard for capital markets
methodology by the Partnership for Carbon
Accounting Financials (‘PCAF’). This should
give guidance on how to apportion the
emissions responsibility between a facilitator
and an investor within capital markets activities.
Our Asset Management business released
a coal phase-out policy in September 2022,
and made its initial emissions disclosure
in November 2022 with a portfolio
decarbonisation target for 2030 to align
investments with the goals of the Paris
Agreement. The commitment covers listed
equity and corporate fixed income where
data and methodologies are most mature.
We will also consider the inclusion of
emissions on our insurance business.
Disclosure challenges for year-end
reporting
Given the challenges on data sourcing, as well
as the evolution of our processes and industry
standards as mentioned above, there has
been an impact on certain climate disclosures:
– Thermal coal exposures: We acknowledge
that our processes, systems, controls and
governance are not yet designed to fully
identify and disclose thermal coal
exposures, particularly for exposures within
broader conglomerates. We are reassessing
the reliability of our data and reviewing
our basis of preparation to help ensure that
we are reporting all relevant thermal coal
exposures aligned to our thermal coal policy.
As a result, we have not reported thermal
coal exposures in this Annual Report and
Accounts 2022. We expect that our updated
thermal coal exposure dating back to
31 December 2020 will be made available
for reporting as soon as practicable in 2023,
although this is dependent on availability
and quality of data.
– Facilitated emissions: In March 2022,
we said we would set capital markets
emissions targets for the oil and gas, and
power and utilities sectors based on the
industry reporting standard from the PCAF
once published. We have chosen to defer
setting targets for facilitated emissions
until the PCAF standard for capital markets
is published, which is expected in 2023.
We had intended to disclose facilitated
emissions for 2019 and 2020 for the oil
and gas, and power and utilities sectors
for transparency, as we did last year.
However, following internal and external
assurance reviews performed during the
year, we identified certain data and process
limitations and have deferred the publication
of our facilitated emissions for 2019 and
2020 for these two sectors while additional
verification procedures are performed. We
aim to provide these disclosures as soon as
practicable in 2023. We continue to monitor
the developments in industry standards
for the publication of such emissions and
associated targets, and, as mentioned
above, we will seek to align to the PCAF
standard when published. However, we will
aim to provide transparency on our 2019
and 2020 facilitated emissions for the oil and
gas, and power and utilities sectors as they
become available, which may be in advance
of the PCAF standard being available.
– Shipping financed emissions targets: For
the shipping sector, we have chosen to defer
setting a baseline and target until there is
sufficient reliable data to support our work,
allowing us to more accurately track
progress towards net zero.
Continuing to evolve our climate
disclosures
In 2023, we plan to publish our first Group-
wide climate transition plan to provide further
details of our strategic approach to net zero
and how we plan to transform our organisation
to execute our ambition. We also aim to
publish an updated deforestation policy and
build out our financed emissions portfolio
coverage to include agriculture, residential real
estate, commercial real estate and shipping,
and plan to update our targets for certain
sectors to include facilitated emissions once
the PCAF standard is launched.
In 2023, we will continue to review our
approach to disclosures, with our reporting
needing to evolve to keep pace with market
developments.
For details of assurance around ESG data,
see page 45.
For details of our approach to calculating
financed emissions and the relevant data and
methodology limitations, see page 52.
For details of our sustainable finance and
investment ambition, see page 57.
For details of our approach to thermal coal,
see page 66.
Awarded as a green lease leader
We are carrying out a programme to promote green lease clauses across our global
portfolio of leased buildings, which commit our landlords to helping us reduce our impact
on the environment. As part of this programme, in May 2022, we agreed to move our US
headquarters to The Spiral office tower at 66 Hudson Boulevard in Manhattan, New York,
which we expect to reduce our total energy consumption by 60% compared with 2021.
The Spiral is on track to achieve industry leading LEED Gold and Fitwel certifications for
sustainability and building health. Alongside our real estate broker JLL, and our landlord
Tishman Speyer, we were recognised by the Green Lease Leaders Organisation with a Green
Lease Leaders Team Transaction Award – Platinum Level, for our collaboration to improve
the energy efficiency and sustainability of buildings.
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HSBC Holdings plc Annual Report and Accounts 2022
Environmental
Our approach to the transition
We are committed to a net zero future. Our
global footprint means we play a significant
role in the sectors and regions most critical to
the transition to net zero. Many of our clients
operate in the high-emitting sectors and
regions that face the greatest challenge in
reducing emissions. This means we can have
a significant impact in helping to drive down
emissions in the real economy, but this is
a challenging process that will take time.
The Paris Agreement aims to limit the rise
in global temperatures to well below 2°C,
preferably to 1.5°C, compared with pre-
industrial levels. To limit the rise in global
temperatures to 1.5°C, the global economy
would need to reach net zero greenhouse gas
emissions by 2050. We are committed to a
science-aligned phase-down of fossil fuel
finance in line with the Paris Agreement.
We have committed to publish our own
Group-wide climate transition plan in 2023.
This plan will bring together our climate
strategy, science-based targets, and how
we plan to embed this into our processes,
policies, governance and capabilities. It
will outline, in one place, not only our
commitments, targets and approach to
net zero across the sectors and markets we
serve, but also how we are transforming our
organisation to embed net zero and help
finance the transition. Our approach to nature
and enabling a just and resilient transition
will also be incorporated into our climate
transition plan.
Our net zero policies
In December 2022, we published our updated
policy covering the broader energy system,
including upstream oil and gas, oil and gas
power generation, coal, hydrogen, renewables
and hydropower, nuclear, biomass and energy
from waste. The policy seeks to balance three
related objectives: driving down global
greenhouse gas emissions; enabling an
orderly transition that builds resilience in
the longer term; and supporting a just and
affordable transition. In December, we also
expanded our thermal coal phase-out policy,
in which we committed to not providing new
finance or advisory services for the specific
purposes of the conversion of existing
coal-to-gas-fired power plants, or new
metallurgical coal mines. Our updated
energy and thermal coal phase-out policies
were drafted in consultation with leading
independent scientific and international bodies
and investors. Details on the policies can be
found in ‘Our approach to sustainability
policies’ on page 65.
Working with our customers and suppliers
We believe we can make the most significant
impact by working with our customers
to support their transition to a net zero
global economy.
We aim to align our financed emissions to net
zero by 2050 or sooner. We are setting targets
on a sector by sector basis that are consistent
with net zero outcomes by 2050. In assessing
financed emissions, we focus on those parts
of the sector that we consider are most
material in terms of greenhouse gas
emissions, and where we believe engagement
and climate action have the greatest potential
to effect change, taking into account industry
and scientific guidance.
We have set interim 2030 targets for on-
balance sheet financed emissions for eight
sectors. These include six sectors for which we
have reported 2019 and 2020 emissions: oil
and gas; power and utilities; cement; iron, steel
and aluminium; aviation; and automotive. We
have also set targets for thermal coal power
and thermal coal mining.
In 2022, we established a process to assess
client transition plans to help inform areas
for further engagement and guide business
decisions. We expect engagement with
our customers on their transition plans to form
a core part of our approach as we pursue
our targets. We acknowledge that our
assessment of client transition plans is in the
initial stages and our engagement with clients
on their plans and progress will need to
continue to be embedded.
We aim to become net zero in our operations
and supply chain by 2030. This covers our
direct and indirect greenhouse gas emissions,
known as scope 1, 2 and 3 emissions. As well
as transforming our own operations and
supply chain to net zero, we are asking our
suppliers to do the same.
The next section provides further details on
how we are measuring our progress on our
financed emissions ambition. For further details
of the progress made to date on our own
operations and supply chain, see page 62. The
diagram below shows how these ambitions
map to our scope 1, 2 and 3 emissions.
Explaining scope 1, 2 and 3 emissions
To measure and manage our carbon emissions, we follow the Greenhouse Gas Protocol
global framework, which identifies three scopes of emissions. Scope 1 represents the direct
emissions we create. Scope 2 represents the indirect emissions resulting from the use of
electricity and energy to run a business. Scope 3 represents indirect emissions attributed to
upstream and downstream activities taking place to provide services to customers. Our
upstream activities include business travel and emissions from our supply chain including
transport, distribution and waste. Our downstream activities include those related to
investments and financed emissions.
Under the protocol, scope 3 emissions are also broken down into 15 categories, of which we
provide reporting emissions data for three related to upstream activities, which are: purchased
goods and services (category 1); capital goods (category 2); and business travel (category 6).
We also provide reporting data for one category related to downstream activities, which is
investments and financed emissions (category 15)
For further breakdown of our scope 1, 2 and 3 emissions, see our ESG Data Pack at www.hsbc.com/esg.
Our own
operations and
supply chain
See page 63
Scope 2
Indirect
Scope 3
Indirect
Scope 1
Direct
Scope 3
Indirect
Our financed
emissions
See page 51
Electricity,
steam
heating and
cooling
Purchased
goods and
services
(category 1)
Company
facilities
Company
vehicles
Business
travel
(category 6)
Capital
goods
(category 2)
Investments and
financed emissions
(category 15)
Upstream activities
HSBC Holdings
Downstream activities
1 HSBC-sponsored shuttles only
HSBC Holdings plc Annual Report and Accounts 2022
49
ESG review ESG review | Environmental
Financed emissions
TCFD
We announced our ambition to become a net
zero bank in October 2020, including an aim
to align our financed emissions to net zero
by 2050 or sooner. We plan to publish initial
financed emissions targets for 2030, and in
five-year increments thereafter. We remain
committed to working with our customers
to support their journey towards a net zero
future, and deploying capital towards
decarbonisation solutions for the most
emissions-intensive sectors.
Our analysis of financed emissions considers
on-balance sheet financing, including project
finance and direct lending. We distinguish
between ‘on-balance sheet financed’ and
‘facilitated’ emissions where necessary.
Financed emissions link the financing we
provide to our customers and their activities in
the real economy, and provide an indication of
the greenhouse gas emissions associated with
those activities. They form part of our scope 3
emissions, which include emissions associated
with the use of a company’s products and
services. We also recognise that we have more
to do to embed these targets in our business,
including enhanced capabilities and new
sources of data as set out on page 47.
In 2021, we started measuring our financed
emissions for two emissions-intensive sectors:
oil and gas, and power and utilities. On the
following pages, we present the progress for
both sectors against the on-balance sheet
financed emissions baseline that we now
measure ourselves against. We have also
begun measuring the financed emissions
and setting targets for four additional sectors:
cement; iron, steel and aluminium; aviation;
and automotive. During our analysis of the
shipping sector, we noted significant data
gaps. We have therefore chosen to defer
setting a baseline and target for this sector
until there is sufficient reliable data to support
our work.
We plan to measure and report progress on an
annual basis, and plan to extend our analysis
to four new sectors – shipping, agriculture,
commercial real estate and residential real
estate – in our Annual Report and Accounts
2023 and related disclosures. For the new
sectors, we plan to set production intensity
targets. We believe these targets are robust as
they are linked to real world production, and
allow us to deploy capital towards solutions for
progressive decarbonisation, supporting our
clients’ transition plans.
Our approach to financed emissions
In our approach to assessing our financed
emissions, our key methodological decisions
were shaped in line with industry practices
and standards. We recognise these are
still developing.
Coverage of our analysis
For each sector, we focused our analysis on
the parts of the value chain where we believe
the majority of emissions are produced based
upon industry benchmarks, and to help
reduce double counting of emissions.
For aviation, we have focused on scope 1
emissions from airlines and scope 3 from
aircraft lessors as we believe the use of
lower emissions aviation fuels and different
propulsion systems for new aircraft is where
attention needs to be prioritised to meet net
zero targets. By estimating emissions and
setting targets for customers that directly
account for, or indirectly control the majority
of emissions in each industry, we can focus
our engagement and resources where we
believe the potential for change is highest.
With regards to the different types of
greenhouse gases measured, we include
CO2 and methane (measured in CO2e) for
the oil and gas sectors, and CO2 only for
the remaining sectors due to data availability
and greenhouse gas emissions materiality
within each sector.
To calculate annual on-balance sheet financed
emissions, we used drawn balances as at
31 December in the year of analysis related to
wholesale credit and lending, which included
business loans, trade and receivables finance,
and project finance as the value of finance
provided to customers. We excluded products
that were short term by design, which are
typically less than 12 months in duration,
following guidance from the Partnership for
Carbon Accounting Financials (‘PCAF’), and
to reduce volatility.
The chart below shows the scope of our financed emissions analysis of the six sectors, including upstream, midstream and downstream
activities within each sector.
Sector
Scope of emissions
Value chain in scope
Coverage of
greenhouse gases
Oil and gas
1, 2 and 3
Upstream
(e.g. extraction)
Midstream
(e.g. transport)
Downstream
(e.g. fuel use)
Integrated/
diversified
CO2/methane
Power and utilities 1 and 2
Cement
Iron, steel and
aluminium
Aviation
1 and 2
1 and 2
Upstream
(e.g. generation)
Midstream
(e.g. transmission
and distribution)
Upstream (e.g. raw
materials, extraction)
Midstream (e.g clinker
and cement manufacturing)
Upstream (e.g. raw
materials, extraction)
Midstream
(e.g. ore to steel)
Downstream
(e.g. retail)
Downstream
(e.g. construction)
Downstream
(e.g. construction)
1 for airlines,
3 for aircraft lessors
Upstream
(e.g. parts manufacturers)
Midstream
(e.g. aircraft manufacturing)
Downstream
(e.g. airlines and air lessors)
Automotive
1, 2 and 3
Key:
Included in analysis
Upstream
(e.g. suppliers)
Midstream
(e.g. motor vehicle
manufacture)
Downstream
(e.g. retail)
50
HSBC Holdings plc Annual Report and Accounts 2022
CO2
CO2
CO2
CO2
CO2
Environmental
Financed emissions continued
An evolving approach
We believe methodologies for calculating
financed emissions and setting targets should
be transparent and comparable, and should
provide science-based insights that focus
engagement efforts, inform capital allocation
and develop solutions that are both timely
and impactful. We continue to engage with
regulators, standard setters and industry
bodies to shape our approach to measuring
financed emissions and managing portfolio
alignment to net zero. We also work with
data providers and our clients to help us
gather data from the real economy to improve
our analysis.
Scenarios used in our analysis are modelled
upon allocation assumptions of the available
carbon budget and actions that need to be
taken to drive the global transition to 1.5°C
outcomes. Assumptions include technology
development and/or adoption, shifts in
the energy mix, the retirement of assets,
behavioural changes and implementation of
policy levers, among others. We expect that
scenario developers will be continually working
to improve the usability, accuracy and
granularity of pathways.
Setting our targets
We set targets for sectors based on
decarbonisation pathways that are
constructed using the Net Zero Emissions
by 2050 scenario produced by the
International Energy Agency (‘IEA’).
Following guidance from the Net-Zero Banking
Alliance (‘NZBA’) and the Science Based
Targets Initiative (‘SBTi’) this scenario
has low reliance on negative emissions
technologies, or the possibility for the rise
in global temperatures to exceed 1.5°C before
cooling again. The scenario makes reasonable
assumptions about the potential for carbon
sequestration through nature-based solutions
and land use change.
Our approach for financed emissions
accounting does not rely on purchasing
offsets to achieve any financed emissions
targets we set.
Meeting our targets for 2030 is dependent
on immediate and significant deployment of
available clean technology solutions, as shown
by the IEA’s Net Zero by 2050 roadmap for the
global energy sector. Innovation in this decade
needs to be accompanied by large‐scale
construction of infrastructure to enable the
implementation of cleaner technologies. This
will require strong policy support and public
and private capital to be deployed at scale.
We also recognise that the supply and
demand side of the market need to move
concurrently. The reduction of fossil fuels in
favour of clean energy supply needs to be
matched by an increase in demand from
industry, buildings and transport to consume
clean energy. Both the supply and demand
still require significant policy support to
enable this transition economically.
Connecting the offshore
energy industry
The global transition to a net zero
economy provides opportunities for
companies looking to create new
connections to renewable energy
sources. UK-based JDR Cable Systems,
which is part of TFK Group, links global
offshore energy sources to the land
using its subsea cable technology. As it
looks to expand its production, and with
the backing of UK Export Finance, we
helped to provide a £100m investment
loan to finance the building of a new
facility in Cambois, near Blyth,
Northumberland. The new facility,
which occupies the site of a former
coal-fired power station, will help JDR
expand its product portfolio. It is
expected to complete in 2024.
Leading the electric battery charge in Indonesia
We are supporting Hyundai in its journey to produce only electrical vehicles by 2040. We
acted as a mandated lead arranger and lender towards a $711m loan to a joint venture
company between Hyundai Motor, Kia, Hyundai Mobis and LG Energy Solution. The
financing will help fund the construction of an electric vehicle battery manufacturing plant in
Karawang, Indonesia, which would be the first in south-east Asia. The facility will have an
annual production capacity of 10 gigawatt hours (‘GWh’)-worth of lithium-ion battery cells.
As the electric vehicle battery sector continues to grow, the facility will help establish
Indonesia as an electric vehicle supply chain hub in Asia and be a crucial contributor to
Hyundai’s net zero ambitions in the region.
HSBC Holdings plc Annual Report and Accounts 2022
51
ESG review ESG review | Environmental
Financed emissions continued
Data and methodology limitations
Our financed emissions estimates and
methodological choices are shaped by the
availability of data for the sectors we analyse.
– We are members of Partnership for Carbon
Accounting Financials (‘PCAF’), which
seeks to define and develop greenhouse
gas accounting standards for financial
institutions. PCAF developed the Global
GHG Accounting and Reporting Standard
for the Financial Industry, which focuses
on measuring and reporting financed
emissions. The PCAF Standard provides
guidance on assigning data quality scoring
per asset class, creating data transparency
and encouraging improvements to data
quality in the medium and long term.
– We found that data quality scores varied
across the different sectors and years of our
analysis, although not significantly. While
we expect our data quality scores to
improve over time, as companies continue
to expand their disclosures to meet growing
regulatory and stakeholder expectations,
there may be fluctuations within sectors
year on year, and/or differences between
the data quality scores between sectors
due to changes in data availability.
– The majority of our clients do not yet report
the full scope of greenhouse gas emissions
included in our analysis, in particular scope 3
emissions. In the absence of client-reported
emissions, we estimate them using proxies
based on company production and revenue
figures, and validated key data inputs with
our global relationship managers. Although
we sought to minimise the use of non-
company-specific data, we applied industry
averages in our analysis where company-
specific data was unavailable. As data
improves, estimates will be replaced with
reported figures. Our 2019 emissions for our
oil and gas, and power and utilities sectors
have been revised as a result of changes to
data sources.
– Third-party data sets that feed into our
analysis may have up to a two-year lag in
reported emissions figures, and we are
working with data providers to help
reduce this.
– The methodology and data used to assess
financed emissions and set targets are new
and evolving, and we expect industry
guidance, market practice, and regulations
to continue to change. We plan to refine our
analysis using appropriate data sources and
current methodologies available for the
sectors we analyse.
– In line with the PCAF Standard, to calculate
sector-level baselines and annual updates,
our portfolio-level financed emissions
are weighted by the ratio of our financing
in relation to the value of the financed
company. We believe this introduces
volatility and are assessing if portfolio
weight is more appropriate. We remain
conscious that the economic value used
in the financed emissions calculation is
sensitive to changes in drawn amounts or
market fluctuations, and we plan to be
transparent around drivers for change to
portfolio financed emissions where possible.
– The classification of our clients into sectors
is performed with inputs from subject
matter experts and will also continue to
evolve with improvements to data and
our sector classification approach.
– The operating environment for climate
analysis and portfolio alignment is also
maturing. We continue to work to improve
our data management processes, and are
implementing steering mechanisms to align
our provision of finance with the goals and
timelines of the Paris Agreement.
Our methodology for financed emissions is set
out in our Financed Emissions Methodology,
which is available at www.hsbc.com/
who-we-are/esg-and-responsible-business/
esg-reporting-centre.
Targets and progress
We have set out in the table below our defined targets for the on-balance sheet financed emissions for the following sectors: oil and gas; power
and utilities; cement; iron, steel and aluminium; aviation; and automotive. On the following pages, we provide more granular details on our financed
emissions within these sectors.
Sector
Oil and gas
Power and utilities2
Cement
Iron, steel and aluminium3
Aviation
Automotive
2019 baseline
2020 progress
2030 target
Unit1
Target type
33.0
589.9
0.64
1.8
84.0
191.5
30.1
509.6
0.64
2.0
103.9
176.2
(34)%
138
0.46
1.05 (1.43)
63
66
Mt CO2e
tCO2/GWh
tCO2/t cement
tCO2/t metal
tCO2/million rpk
tCO2/million vkm
Absolute
Intensity
Intensity
Intensity
Intensity
Intensity
Target scenario
IEA NZE 2050
IEA NZE 2050
IEA NZE 2050
IEA NZE 2050
IEA NZE 2050
IEA NZE 2050
1 Our absolute and intensity emission metrics and targets are measured based on the drawn exposures of the counterparties in scope for each sector, which is a
subset of our total loans and advances. For the oil and gas sector, absolute emissions are measured in million tonnes of carbon dioxide (‘Mt CO2e’) and intensity
is measured in million tonnes of carbon dioxide per exajoule (‘Mt CO2e/Ej’); for the power and utilities sector, it is measured in tonnes of carbon dioxide equivalent
per gigawatt hour (‘tCO2/GWh’); for the cement sector, it is measured in tonnes of carbon dioxide per tonne of cement (‘tCO2/t cement’); for the iron, steel and
aluminium sector, it is measured in tonnes of carbon dioxide per tonne of metal (‘tCO2/t metal’); for the aviation sector, it is measured in tonnes of carbon dioxide
per million revenue passenger kilometres (‘tCO2/million rpk’); and for the automotive sector, it is measured in tonnes of carbon dioxide per million vehicle kilometres
('tCO2/million vkm’).
2 Our power and utilities target units have been revised from our 2021 analysis, and the target has been revised from 0.14 Mt CO2e/TWh to 138 tCO2/GWh due to
rounding. The target value remains unchanged.
3 While the iron, steel and aluminium 2030 target is aligned with the IEA Net Zero Emissions by 2050 scenario, we also reference the Mission Possible Partnership
Technology Moratorium scenario, whose 2030 reference range is shown in parentheses.
52
HSBC Holdings plc Annual Report and Accounts 2022
Environmental
Financed emissions continued
When assessing the changes from 2019
to 2020, it is important to emphasise the
long-term commitment that is needed to meet
our 2030 interim targets and how changes
to exposure and market fluctuations impact
yearly updates. Movement from one year to
the next may not reflect future trends for the
financed emissions of our portfolio, and as we
are at the beginning of our journey to track
and measure progress, we believe it would be
premature to infer future trends from the 2019
to 2020 progress at this stage. In addition, the
Oil and gas
For the oil and gas sector, we cover all scopes
for upstream as well as integrated companies
to help ensure we include the vast majority of
CO2 and methane emissions created by crude
oil and natural gas extraction and consumption.
In line with the IEA Net Zero Emissions by 2050
scenario, we target an absolute reduction of
34% in on-balance sheet financed emissions
by 2030, using 2019 as our baseline. We believe
decarbonising the energy system, and therefore
our ability to meet our targets, requires
electrification of the economy, combined with a
shift from consuming fossil fuels towards the
use of more renewable electricity and
alternative fuels.
Due to data quality and modelling
improvements, we have revised our 2019
baseline to 33.0 million tonnes of carbon dioxide
(‘Mt CO2e’). The sector’s PCAF data quality
score is 2.7 for scope 1 and 2, and 2.9 for scope
3 in 2019, indicating that we need to find better
data sources, such as reported and verified
emissions. Many clients report scope 1 and 2,
but for scope 3 we have had to estimate many
data points using production and revenue
proxies, in line with PCAF guidance. In 2020,
absolute financed emissions decreased 9%,
mostly as a result of changes in our portfolio
during the first year of the Covid-19 pandemic.
Covid-19 pandemic led to anomalies in our
portfolio’s financed emissions for 2020.
global average, the baselines may be
the same.
For some sectors, our financed emissions
baseline will be different from the Net Zero
Emissions by 2050 reference scenario
baseline. Where we have applied an absolute
reduction target such as for the oil and gas
sector, and the target is defined as a
percentage reduction from the baseline they
will be the same. Similarly, when the sector
portfolio intensity is very similar to that of the
We plan to report financed emissions and
progress against our targets annually and to
be transparent in our disclosures about the
methodologies applied. However, financed
emissions figures may not be reconcilable or
comparable year on year, and targets may
require recalibration as data, methodologies
and reference scenarios develop.
Power and utilities
For the power and utilities sector, we include
scope 1 and 2, and focus on power generation
only. We also follow the IEA Net Zero Emissions
by 2050 scenario and target an on-balance
sheet financed emissions intensity of 138
tonnes of carbon dioxide equivalent per
gigawatt hour (‘tCO2/GWh’) by 2030, using 2019
as our baseline. The power and utilities sector
is expected to expand significantly as the
electrification of transport, heating and other
activities will drive an increase in electricity
demand. To enable this growth through
low-emission sources of electricity, we have
chosen an intensity target. We believe financing
for renewable electricity will need to increase
significantly to help us meet our targets,
alongside smart grids and energy storage.
Due to data quality and modelling
improvements, we have revised our 2019
baseline to 589.9 tCO2/GWh, which is higher
than the IEA global average. The PCAF score is
3.3, for scope 1 and 2 in 2019, as many of our
smaller clients are not disclosing their scope 1 to
2 emissions. These have mostly been estimated
using production or revenue, which will be
replaced when we have reported and verified
emissions from clients. In 2020, the emissions
intensity of our portfolio decreased by 14% as a
result of clients moving their generation mix to
lower emission sources and portfolio shifts.
Cement
We cover scope 1 and 2 for all companies with
clinker and cement manufacturing facilities. In
line with the IEA Net Zero Emissions by 2050
scenario, we target an on-balance sheet
financed emissions intensity of 0.46 tonnes of
carbon dioxide per tonne of cement (‘tCO2/t
cement’) by 2030, using 2019 as our baseline.
Some emission reductions can be achieved
through energy efficiency. However, we believe
that to significantly reduce fuel and process
emissions from cement manufacturing, and
our ability to meet our targets, large-scale
investments are required in new technologies,
such as clinker substitution, alternative fuel use
such as bioenergy, and carbon capture use and
storage. Our 2020 emission intensity stayed
level with 2019, as there were no significant
changes to the emission intensity of our clients.
The PCAF score for the cement sector is 2.2
for scope 1 and 2 in 2019, which is higher
compared with other sectors, as we have
reported emissions data for a large portion of
our clients, and have only needed to estimate
emissions through production or revenue
proxies for the smaller clients in our portfolio.
Oil and gas
Mt CO2e
2020 progress
from baseline
(9)%
Power and utilities2
tCO2/GWh
2020 progress
from baseline
(14)%
Cement
tCO2/t cement
2020 progress
from baseline
0
h
W
G
/
2
O
C
t
700
600
500
400
300
200
100
0
t
n
e
m
e
c
t
/
2
O
C
t
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2019 2020
2025
2030
2019 2020
2025
2030
2019 2020
2025
2030
45
40
35
30
25
20
15
10
5
0
e
2
O
C
t
M
Key:
Net Zero Emissions by 2050 Scenario
On-balance sheet financed emissions intensity
HSBC Holdings plc Annual Report and Accounts 2022
53
ESG review
ESG review | Environmental
Financed emissions continued
Iron, steel and aluminium
We cover scope 1 and 2 for midstream iron,
steel and aluminium production. Due to the low
materiality of the aluminium sector’s financed
emissions within our portfolio, we have
combined them with our iron and steel financed
emissions. For the iron, steel and aluminium
sector, we target an on-balance sheet financed
emissions intensity of 1.05 (1.43) tonnes of
carbon dioxide per tonne of metal (‘tCO2/t
metal’) by 2030, using 2019 as our baseline.
We use the IEA Net Zero Emissions by 2050
scenario as our core target scenario, and have
included the net zero-aligned Mission Possible
Partnership Technology Moratorium as an
alternative scenario. We recognise that our
ability to meet our targets in so-called ‘hard-to-
abate’ sectors is dependent on strong policy
support to unlock widespread investment and
the scaling up of crucial nascent technologies.
We will continue to monitor the progress in the
uptake of low-carbon technologies, and assess
real economy progress against the IEA and
Mission Possible Partnership scenarios.
The emissions intensity in 2020 rose due to
increased financing to the aluminium sector,
which has a higher carbon intensity than that
of steel. The PCAF score is 2.5 in 2019, as only
a small number of clients have reported
emissions, and for many we have had to
make estimates based on their revenue.
Aviation
In the aviation sector, we included airlines’
scope 1 emissions and aircraft lessors’ scope 3
emissions, as we believe this captures direct
emissions from aircraft as the main source of
emissions. We exclude military and dedicated
cargo flights. As per the IEA Net Zero Emissions
by 2050 scenario, we target an on-balance
sheet financed emissions intensity of 63 tonnes
of carbon dioxide per revenue passenger
kilometre (‘tCO2/rpk’) by 2030, using 2019 as our
baseline. To reach these intensity levels, and
help meet our targets, we believe the sector
needs significant policy support investments
into alternative fuels, such as sustainable
aviation fuel, and new aircraft to reduce
emissions. Sustainable aviation fuel is currently
too costly and in limited supply, so the industry’s
decarbonisation efforts are highly dependent on
partnerships between energy companies,
airlines and aircraft manufacturers. Due to
the travel disruption caused by the Covid-19
pandemic in 2020, emissions intensity figures
increased significantly as aeroplanes carried
fewer passengers on average. This can be
seen in the IEA numbers as well as our client
portfolio. For the aviation sector, the PCAF
score is 2.8 for scope 1 and 2, and 2.8 for scope
3 in 2019, as emissions or production data is
available for most clients, although we continue
to have a challenge with finding reported
emissions from smaller firms.
Automotive
For the automotive sector, we look at scope 1, 2
and 3 emissions from the manufacturing of
vehicles, and tank-to-wheel exhaust pipe
emissions for light-duty vehicles. We excluded
heavy-duty vehicles from our analysis, following
industry practice. We will consider including
them at a later stage of our analysis as data and
methodologies develop. We target an on-
balance sheet financed emissions intensity of 66
tonnes of carbon dioxide per vehicle kilometre
(‘tCO2/vkm’) by 2030, using 2019 as our baseline.
This is in line with the IEA Net Zero Emissions by
2050 scenario, modified to match the share of
new in-year vehicle sales for light-duty vehicles.
We believe decarbonisation of the automotive
sector, and therefore our ability to meet our
targets, needs large-scale investments in new
electric vehicle and battery manufacturing
plants, widespread charging infrastructure, and
government policies to support electric vehicles.
Our 2020 intensity reduced by 8% as a result of
clients manufacturing more efficient vehicles,
and the increased sales of electric vehicles. The
PCAF score for the automotive sector is only
3.3 for scope 1 and 2, and 3.4 for scope 3 in
2019, as most companies only report their
scope 1 and 2 emissions. We had to estimate
scope 3 emissions using vehicle production
numbers. Increased self-reporting of
scope 3 emissions from clients would
significantly improve data quality.
Iron, steel and aluminium3
tCO2/t metal
2020 progress
from baseline
11%
Aviation
tCO2/million rpk
2020 progress
from baseline
24%
Automotive
tCO2/million vkm
2020 progress
from baseline
(8)%
k
p
r
n
o
i
l
l
i
m
/
2
O
C
t
200
180
160
140
120
100
80
60
40
20
0
m
k
v
n
o
i
l
l
i
m
/
2
O
C
t
200
180
160
140
120
100
80
60
40
20
0
2019 2020
2025
2030
2019 2020
2025
2030
2019 2020
2025
2030
2.5
2.0
1.5
1.0
0.5
0
l
a
t
e
m
t
/
2
O
C
t
Key:
Net Zero Emissions by 2050 Scenario
On-balance sheet financed emissions intensity
MPP Tech Moratorium
Our analysis of shipping emissions
As part of our work in 2022, we analysed financed emissions for the shipping sector to establish a baseline. During our analysis we noted
significant data gaps in reported emissions and data from external vendors at the company level. For scope 1 emissions, which are typically
the easiest to source, we would have needed to have made estimates using outstanding amounts rather than production or revenue indicators,
which would have resulted in the least accurate data quality scoring. We have therefore chosen to defer setting a baseline and target for this
sector until there is sufficient reliable data to support our work, allowing us to more accurately set a baseline and track progress towards net
zero. We will continue to engage with strategic clients within the sector to encourage disclosure and discuss their transition plans. We believe
the shipping industry will require significant policy support and innovation to allow for the use of lower emissions fuels in existing as well as
new ships. On the supply side, the provision of low-carbon fuels will need to increase sufficiently to meet this new demand.
54
HSBC Holdings plc Annual Report and Accounts 2022
Environmental
Financed emissions continued
Financed emissions
The table below summarises the results of our assessment of financed emissions using 2019 and 2020 data.
Sector
Oil and gas4, 5
Power and utilities4,5
Cement
Iron, steel and aluminium
Aviation
Automotive
On-balance sheet financed emissions – wholesale credit lending and project finance1,2
Scope 1–2
(Mt CO2)†
Scope 3
(Mt CO2)†
Emissions
intensity
Scope 1
and 2
Scope 3
PCAF data quality score3,†
3.7
3.3
12.1
11.8
2.2
1.3
3.2
2.7
6.2
4.9
0.11
0.14
29.3
26.8
N/A
N/A
N/A
N/A
N/A
N/A
0.11
0.08
4.0
4.9
72.2
71
589.9
509.6
0.64
0.64
1.8
2
84
103.9
191.5
176.2
2.7
2.7
3.3
3.2
2.2
2.3
2.5
2.8
2.8
2.6
3.3
3.2
2.9
2.9
N/A
N/A
N/A
N/A
N/A
N/A
2.8
3
3.4
3.3
Year
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
1 Total amount of short-term finance excluded for all sectors listed is $9.3bn in 2019 and $7.6bn in 2020
2 Total loans and advances analysed in 2019 were $38.3bn representing 1.7% of wholesale credit and lending and project finance at 31 December 2019, and in 2020
were $34.7bn representing 1.7% of wholesale credit and lending and project finance at 31 December 2020.
3 PCAF scores where 1 is high and 5 is low. This is a weighted average score based financing for on-balance sheet financed emissions.
4 In the Annual Report and Accounts 2021 the units for power and utilities were reported last year as MtCO2e, and are now read Mt CO2. Oil and gas absolute
emissions are measured in MtCO2e. This year we amended the units for the power and utilities sector from Mt CO2e/TWh’ to tCO2/GWh to align to market practice.
While the target value remains unchanged this has led to a revision in the figure reported from 0.14 Mt CO2e/TWh’ to 138 tCO2/GWh.
5 Our 2019 emissions for our oil and gas, and power and utilities sectors have been revised due to changes in data impacting drawn amounts of client lending, and
amendments to the assumptions governing the in-scope client population.
† Data is subject to independent limited assurance by PwC in accordance with ISAE 3000/ ISAE 3410. For further details, see our Financed Emissions Methodology
and PwC's limited assurance report, which are available at www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.
Our analysis of facilitated emissions
In March 2022, we said we would set capital markets emissions targets for the oil and gas, and power and utilities sectors based on the industry
reporting standard from the PCAF once published. We have chosen to defer setting targets for facilitated emissions until the PCAF standard for
capital markets is published, which is expected in 2023. We had intended to disclose facilitated emissions for 2019 and 2020 for the oil and gas,
and power and utilities sectors for transparency, as we did last year. However, following internal and external assurance reviews performed
during the year, we identified certain data and process limitations and have deferred the publication of our facilitated emissions for 2019 and
2020 for these two sectors while additional verification procedures are performed. We aim to provide these disclosures as soon as practicable
in 2023.
We continue to monitor the developments in industry standards for the publication of such emissions and associated targets, and, as
mentioned above, we will seek to align to the PCAF standard when published. However, we will aim to provide transparency on our 2019
and 2020 facilitated emissions for the oil and gas, and power and utilities sectors as they become available, which may be in advance of
the PCAF standard being available.
HSBC Holdings plc Annual Report and Accounts 2022
55
ESG review ESG review | Environmental
Financed emissions continued
Embedding financed emissions into our business
Our net zero ambition is underpinned by our
relationships with customers and collective
engagement, so that we are able to support
our customers to take action to address
climate change in their own activities.
To achieve this, we aim to embed how
we manage and assess financed emissions
within our financing portfolios to provide
a basis for informing client engagement
and business management decisions from
a climate perspective.
In 2022, we developed an operating model
across our Global Sustainability teams to
strengthen our processes, systems, controls
and governance. The Global Sustainability
function also established a Sustainability
Centre of Excellence, a team of sustainability
specialists with deep subject matter expertise
on new climate technologies, climate analytics
and transition planning and assessment, to
help us fulfil our net zero commitments and
serve our customers.
The Global Sustainability Centre of Excellence,
together with the Group Risk and Compliance,
and Global Finance functions, have continued
to develop our approach, including working to
embed financed emissions into our business
activities and culture. We have strengthened
our climate data and analytics capability to
help inform decision making and portfolio
management, as well as expanded the
resources to support business engagement.
We are placing climate and sustainability at the
heart of our engagement with customers, and
in particular those customers with the greatest
potential to effect change. In 2022, we
requested and assessed transition plans for EU
and OECD managed clients in scope of our
thermal coal phase-out policy. We have also
requested and are assessing transition plans
for our major oil and gas clients (see page 49).
We aim to provide and facilitate $750bn to
$1tn of sustainable finance and investment
by 2030 to support our customers in their
transition to net zero and a sustainable future.
In 2022, we also started to develop an
approach for allocating financing to scale
technologies critical to reach net zero.
Our own climate transition plan will bring
together our financed emissions targets and
climate strategy, with how we plan to embed
this into our processes, infrastructure,
governance and engagement.
The next section provides further detail on how
we are embedding net zero considerations into
our customer engagement and unlocking
finance to support our customers on their
transition to net zero and a sustainable future.
Backing green SMEs in
the UK
Panthera Group, a family-run
construction company, launched
EnviroHoard, the UK’s first construction
hoarding system to be verified as net
zero carbon. In March, we supported
the firm with the first ever loan through
our $500m Green SME Fund, which we
announced at COP26 as part of our
commitment to supporting small and
medium-sized businesses in their
transition to net zero. Panthera will use
the loan to grow its business in the UK.
In 2022, Panthera reduced 446 tonnes
of carbon emissions through its
installations, and set up a partnership
with Circular Ecology and Trees for
Cities to help offset the carbon impact
of its installations.
Reducing emissions in our assets under management
In July 2021, our asset management
business, HSBC Asset Management, signed
up to the Net Zero Asset Managers initiative,
which encourages investment firms to
commit to manage assets in line with the
attainment of net zero emissions by 2050.
In November 2022, HSBC Asset Management
announced its ambition of reducing scope 1
and 2 carbon emissions by 58% by 2030 for
38% of its total assets under management,
consisting of listed equity and corporate fixed
income, which amounted to $193.9bn at
31 December 2019.
A baseline year of 2019 was chosen for our
calculations as it offered a more realistic
picture of the level of carbon emissions
intensity than the period after the pandemic.
Our baseline for the emission intensity of our
portfolio in 2019 was 131tCo2e/M$ invested,
which includes scope 1 and 2 emissions of
companies in our portfolio.
Our baseline represents the emissions
associated with our investing activities
in terms of emissions per dollar invested
relevant of the assets under management in
scope for this assessment. We will review
our interim target at least every five years,
with a view to increasing the proportion
of assets under management covered until
100% of assets are included. Implementation
of our net zero targets remains subject to
consultation with our key stakeholders. We
plan to stay actively engaged to help support
our investors on their own decarbonisation
goals, and continue to apply resources in
the development of climate solutions.
To support the development of HSBC Asset
Management’s climate strategy and goal to
deliver on its target, it has chosen to align to
the Institutional Investors Group on Climate
Change’s net zero investment framework,
which was created for investors to provide
a common approach around the actions,
metrics and methodologies required to align
portfolios to net zero.
The PCAF data quality score for our baseline
emissions was 2.63. Data is subject to limited
assurance by PwC in accordance with
International Standard on Assurance
Engagements 3000 (Revised) ‘Assurance
Engagements other than Audits or Reviews
of Historical Financial Information’, and with
respect of the greenhouse emissions, in
accordance with International Standard on
Assurance Engagements 3410 ‘Assurance
Engagements on Greenhouse Gas
Statements’, issued by the International
Auditing and Assurance Standards Board.
For the methodology, PwC’s limited
assurance report, and details on HSBC Asset
Management’s net zero ambition, see www.
assetmanagement.hsbc.com/net-zero.
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Environmental
Supporting customers through transition TCFD
We understand that financial institutions have
a critical role to play in achieving the transition
to a net zero global economy. We believe the
most significant contribution we can make is
by mobilising finance to support our portfolio
of customers in their transition to decarbonise.
Mobilising sustainable finance for our
customers
Given our global presence and relationships
with our customers across industries, we
recognise the role we can play in catalysing
the global transition to net zero. We are well
positioned to help finance the transition
in developing and emerging economies,
mobilising capital to help enable sustainable
business models and an inclusive, just and
resilient transition.
In 2022, we continued to expand the horizons
of sustainable finance through our products,
services and partnerships to help enable
emissions reduction in the real economy:
– We launched a $5bn sustainable finance
scheme to support businesses of all sizes
to transition to low-carbon operations in
China’s Greater Bay Area, with successful
loan applicants entitled to a range of
additional services including training,
subsidised third-party assessments and
assistance from a newly formed team
with sustainable financing expertise.
– We created a sustainable supply
chain finance programme for apparel
company PVH Corp in the US to finance
environmentally and socially friendly
production at its manufacturing facilities
(see page 97).
– We supported Panthera Group, a family-run
construction company, to finance and grow
the UK’s first construction hoarding system
to be verified as zero carbon, (see page 56).
– We expanded our green mortgage offering
to our retail customers in Hong Kong,
mainland China, India and Türkiye, as well
as electric vehicle and energy efficiency
loans to customers in Hong Kong, Egypt
and Argentina.
– We committed to working collaboratively
with the government of Egypt in its Nexus
of Food, Water and Energy programme to
identify ways to use scarce public finances
effectively and efficiently, and help raise
private finance to support priority projects
from its national climate change strategy.
As part of the Just Energy Transition
Partnership, which aims to mobilise capital
towards emerging and developing economies
to support their national climate strategies, we
agreed to support the facilitation of at least
$10bn of private sector financing for projects
in Indonesia and $7.8bn for projects in
Vietnam over the next three to five years.
In addition, we were also mandated to act on
12 ESG-related government bonds, including
inaugural issuances for the governments of
Singapore, Canada and Uruguay. In 2022,
we secured six awards at the Environmental
Finance Bond Awards, revealing the high
regard in the market for our structuring and
engagement work across green, social and
sustainability bonds during 2021. In the IFR
Awards 2022, we were named ESG Financing
House of the Year. We were also recognised
by Euromoney as the Best Bank for
Sustainable Finance in Asia for the fifth
consecutive year, and in the Middle East
for the fourth.
Sustainable finance and investment
We define sustainable finance and
investment as any form of financial service
that integrates ESG criteria into business
or investment decisions. This includes
financing, investing and advisory activities
that support the achievement of UN
Sustainable Development Goals (‘SDGs’),
including but not limited to the aims of the
Paris Agreement on climate change.
The SDGs, also known as the Global Goals,
were adopted by all UN member states in
2015 as a universal call to action to end
poverty, achieve gender equality, reduce
inequality, protect the planet and ensure
that all people enjoy peace and prosperity
by 2030.
We have reviewed and updated these
definitions to reflect our updated climate
ambition, which is available at www.hsbc.
com/who-we-are/esg-and-responsible-
business/esg-reporting-centre.
$210.7bn
Cumulative progress since 2020 on
our ambition to provide and facilitate
sustainable finance and investment.
(Ambition: $750bn to $1tn by 2030)
Embedding net zero transition into our client engagement
In 2022, we requested and assessed transition plans for EU and OECD managed clients in
scope of our thermal coal phase-out policy. We also requested and are assessing transition
plans for our major oil and gas clients. In 2023, we expect to complete assessments for
remaining clients in scope of our thermal coal phase-out policy. Similarly, we expect to
complete assessments for major oil and gas and power and utilities clients globally as well
as other clients in EU and OECD markets in scope of our energy policy.
Our assessments consider historical emissions and disclosures, emissions reduction targets,
details of transition plans to achieve targets, and evidence of activities in line with these plans.
Our assessment framework helps us to understand our clients’ transition plans, develop an
engagement strategy to help support them on their transition journey and help us achieve our
net zero ambition. We acknowledge that our assessment of client transition plans is in the
initial stages and our engagement with clients on their plans and progress will need to
continue to be embedded.
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Supporting customers through transition continued
Financing the transition
We aim to help our customers transition
to net zero and a sustainable future through
providing and facilitating between $750bn
and $1tn of sustainable finance and
investment by 2030. Our sustainable finance
ambition has promoted green, sustainable
and socially-focused business alongside
sustainable infrastructure and energy
systems, and enhanced investor capital
through sustainable investment.
Since 1 January 2020, we have provided and
facilitated $185.3bn of sustainable finance,
$19.0bn of sustainable investment and $6.4bn
of sustainable infrastructure, as defined in our
Sustainable Finance and Investment Data
Dictionary 2022. This included 36% where
the use of proceeds were dedicated to green
financing, 13% to social financing, and 15% to
other sustainable financing. It also included
27% of sustainability-linked financing and 9%
of net new investments flows managed and
distributed on behalf of investors.
In 2022, our underwriting of green, social,
sustainability and sustainability-linked bonds
for clients decreased in line with the overall
market, although remained at 15% of our
total bond issuances. On-balance sheet
sustainable lending transactions increased
by 53%, compared with 2021. The
outstanding sustainable finance on-balance
sheet position was in excess of $24bn at
31 December 2022.
Sustainability-linked bonds are a recent
innovation in the debt capital markets, which
allow investors to manage their sustainability
strategies by linking targets, and progress
towards them, to the issuers’ financing costs.
These products do not require definitions of
use-of-proceeds as they are linked to issuers’
broader sustainability commitments.
Issuer commitments and strategies continue
to develop and be included in medium- to
long-term sustainability plans. We expect
that sustainability-linked bonds will become
increasingly meaningful for transparency in
issuer performance against science-based
transition pathways and other sustainability
goals. We have supported customers within
the high transition risk sectors to issue
sustainability-linked bonds which support
the transition to the net zero economy and
a sustainable future.
We are working closely with industry bodies,
such as the International Capital Markets
Association (‘ICMA’), to establish a robust
set of standards for the market. The ICMA
Sustainability-Linked Bond Principles provide
guidelines on what is core, material and
relevant in terms of key performance
indicators, and provides advice on how
targets should be assessed.
2022
($bn)
2021
($bn)
2020
($bn)
Cumulative progress
since 2020
($bn)
Sustainable finance summary1
Balance sheet-related transactions provided
Capital markets/advisory (facilitated)
Investments (assets under management – flows)
Total contribution2
Sustainable finance classification by theme
Green use of proceeds3
Social use of proceeds3
Other sustainable use of proceeds3,4
Sustainability-linked5
Sustainable investments – Asset Management6
42.1
34.6
7.5
26.0
48.7
7.7
84.2
82.4
29.0
6.7
12.6
28.4
7.5
27.1
11.3
11.7
24.6
7.7
10.3
30.0
3.7
44.1
18.8
9.7
8.3
3.5
3.7
78.4
113.3
19.0
210.7
74.9
27.8
32.7
56.5
19.0
210.7
Total contribution2,7
84.2
82.4
44.1
1 This table has been prepared in accordance with our Sustainable Finance and Investment Data Dictionary 2022,
which includes green, social and sustainability activities. The amounts provided and facilitated include: the limits
agreed for balance sheet-related transactions provided, the proportional share of facilitated capital markets/
advisory activities and the net new flows of sustainable investments within assets under management. In 2022,
green liabilities were removed from the data dictionary, which resulted in $0.3bn removed from the published
2021 cumulative total.
2 The $210.7bn cumulative progress since 2020 is subject to limited assurance by PwC in accordance with
International Standard on Assurance Engagements 3000 (Revised) ‘Assurance Engagements other than Audits
or Reviews of Historical Financial Information’. For our Sustainable Finance and Investment Data Dictionary
2022 and PwC’s limited assurance report, see www.hsbc.com/who-we-are/esg-and-responsible-business/
esg-reporting-centre.
3 For green, social and other sustainable use of proceeds, our capital markets products are aligned to either
ICMA’s Green Bond Principles, Social Bond Principles or Sustainability Bond Guidelines. Our lending labelled
products are aligned to the LMA’s Green Loan Principles, the LMA’s Social Loan Principles or our sustainable
trade instruments, which align the use of proceeds to the UN SDGs.
4 Sustainability use of proceeds can be used for green, social or a combination of green and social purposes.
5 Our sustainability-linked-labelled products are aligned to either the ICMA Sustainability-Linked Bond Principles
or LMA Sustainability-Linked Loan Principles. The coupon or interest rate is linked to sustainability key
performance indicators and the funds can be used for general purposes. Of the cumulative total of $56.5bn,
$10.1bn relates to sustainability linked bonds and $46.4bn relates to sustainability linked loans. Within the
sustainability linked loans, $13.1bn relates to lending to customers within the six high transition risk sectors
(i.e. automobiles, chemicals, construction and building materials, Metals and mining, oil and gas, and power
and utilities) as described on page 223.
6 Net flows of HSBC-owned sustainable investment funds that have been assessed against the Sustainable
Finance and Investment Data Dictionary 2022.
7 Additional detailed information in relation to our sustainable finance and investment progress can be found in
the ESG Data Pack.
Our approach to financing net zero
In 2022, we started developing a strategy to
help us orient how we allocate our financing
solutions and capital to support our clients’
transition to net zero and help deliver a
significant decarbonisation impact to the
global economy. The approach, based on the
IEA’s Net Zero by 2050 scenario, identifies the
infrastructure, technologies and new business
models critical for industries to transition to net
zero. We recognise that we will need to adapt
our capabilities in specific products and
sectors to capture business opportunities and
help finance the transition. In 2022, we made
several investments to play a catalytic role,
including through Pentagreen Capital, an
innovative financing vehicle set up in
partnership with Temasek, to accelerate
sustainable infrastructure in south-east Asia,
and with Breakthrough Energy Catalyst to gain
expertise in nascent, ‘new-economy, sectors
aligned with our clients’ net zero ambitions.
Our data dictionary defining our sustainable
finance and investments continues to evolve,
and is reviewed annually to take into account the
evolving standards, taxonomies and practices we
deem appropriate. Our review involves reviewing
and strengthening our product definitions, where
appropriate adding and deleting qualifying
products, making enhancements to our internal
standards, and evolving reporting and
governance. Our progress will be published each
year, and we will seek to continue for it to be
independently assured.
The detailed definitions of the contributing
activities for sustainable finance and investment
are available in our revised Sustainable Finance
and Investment Data Dictionary 2022. For our
ESG Data Pack, Sustainable Finance and
Investment Data Dictionary and third-party
limited assurance report, see www.hsbc.com/
who-we-are/esg-and-responsible-business/
esg-reporting-centre.
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Environmental
Supporting customers through transition continued
Responsible and sustainable investment
We offer a broad suite of ESG capabilities
across asset management, global markets,
wealth, private banking and securities services,
enabling institutional and individual investors to
generate financial returns, manage risk and
pursue ESG-related opportunities.
Our Asset Management business seeks
to drive innovation at scale, and bring new
propositions to the market for investors,
including sustainable exchange-traded funds
and lower-carbon investment solutions. We
are committed to further developing our
sustainable product range across asset classes
and strategies, as well as enhancing our
existing product set for ESG criteria where it is
in the investors’ interests to do so. In 2022, we
launched 24 funds with a sustainable focus.
In our aim to support the transition to more
sustainable ways of dealing with resources
and waste, through the circular economy,
HSBC Asset Management launched the HSBC
Global Investment Fund (’HGIF’) Global Equity
Circular Economy fund.
To support its net zero ambition, HSBC Asset
Management continued to add to the range of
products aligned to Paris-aligned benchmarks,
launching two exchange-traded funds in 2022
that invest in emerging markets and Asia-
Pacific. These benchmarks’ underlying assets
are selected in such a manner that the
resulting benchmark portfolio's greenhouse
gas emissions are aligned with the long-term
global warming target of the Paris Agreement.
In 2022, HSBC Asset Management’s fixed
income, equity and stewardship teams held
over 1,000 meetings with companies in our
portfolios. These included discussions on
climate-related matters, with more than 60
of these having specific, targeted outcomes
with climate objectives. We continue to
engage with issuers, encouraging the
reporting of emissions data, the setting of
emissions reduction targets, the assessment
of climate risk, and the development of robust
transition strategies.
We expanded our investment offering for
private banking and wealth clients with the
launch of 22 sustainable investing mutual
funds and exchange-traded funds in 2022.
We offer a range of sustainable investment
products across other asset classes, including
equities, fixed income, discretionary and
alternatives. We enhanced our ESG thematic
products offering linked to indices. For
example, we collaborated with Euronext and
Iceberg Datalab to design the first broad-based
biodiversity screened equity index family.
At HSBC Life, our insurance business, we are
focused on ensuring our customers have more
access to ESG investment fund options
aligned to their ESG preferences. ESG funds
invest only in companies with strong ESG
credentials or in key ESG-related areas. We
increased the availability of ESG investment
fund options within our investment-linked
products. During 2022, we launched in Hong
Kong a new protection-linked plan with three
ESG fund choices now available, and we
launched our first ESG fund in Mexico.
First ESG underwriting
guide for life and health
insurance
Our insurance business, HSBC Life,
co-sponsored and co-led the first
ESG underwriting guide for the life
and health insurance sector. The guide
was published by the United Nations
Environment Programme Finance
Initiative (‘UNEP FI’) Principles for
Sustainable Insurance, a set of
principles endorsed by the United
Nations and the insurance industry.
This guide, which was published in June
2022, provides a framework for life and
health insurers to evaluate a range of
ESG risks and factors on the mortality,
morbidity, longevity and hospitalisation
risks when underwriting.
These include risk mitigation strategies
alongside best practices for insurers
to consider.
The guide was put together in
collaboration with a global team of
sustainability experts from 11 other
member companies of the UNEP FI
Principles for Sustainable Insurance.
Its purpose is to reinforce the key role
insurers need to play in helping to solve
the major ESG challenges of our time,
such as the spread of infectious
diseases, biodiversity and nature loss,
social inequality, and mental health
and well-being.
Accelerating growth in geothermal and recovered energy
Ormat Technologies Inc., which has been operating in renewable energy production for more
than 50 years, has developed expertise and global experience in the supply and development of
geothermal, recovered energy and energy storage solutions. We supported Ormat in June 2022
with the issuance of a $431m green convertible bond, the proceeds of which will support Ormat
grow its business and develop its renewable green energy projects.
Ormat now has a total generating portfolio of approximately 1.1 gigawatts, including a
geothermal and solar generation portfolio across the US, Kenya, Guatemala, Indonesia,
Honduras and Guadeloupe, as well as holding an energy storage portfolio in the US.
HSBC Holdings plc Annual Report and Accounts 2022
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Unlocking climate solutions and innovations
TCFD
We understand the need to find new solutions
to increase the pace of change if the world is
to achieve the Paris Agreement’s goal of being
net zero by 2050.
We are working closely with a range of
partners to accelerate investment in natural
resources, technology and sustainable
infrastructure to help reduce emissions and
address climate change.
Sustainable infrastructure
Addressing climate change requires the
rapid development of a new generation of
sustainable infrastructure, particularly for
emerging markets.
During 2022, we demonstrated our
commitment to catalysing financing for
sustainable infrastructure projects, with the
launch of Pentagreen Capital, a debt financing
vehicle we set up in partnership with Temasek
(see below).
We continue to take a leading role in the
FAST-Infra initiative, which we helped
conceive, working with the IFC, OECD, the
World Bank’s Global Infrastructure Facility and
the Climate Policy Initiative, under the auspices
of the One Planet Lab. Through the FAST-Infra
initiative, we helped launch in 2021 the
Sustainable Infrastructure (SI) Label – a
consistent, globally applicable labelling
system designed to identify and evaluate
sustainable infrastructure assets. The initiative
continues to grow, with the appointment in
November 2022 of a consortium with global
expertise in sustainability standards, global
finance, software and data platforms, to
manage the secretariat of the SI Label, so
the label becomes an enduring and widely
adopted standard.
Natural capital as an emerging
asset class
Climate Asset Management, a joint venture we
launched with Pollination in 2020, forms part
of our goal to unlock new climate solutions.
Combining expertise in investment
management and natural capital, Climate
Asset Management offers investment
solutions that generate competitive risk-
adjusted returns for investors, and nature-
enhancing ecosystems to help protect
biodiversity and accelerate the transition
to net zero.
In December 2022, Climate Asset Management
announced it had received commitments of
over $650m for its two strategies:
– the Natural Capital Strategy, which invests
in agriculture, forestry and environmental
assets, with the aim to deliver impact at
scale alongside long-term financial returns;
and
– the Nature Based Carbon Strategy, which
targets nature restoration and conservation
projects in developing economies,
prioritising community benefits while
generating high-quality carbon credits.
One of Climate Asset Management’s
first investments was the Restore Africa
Programme, in partnership with the Global
EverGreening Alliance, announced in
November 2021. The programme, which
is the world’s largest community-based
land-restoration project, aims to benefit
1.5 million smallholder farmers and their
communities through the restoration of up to
2 million hectares of degraded land across six
sub-Saharan countries. The programme has
started being implemented in Kenya, Uganda
and Malawi, with plans for Zambia, Tanzania
and Ethiopia to follow in 2023.
Climate Asset Management is a founding
member of the Natural Capital Investment
Alliance, whose 15-strong membership of
investment firms aims to have mobilised $10bn
towards nature-based economic themes.
Backing new technology and innovation
Addressing climate change requires
innovative ideas. By connecting financing
with fresh thinking, we can help climate
solutions to increase in scale to support
sustainable growth.
We continue to unlock new climate solutions,
focusing on supporting innovation in critical
areas such as green technologies. In January
2022, we announced our investment of $100m
as an anchor partner in Breakthrough Energy
Catalyst, a programme that uses private-public
capital to accelerate the development of four
critical climate technologies: direct air capture,
clean hydrogen, long-duration energy storage
and sustainable aviation fuel.
Our philanthropic programme, Climate
Solutions Partnership, aims to scale up climate
innovation ventures and nature-based
solutions, as well as help the energy sector
transition towards renewable sources in Asia
(for further details, see page 84).
Our climate technology venture debt and
venture capital platforms invest in companies
that are developing innovative technological
solutions that help companies and
governments understand, track and reduce
their greenhouse gas emissions. We
expanded our venture debt platform to
support climate technology hardware and
software companies that are growing rapidly.
In 2022, we achieved our initial goal to fund
$100m to climate technology companies
through this platform, and consequently
increased our commitment to $250m. In
2022, we committed an additional $100m
to fund women and minority entrepreneurs
through our venture debt platform.
HSBC Asset Management also launched
a venture capital strategy that invests in
transformative early stage companies enabling
decarbonisation and de-pollution of industries.
The strategy invests across four investment
themes: power transformation, transport
electrification, supply chain sustainability
and climate risk mitigation. We seeded the
strategy with capital in November 2021,
and it has since invested in three start-up
companies. HSBC Asset Management
continues to actively fundraise for this
strategy, aiming to raise additional funds
from institutional and private wealth clients
over the course of 2023.
Accelerating sustainable infrastructure in Asia
In August 2022, we officially launched Pentagreen Capital, a sustainable infrastructure debt
financing vehicle set up in partnership with Temasek. Pentagreen’s goal is to accelerate the
development of sustainable infrastructure in Asia by removing the barriers that can prevent
marginally bankable projects from accessing capital. With a combined $150m of seed
capital committed by the founding partners, the Singapore-based company aims to provide
more than $1bn of loans over the next five years, targeting opportunities initially in south-
east Asia. Its primary focus will be on clean transport, renewable energy and energy storage,
and water and waste management.
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Environmental
Biodiversity and natural capital strategy
We recognise that achieving net zero goes
hand in hand with halting and reversing nature
loss. Nature loss, which refers to the decline
of natural capital, ecosystem services and
biodiversity, is one of the greatest systemic
risks to the global economy and the health
of people and the planet. According to The
Nature Conservancy, natural climate solutions
can provide up to 37% of the emission
reductions needed by 2030. At the same time
climate change is accelerating nature loss, and
consequently the ability for nature to mitigate
climate change impacts.
– We participated in a pilot test of a draft
version of the Taskforce on Nature-related
Financial Disclosures (‘TNFD’) framework
for risk and opportunity management and
disclosure, which helped us understand its
implications and provide feedback ahead
of its release in September 2023.
– We intend to publish a new deforestation
policy, informed by scientific and
international guidance, in 2023. For further
details of our biodiversity and natural
capital-related policies, see ‘Our approach
to sustainability policies’ on page 65.
Reducing nature loss
We are making progress with the investment
and financing of biodiversity and nature-based
solutions through client products and services
and partnerships. In 2022, these included:
– In August 2022, our asset management
business, HSBC Asset Management,
launched a biodiversity exchange-traded
fund that enables investors to incorporate
sustainable considerations within their
portfolios (see below).
– Our Global Private Banking business
launched a biodiversity strategy for our
private bank clients in Hong Kong and
Singapore, which focuses on investing
in companies that are well positioned
to harness, regenerate and protect
biodiversity through the circular and
bio-based economy.
We understand we need to do more to embed
nature-related issues into our sustainability
policies and climate transition plan, and we
are committed to strengthening our risk
management approach and engaging with
our customers.
Understanding our exposure
In 2022, we made progress with
understanding how to assess and monitor
nature-related risks, as well as how to create
effective transition plans with the aim of
halting our contribution to nature loss from
our business activities:
– We conducted analysis on how reliant our
large corporate clients were on ecosystem
services, including the nature-related
benefits crucial for the provision of food and
drinking water, which demonstrated that our
clients were highly dependent on water
availability.
– To improve our understanding of the
potential credit risks that nature-related risks
pose to our customers, we worked with the
Cambridge Institute on Sustainability
Leadership, by evaluating the impact of
three months of water shortage on a sample
of our customer portfolio comprising heavy
industry companies in east Asia.
– Through the Climate Solutions Partnership,
our philanthropic collaboration with the
World Resources Institute and WWF, we
issued two reports on the hurdles and
success factors for scaling up nature-based
solutions.
For further details of our approach to nature and
related initiatives, see our Statement on Nature in
the ESG reporting centre at www.hsbc.com/
who-we-are/esg-and-responsible-business/
esg-reporting-centre.
Our presence in environmentally
sensitive areas
As a global organisation, our branches, offices
and data centres may be located in – or near
– areas of water stress and/or protected areas
of biodiversity, as we support our customers
and communities in these locations.
Approximately 58.5% of our global offices,
branches and data centres are located in areas
identified as being subject to high and very
high water stress, accounting for 39.7% of
our annual water consumption. These are
predominantly urban or city centre locations
with large, concentrated populations. Our
industry is a low user of potable water, and we
have implemented measures to further reduce
water consumption through the installation of
flow restrictors, auto-taps and low or zero
flush sanitary fittings.
In addition, 1.6% of our global office, branch
and data centre portfolio lies in protected
areas and areas of biodiversity. We strive
through our design, construction and
operational standards to ensure that, where
possible, our premises do not adversely affect
the environment or natural resources in
these areas.
Building biodiversity risk awareness into ETFs
Asset owners and managers have a role to play in addressing potential transition and physical
risks. Our asset management business, HSBC Asset Management, launched the first of its
kind biodiversity screened exchange-traded fund, which provides investors with the
opportunity to consider biodiversity risk factors in their portfolios. This exchange-traded fund
tracks the Euronext ESG Biodiversity Screened Index series, which was jointly developed by
HSBC, Euronext and Iceberg Data Lab. The Biodiversity Footprint Score excludes companies
from the index that do not sufficiently consider biodiversity impacts as well as those with poor
ESG credentials and/or business activities deemed harmful towards biodiversity.
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Our approach to our own operations TCFD
Part of our ambition to be a net zero bank
is to achieve net zero carbon emissions in
our operations and supply chain by 2030
or sooner.
Reduce, replace and remove
We have three elements to our strategy:
reduce, replace and remove. We plan to first
focus on reducing carbon emissions from
consumption, and then replacing remaining
emissions with low-carbon alternatives in line
with the Paris Agreement. We plan to remove
the remaining emissions that cannot be
reduced or replaced by procuring, in
accordance with prevailing regulatory
requirements, high-quality offsets at a
later stage.
Our energy consumption
In October 2020, we announced our ambition
to reduce our energy consumption by 50%
by 2030, against a 2019 baseline, and in 2022
we achieved 24%. We plan to do this by
optimising the use of our real estate portfolio,
and carrying out a strategic reduction in our
office space and data centres. We are using
new technology and emerging products to
make our spaces more energy efficient, such
as in the UK, where an additive to our boiler
systems helped make heating in our branches
13% more efficient.
As part of our ambition to achieve 100%
renewable power across our operations by
2030, we continue to look for opportunities to
procure green energy in each of our markets.
A key challenge remains the limited
opportunity to pursue power purchase
agreements or green tariffs in key markets
due to regulations.
We are tracking the impact on our emissions
from our colleagues working from home, as
they continue to embrace more flexible ways
of working. We calculated the electricity used
by our colleagues working from home was 5%
of our total electricity consumption in 2022.
This only includes energy consumption from
the IT equipment and lighting. We do not
report employee home working emissions
in our scope 1 and 2 performance data.
Business travel and employee commuting
In 2022, our travel emissions remained below
50% of pre-pandemic levels in 2019, with
international travel restrictions remaining for
much of the year in key Asia markets, slowing
the return to business travel. We are closely
managing the gradual resumption of travel
through internal reporting and review of
emissions, and through the introduction of
internal carbon budgets, in line with our aim
to halve travel emissions by 2030, compared
with pre-pandemic levels. With hybrid working
embedded across the organisation, the use
of virtual working practices has reduced the
need for our colleagues to travel to meet with
other colleagues and customers. We continue
to focus on reducing the environmental impact
from the vehicles we use in our global
markets, and accelerate the use of electric
vehicles. In 2022, we reduced the company
car fleet size by 24%. We are now aiming to
ensure that all new vehicles ordered are fully
electric or hybrid vehicles where possible.
Engaging with our supply chain
Our supply chain is critical to achieving our net
zero ambitions, and we are partnering with our
suppliers on this journey. In 2020, we began
the three-year process of encouraging our
largest suppliers to make their own carbon
commitments, and to disclose their emissions
via the CDP (formerly the Carbon Disclosure
Project) supply chain programme. The target
for 2022 was for suppliers representing 60%
of total supplier spend to have completed
the CDP questionnaire. In total, suppliers
representing 63.5% of total supplier spend
completed the CDP questionnaire.
We will continue to engage with our supply
chain through CDP, and through direct
discussions with our suppliers on how they
can further support our transition to net zero.
In 2022, we also formalised our supply
chain sustainability strategy through the
update of our supplier code of conduct
and the development of our sustainable
procurement procedures. The new procedures
set out the minimum requirements and
operational information required to help
ensure our sustainability objectives relating to
climate change, the environment, human
rights, and diversity and inclusion are clearly
addressed in the way that we operate and
conduct business with suppliers.
Focus on natural resources
Alongside our net zero operations ambition,
our aim is to be a responsible consumer
of natural resources. Through design,
construction and operational standards,
we strive to ensure that, wherever possible,
our premises do not adversely affect the
environment or natural resources. We have
identified specific focus areas including waste,
paper and sustainable diets, and are exploring
key opportunities to reduce our wider
environmental impact over the coming decade.
Our environmental and sustainability management
policies
Our buildings policy recognises that regulatory and environmental requirements vary across
geographies and may include environmental certification. The policy is supported by
Corporate Services procedures on environmental and sustainability management, ensuring
HSBC’s properties continually reduce their overall direct impact on the environment. Detailed
design considerations documented in our Global Engineering Standards aim to reduce or
avoid depletion of critical resources like energy, water, land and raw materials. Suppliers are
required to adhere to strict environmental management principles and reduce their impact on
the environment in which they operate.
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HSBC Holdings plc Annual Report and Accounts 2022
Environmental
Our approach to our own operations continued
Emissions from our energy and travel
in 2022
We report our emissions following the
Greenhouse Gas Protocol, which incorporates
the scope 2 market-based emissions
methodology. We report greenhouse gas
emissions resulting from the energy used in
our buildings and employees’ business travel.
Due to the nature of our primary business,
carbon dioxide is the main type of greenhouse
gas applicable to our operations. While the
amount is immaterial, our current reporting
also incorporates methane and nitrous oxide
for completeness. We do not report employee
home working emissions in our scope 1 and 2
performance data. Our environmental data for
our own operations is based on a 12-month
period to 30 September.
In 2022, we continued to decrease our
emissions from our energy consumption and
travel, achieving a 58.5% reduction compared
with our 2019 baseline. This was mainly
attributed to travel restrictions and the
reduction of usage of our buildings due to
the Covid-19 pandemic. We also implemented
over 400 energy conservation measures that
amounted to an estimated energy avoidance in
excess of 11.9 million kWh and increased our
consumption of renewable electricity to 48.3%.
In 2022, we collected data on energy use
and business travel for our operations in 28
countries and territories, which accounted for
approximately 92.4% of our FTEs. To estimate
the emissions of our operations in entities
where we have operational control and a small
presence, we scale up the emissions data from
92.4% to 100%. We then apply emission uplift
rates to reflect uncertainty concerning the
quality and coverage of emission measurement
and estimation. This is consistent with both the
Intergovernmental Panel on Climate Change’s
Good Practice Guidance and Uncertainty
Management in National Greenhouse Gas
Inventories and our internal analysis of data
coverage and quality.
Energy and travel greenhouse gas
emissions in tonnes CO2e
Scope 11
Scope 21
Scope 3 (category 6)
business travel1
2022
2021
19,000
22,000
224,000
307,000
42,000
12,000
Total
285,000
341,000
Included energy UK
9,000
10,000
Greenhouse gas emissions in tonnes
CO2e per FTE
For further details on our methodology and
relevant environmental key facts, see the ESG
Data Pack at www.hsbc.com/esg.
Total
2022
1.30
2021
1.52
Energy consumption in kWh in 000s
2022
2021
Total Group
797,000
833,000
UK only
222,000
227,000
1 Data in 2022 is subject to PwC’s limited assurance
report in accordance with International Standard
on Assurance engagements 3410 (Assurance
Engagements on Greenhouse Gas Statements). For
further details, see GHG Reporting Guideline 2022
and third-party limited assurance report at www.
hsbc.com/our-approach/esg-information/
esg-reporting-and-policies.
Emissions from our supply chain in 2022
Emissions (tonnes CO2e)
Data quality score1
Scope 3 categories
Year
Scope 1–2
Scope 3
Total
Scope 1–2
Scope 3
Category 1 – Purchased goods and services 2, 3
Category 2 – Capital goods 2, 3
2022
2021
2022
2021
218,000
648,000
866,000
252,000
617,000
869,000
30,000
114,000
144,000
31,000
96,000
127,000
3.1
3.0
3.1
3.1
3.3
3.3
3.4
3.3
The data we receive through our engagement
with CDP has enabled us to report our supply
chain emissions for the first time. Our
methodology uses supplier emissions data
where we have it from 500 of our largest
suppliers, through CDP. Where we do not
have emissions data for suppliers, we use
industry average carbon intensities and spend
data to define the contribution to our supply
chain emissions. As more of our suppliers
report their emissions, we should be able
to include more accurate data and fewer
industry averages in the calculation. We
have applied a data quality score to the
sources of data we used to determine
counterparty emissions. Our initial supply
chain emission figures may require updating
as data availability changes over time and
methodology and climate science evolve.
For further details, see our GHG Reporting
Guidance.
In 2022, emissions from our supply chain
increased by 16% compared with 2019, as
a result of an increase in spend – particularly in
IT services – and a rise in the average carbon
intensity of our suppliers. The CDP-provided
industry averages rose, increasing the
emissions for our suppliers where we do not
have emissions data. However, in 2022 there
was a decrease in carbon intensity of suppliers
who disclose their emissions compared with
2021, particularly in servers and data centres.
While the carbon intensity of our supply chain
decreased, a rise in spend on services in 2022
led to a 1% increase in emissions compared
with 2021.
1 Data quality scores where 1 is high and 5 is low, based on the quality of emissions data. This is a weighted average score based on HSBC supplier spend and is in line
with HSBC’s financed emissions reporting methodology
2 Supply chain emissions calculated using a combination of supplier emissions data and industry averages.
3 Data in 2019, 2020, 2021 and 2022 for scope 3 (purchased goods and service) and scope 3 (capital goods) is subject to PwC’s limited assurance report in accordance
with International Standard on Assurance engagements 3410 (Assurance Engagements on Greenhouse Gas Statements). For further details, see GHG Reporting
Guideline 2022 and third-party limited assurance report at www.hsbc.com/our-approach/esg-information/esg-reporting-and-policies.
HSBC Holdings plc Annual Report and Accounts 2022
63
ESG review ESG review | Environmental
Our approach to climate risk TCFD
Managing risk for our stakeholders
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. We manage climate
risk across all our businesses and are
incorporating climate considerations within
our traditional risk types in line with our
Group-wide risk management framework. Our
most material exposure to climate risk relates
to corporate and retail client financing activity
within our banking portfolio. We also have
significant responsibilities in relation to asset
ownership by our insurance business,
employee pension plans and asset
management business. In the table below, we
set out our duties to our stakeholders in our
four most material roles.
For further details of our approach to climate risk,
see ‘ESG risk’ on page 139 and ‘Climate risk’ on
page 221.
Banking
We manage the climate risk in our
banking portfolios through our risk
appetite and policies for financial
and non-financial risks.
Employee pensions
Our pension plans manage climate
risk in line with their fiduciary
duties towards members and local
regulatory requirements.
Asset management
Climate risk management is a key
feature of our investment decision
making and portfolio management
approach.
Insurance
We consider climate risk in our
portfolio of assets.
Climate risk
This helps enable us to identify
opportunities to support our
customers, while continuing to
meet stakeholder expectations.
We monitor climate risk exposure
internally for our largest plans
based on asset sector allocation
and carbon emissions data where
available.
We also engage with companies
on topics related to climate
change.
We have established an evolving
ESG programme to meet changing
external expectations and
customer demands.
Customers
Employees
Customers
Investors
Customers
Employees
Communities
Customers
Employees
Investors
Investors
Communities
Customers
Suppliers
Investors
Regulators and
Employees
governments
Communities
Customers
Regulators and
governments
Employees
Communities
Regulators and
Suppliers
Employees
governments
Investors
Customers
Regulators and
Suppliers
governments
Investors
Communities
Employees
Customers
Suppliers
Communities
Customers
Customers
Suppliers
Communities
Investors
Suppliers
Investors
Employees
Regulators and
Investors
governments
Employees
Regulators and
Employees
governments
Regulators and
governments
Communities
Customers
Investors
Communities
Suppliers
Regulators and
Employees
governments
Regulators and
Communities
governments
Suppliers
Investors
Suppliers
Regulators and
governments
Communities
Suppliers
Regulators and
governments
Suppliers
Banking
Our banking business is well positioned
to support our customers managing their
own climate risk through financing. For our
wholesale customers, we use our transition
and physical risk questionnaire as part of our
risk framework to understand their climate
strategies and risk. We have set out a suite of
policies to guide our management of climate
risk, including our recently updated energy
policy and thermal coal phase-out policy (see
page 65). We continue to develop our climate
risk appetite and utilise metrics to help
manage climate exposures in our wholesale
and retail portfolios. Climate scenario analysis
is used as a risk assessment tool to provide
insights on the long-term effects of transition
and physical risks across our corporate and
retail banking portfolios, as well as our own
operations (for further details, see page 67).
Asset management
HSBC Asset Management managed
over $608bn assets at the end of 2022,
of which more than $55bn were held in
sustainable investments. The majority of
the remaining assets were invested in
ESG-integrated strategies.
When assessing the impact of climate-related
risk to our portfolios, we are increasingly
considering both physical and transition risks.
As a result, we have integrated ESG and
climate analysis to help ensure that risks faced
by companies are considered throughout
the investment decision-making process.
Investment teams through portfolio
management tools assess, examine and
determine the level of potential ESG risks that
could impact the current and future value
of issuers.
One of our key approaches to manage climate
risk is through engaging with the companies
we invest in. Our HSBC Asset Management
Stewardship Plan outlines our approach to
engaging with issuers, including on the topic
of climate change.
Employee pensions
The Trustee of the HSBC Bank (UK) Pension
Scheme, our largest plan with $33bn assets
under management, aims to achieve net zero
greenhouse gas emissions across its defined
benefit and defined contribution assets by
2050. To help achieve this, it is targeting an
interim emissions reduction of 50% by 2030,
from 2019 levels, for its equity and corporate
bond mandates. This commitment was made
in the context of wider efforts to manage the
impact of climate change on the Scheme’s
investments and the consequent impact on
the financial interests of members.
During 2022, a framework was put in place to
assess progress towards the 2030 targets. The
Scheme, which has reported emission
reductions for the equity and corporate bond
mandates between 2019 and 2021, will
continue to report against the 2030 targets,
and aim to widen the coverage of its
assessment and reporting over time.
For further details of the HSBC Bank (UK)
Pension Scheme’s annual TCFD statements and
climate action plan, see https://futurefocus.staff.
hsbc.co.uk/active-dc/information-centre/
other-information.
Insurance
In 2022, our Insurance business, which has life
insurance manufacturing subsidiaries in eight
markets and total assets under management
of approximately $126bn, updated its
sustainability policy to align with the Group’s
new thermal coal phase-out policy. An ESG
policy on corporate underwriting was also
introduced.
Risk appetite was reviewed relating to key ESG
aspects. ESG standards were embedded into
insurance product development processes
and operational capabilities.
In response to multiple and differing ESG
regulatory initiatives and developments, HSBC’s
insurance entities in the EU have implemented
key disclosure-related regulatory requirements.
These requirements mainly impact insurance-
based investment products manufactured by
HSBC entities in the EU. Related requirements
for the UK and other jurisdictions are expected
to be introduced in the near future.
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HSBC Holdings plc Annual Report and Accounts 2022
Environmental
Our approach to sustainability policies TCFD
We recognise that businesses can have an
impact on the environment, individuals and
communities around them. We continue to
develop, implement and refine our approach
to working with our business customers to
understand and manage these issues. We
have joined various partnerships to support
our role in this, including the World Economic
Forum’s Principles for Financing a Just and
Urgent Energy Transition.
Our policies
Our sustainability risk policies cover
agricultural commodities, chemicals, energy,
forestry, mining and metals, thermal coal,
UNESCO World Heritage Sites and Ramsar-
designated wetlands. We also apply the
Equator Principles when financing projects.
These policies define our appetite for business
in these sectors and seek to encourage
customers to meet good international standards
of practice. Where we identify activities that
could cause material negative impacts, we will
only provide finance if we can confirm clients
are managing these risks responsibly. Such
customers are subject to greater due diligence
and generally require additional approval by
sustainability risk specialists.
Our sustainability policies are aligned with
our approach to climate risk, and our net
zero ambition.
For further details on how we manage
sustainability risk, as well as our full policies,
see www.hsbc.com/our-approach/risk-and-
responsibility/sustainability-risk.
Supporting the transition
Reinforcing our ambition to support our clients’
transition to lower carbon through transition
financing, we updated our thermal coal
phase-out policy, which we explain further
on the following page, as well as our energy
policy, which we set out below.
Governance and implementation
HSBC’s relationship managers are the primary
point of contact for our customers and are
responsible for checking whether our
customers meet applicable policies. Within
our Group Risk and Compliance function,
we have reputational and sustainability risk
specialists who are responsible for reviewing,
implementing and managing our sustainability
risk policies as well as our application of the
Equator Principles. Our global network of
more than 75 sustainability risk managers is
supported by regional reputational risk
managers across the Group who have
additional oversight responsibilities for
sustainability risk.
The Wholesale Reputational and Sustainability
Risk team also became part of Risk Strategy,
with expanded Group-wide responsibilities, to
strengthen the governance and oversight of
sustainability risk policies, and to reflect the
evolution of the sustainability agenda.
The Sustainability Risk Oversight Forum, made
up of senior members of the Group Risk and
Compliance function and global businesses,
continued to oversee the development and
implementation of policies that seek to
identify, manage and mitigate the Group’s
sustainability risk.
As part of our oversight of sustainability risk
policies, we operate an assurance framework
that is designed to take a more holistic view of
risks, including by:
– ESG news screening, taking a risk-based
approach, across the sustainability risk
policies;
– overseeing clients considered to be of
higher risk;
– reviewing client files across the
sustainability risk policies; and
– monitoring of the sustainability risk client
portfolio against a defined set of key control
indicators overseen by the Sustainability
Risk Oversight Forum.
The framework is used to monitor the
in-scope portfolio and keep track if there
is a deterioration in the risk ratings. With
the respective risk rating assigned, our
sustainability risk specialists will agree
the necessary actions to help mitigate
unacceptable risks with the business.
Where considered appropriate, a submission
can be made to the Reputational Risk and
Client Selection Committee to agree an
appropriate course of action.
Our energy policy
In December 2022, we published our
updated 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. The
policy seeks to balance three related
objectives: supporting the reduction of
global greenhouse gas emissions; enabling
an orderly transition that builds resilience in
the longer term; and supporting a just and
affordable transition. Central to our approach
is our commitment to supporting clients who
are taking an active role in the transition.
In line with the policy, we will no longer
provide new finance or advisory services for
the specific purpose of projects pertaining
to new oil and gas fields and related
infrastructure whose primary use is in
conjunction with new fields. Engagement on
transition plans is a key part of our approach.
We will continue to provide finance or
advisory services to energy sector clients at
the corporate level, where clients’ transition
plans are consistent with our 2030 portfolio-
level financed emissions targets and net zero
by 2050 commitment. If a client’s transition
plan is not produced, or if, after repeated
engagement, is not consistent with our
targets and commitments, we will not
provide new finance and may withdraw
existing financing.
The IEA’s 2021 Net Zero by 2050 report
highlights that an orderly transition requires
continued financing and investment in
existing oil and gas fields to maintain the
necessary output. We will therefore continue
to provide finance to maintain supplies of
oil and gas in line with current and future
declining global oil and gas demand, while
accelerating our activities to support clean
energy deployment.
As part of our previously announced ambition
to provide $750bn to $1tn in sustainable
finance and investment by 2030 to support
our customers in all sectors, we will support
critical areas such as renewable energy and
clean infrastructure.
HSBC Holdings plc Annual Report and Accounts 2022
65
ESG review ESG review | Environmental
Our approach to sustainability policies continued
Our thermal coal phase-out policy
In December 2021, we published a policy to
phase out thermal coal financing in EU and
OECD markets by 2030, and globally by 2040.
This incorporated project finance, direct
lending, and arranging or underwriting of
capital markets transactions to in-scope
clients, as well as the refinancing of existing
finance facilities.
In line with our commitment to review our
policy and targets each year, taking into
account evolving science and internationally
recognised guidance, we expanded the policy
in 2022. We committed to not provide new
finance or advisory services for the specific
purposes of the conversion of existing
coal-to-gas-fired power plants, unless
the client demonstrates to us its intention
to transition to abated power generation,
consistent with our targets and commitments;
and the plants do not operate in
environmentally or socially critical areas. We
also committed to not provide new finance or
advisory services for new metallurgical coal
mines. With the updated policy, we
additionally committed to:
– reduce absolute on-balance sheet finance
emissions by 70% in both the thermal coal
power and thermal coal mining sectors
by 2030;
– apply an amended definition of thermal
coal expansion as it pertains to mergers
and acquisitions activity; and
– decline new relationships with companies
that operate thermal coal assets in
environmentally and socially critical areas.
Biodiversity and natural capital-related
policies
Our sustainability risk policies restrict
financing activities that have material
negative impacts on nature. While a number
of our sectoral policies have such restrictions,
our forestry and agricultural commodities
policies focus specifically on a key impact:
deforestation. These policies require
customers involved with major deforestation-
risk commodities to operate in accordance
with sustainable business principles, as well
as require palm oil customers to obtain
certification and commit to ‘No Deforestation,
No Peat and No Exploitation’ (see ‘Our respect
for human rights’ on page 87). While we seek
to work with our clients to help ensure their
alignment with our policies, we have
withdrawn banking services to customers
who have not engaged, for example, in
meeting our certification requirements.
As part of our net zero commitment, we
are reviewing our current policy protections in
this area, and aim to release a revised policy,
informed by scientific and international
guidance, in 2023.
For further details of our approach to biodiversity
and natural capital-related activities, see
‘Biodiversity and natural capital strategy’
on page 61.
Exposure to thermal coal
In our thermal coal policy published in
December 2021, we disclosed our intention to
reduce thermal coal financing exposure by at
least 25% by 2025, and by 50% by 2030, using
our 2020 Task Force on Climate-related
Financial Disclosures (‘TCFD’) as our baseline.
Using the same methodology and data used
in our baseline reporting as at 31 December
2020, we are making progress against
these targets.
Our 2020 baseline comprised thermal coal
power generation and mining exposures
within the power and utilities, and metals
and mining sectors, as defined in our TCFD
disclosures. We are in the process of expanding
the on-balance sheet exposures that are
in-scope for our thermal coal policy to include
those outside of these two TCFD sectors.
Our processes, systems, controls and
governance are not yet designed to fully
identify and disclose thermal coal exposures,
particularly for exposures within broader
conglomerates. Until our systems, processes,
controls and governance are enhanced,
certain aspects of our reporting will rely on
manual sourcing and categorisation of data.
We are reassessing the reliability of our data
and reviewing our basis of preparation to help
ensure that we are reporting all relevant
thermal coal exposures aligned to our thermal
coal policy. As a result, we have not reported
thermal coal exposures in this Annual Report
and Accounts 2022. We expect that our
updated thermal coal exposures dating back
to 31 December 2020 will be made available
for reporting as soon as practicable in 2023,
although this is dependent on availability and
quality of data.
Thermal coal financed emissions targets
As mentioned earlier, our financed emissions
target is a reduction of 70% in both the
thermal coal power and thermal coal mining
sectors by 2030, using a 2020 baseline. We
now intend to publish our baseline financed
emissions alongside our updated thermal coal
exposures as mentioned above.
Asset management policy
In September 2022, our asset management
business, HSBC Asset Management,
published its own policy on how a phase-out
of thermal coal would impact on investments
it makes on behalf of clients.
The policy aligns with the commitment made
by HSBC Asset Management under the Net
Zero Asset Managers initiative to support
investing aligned with net zero greenhouse
gas emissions by 2050, or sooner.
Under its policy, HSBC Asset Management
will not hold listed securities of issuers with
more than de minimis revenue exposure
to thermal coal in its actively managed
portfolios beyond 2030 for EU and OECD
markets, and 2040 for all other markets.
The policy includes some restrictions on
investment exposure to thermal coal ahead
of these deadlines, as well as commitments
to undertake enhanced due diligence on the
transition plans of investee companies with
thermal coal exposure. Companies held in
investment portfolios that do not develop
credible plans to transition away from
thermal coal could face voting sanctions,
and ultimately a divestment of holdings.
For further details of the policy, see www.
assetmanagement.hsbc.co.uk/-/media/files/
attachments/common/coal-policy-b2b-
en-09162022.pdf.
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HSBC Holdings plc Annual Report and Accounts 2022
Environmental
Insights from scenario analysis TCFD
Scenario analysis supports our strategy by
assessing our position under a range of climate
scenarios. It helps to build our awareness of
climate change, plan for the future and meet
our growing regulatory requirements.
Having run our first Group-wide climate
change scenario analysis exercise in 2021, we
produced several climate stress tests for global
regulators in 2022, including the Monetary
Authority of Singapore and the European
Central Bank. We also conducted our first
internal climate scenario analysis.
We continue to develop how we produce
our climate scenario analysis exercises so
that we can have a more comprehensive
understanding of climate headwinds, risks
and opportunities that will support our
strategic planning and actions.
In climate scenario analysis, we consider,
jointly:
– transition risk arising from the process of
moving to a net zero economy, including
changes in policy, technology, consumer
behaviour and stakeholder perception, which
could each impact borrowers’ operating
income, financing requirements and asset
values; and
– physical risk arising from the increased
frequency and severity of weather events,
such as hurricanes and floods, or chronic
shifts in weather patterns, which could each
impact property values, repair costs and lead
to business interruptions.
We also analyse how these climate risks
impact how we manage other risks within our
organisation, including credit and market risks,
and on an exploratory basis, operational,
liquidity, insurance, and pension risks.
Our climate scenarios
In our 2022 internal climate scenario analysis
exercise, we used four scenarios that were
designed to articulate our view of the range of
potential outcomes for global climate change.
These scenarios, which reflect different levels
of physical and transition risk and are varied
by severity and probability, were: the Net Zero
scenario, which aligns with our net zero strategy
and is consistent with the Paris Agreement; the
Current Commitments scenario, which assumes
that climate action is limited to the current
governmental commitments and pledges; the
Downside Transition Risk scenario, which
assumes that climate action is delayed until
2030; and the Downside Physical Risk scenario,
which assumes climate action is limited to
current governmental policies.
For further details of these scenarios, and how
they were designed to identify, measure and
assess our material climate vulnerabilities, see
‘Insights from scenario analysis’ in the ‘Climate
risk’ section on page 226.
Analysing the outputs
Climate scenario analysis allows us to model
how different potential climate pathways may
affect our customers and portfolios, particularly
in respect of credit losses. As the chart below
shows, losses are influenced by their exposure
to a variety of climate risks under different
climate scenarios.
Under the Current Commitments scenario, we
expect moderate levels of losses relating to
transition risks. However, the rise in global
warming will lead to increasing levels of
physical risk losses in later years. A gradual
transition towards net zero, as shown in the
Net Zero scenario, still requires fundamental
shifts in our customers’ business models, and
significant investments. This will have an
impact on profitability, leading to higher
credit risk in the transition period. A delayed
transition will be even more disruptive due to
lower levels of innovation that limits the ability
to decarbonise effectively, and rising carbon
prices that squeeze profit margins.
Overall, our scenario analysis shows that the
level of credit losses can be mitigated if we
support our customers in enhancing their
climate transition plans.
For the full internal climate scenario analysis,
including our assessment of the impacts of climate
change on our corporate lending, retail mortgage
and commercial real estate portfolios, see Insights
from scenario analysis on page 226.
Modelled climate losses
How credit losses from climate risks have been modelled under different scenarios.1
)
n
b
$
(
s
t
n
e
m
r
i
a
p
m
i
e
v
i
t
a
l
u
m
u
C
<1.5x
>1.5x
2021
2025
2030
2035
2040
2045
2050
Net Zero
Current Commitments
Downside Transition Risk
Counterfactual1
Net Zero2
Downside Transition Risk2
1 The counterfactual scenario is modelled on a scenario where there will be no losses due to climate change.
2 The dotted lines in the chart show the impact of modelled expected credit losses following our strategic
responses to reduce the effect of climate risks under the Net Zero and Downside Transition Risk scenarios.
Use of climate scenario outputs
We are starting to consider climate scenario
analysis in core decision-making processes,
including strategic and financial planning, risk
management, capital assessment, business
decision making, client engagement, and
Group reporting. It helps to inform our strategy
and supports how we capture opportunities
while minimising risks, and enabling HSBC
to navigate through the climate transition.
We use the analysis to anticipate climate-
related impacts for our customers by
identifying new opportunities where possible,
including targeted financing to support their
transition journey.
We have considered climate risk in our annual
financial planning cycle. In order to do this, we
reviewed the inclusion of ECL outcomes from
our internal climate scenario analysis using the
Current Commitments scenario because we
deem it the most likely to transpire over the
planning horizon.
Next steps
We plan to continue to enhance our
capabilities for climate scenario analysis
and use the results for decision making,
particularly in respect of:
– our risk appetite, by identifying business-
critical metrics and using scenario analysis
to test, calibrate, and monitor against
thresholds;
– client engagement, by identifying the
climate opportunities – such as supporting
the growth of renewables, biomass, electric
vehicles – and vulnerabilities by engaging
with and supporting our customers; and
– strategy, by using the range of scenario
analysis outcomes to shape our strategy
across business and regions.
HSBC Holdings plc Annual Report and Accounts 2022
67
ESG review
ESG review | Environmental
Our approach to climate reporting TCFD
Task Force on Climate-related Financial Disclosures (‘TCFD’)
The table below sets out the 11 TCFD recommendations and summarises where additional information can be found.
We have considered our ‘comply or explain’ obligation under the UK’s Financial Conduct Authority’s Listing Rules, and confirm that we have made
disclosures consistent with the TCFD Recommendations and Recommended Disclosures, save for certain items, which we summarise below and
in the additional information section on page 423.
Recommendation
Governance
Response
a) Describe the Board’s oversight of climate-related risks and opportunities
Process, frequency and training
– The Board takes overall responsibility for ESG strategy, overseeing executive management in
Sub-committee accountability, processes
and frequency
Examples of the Board and relevant Board
committees taking climate into account
developing the approach, execution and associated reporting. It has enhanced its oversight of
ESG matters, with a dedicated agenda item on this topic introduced for 2022. It considered ESG
at seven meetings during the year.
– Board members receive ESG-related training as part of their induction and ongoing development,
and seek out further opportunities to build their skills and experience in this area.
– The Group Risk Committee (‘GRC’) maintains oversight of delivery plans to ensure that the
Group develops robust climate risk management capabilities. The GRC also has oversight over
ESG-related initiatives and reviews these to assess the risk profile. It considered ESG risk at four
meetings in 2022.
– The Group Audit Committee (‘GAC’) reviews and challenges ESG and climate-related reporting,
processes, systems and controls and considered these matters in detail at five meetings during
the year. The GAC, supported by the executive-level ESG Committee and Group Disclosure and
Controls Committee, provided close oversight of the disclosure risks in relation to ESG and
climate reporting, amid rising stakeholder expectations.
– The Board considered whether to establish a Board committee dedicated to ESG issues, but
instead decided that the best way to support the oversight and delivery of the Group’s climate
ambition and ESG strategy was to retain governance at Board level.
– In 2022, the Board oversaw the implementation of ESG strategy through regular dashboard
reports and detailed updates including: reviews of net zero policies, financed emissions target
setting and climate-aligned financing initiatives.
– The Group Chairman and the Group Chief Executive met regularly with government officials
globally to continue to foster strong international relations. In addition, certain Board members
also continued to be actively involved in climate initiatives and attend global events such as the
Group Chief Executive’s attendance at the COP27 Summit in Egypt.
b) Describe management’s role in assessing and managing climate-related risks and opportunities
Who manages climate-related risks and
opportunities
How management reports to the Board
– The Group Executive Committee enhanced its governance model of ESG matters with the
ESG Committee and supporting forums. These support senior management in the delivery
of the Group’s ESG strategy, key policies and material commitments by providing oversight
over – and management and coordination of – ESG commitments and activities.
– The Group Company Secretary and Chief Governance Officer, and Group Chief Sustainability
Officer hold joint responsibility for the ESG Committee. It oversees all areas of environmental,
social and governance issues, with support from accountable senior management in relation
to their particular areas of responsibilities. Key representatives from the functions and global
businesses attend to provide insights on the implementation of the ESG strategy across the
Group, allowing the ESG Committee to make recommendations to the Board in respect of
ESG matters.
– The Group Chief Risk and Compliance Officer and the chief risk officers of our PRA-regulated
businesses are the senior managers responsible for climate financial risks under the UK Senior
Managers Regime.
– The Board delegates day-to-day management of the business and implementation of strategy
to the Group Chief Executive. The Group Chief Executive is supported in his management of
the Group by recommendations and advice from the Group Executive Committee (’GEC’),
an executive forum comprising members of senior management that include chief executive
officers of the global businesses, regional chief executive officers and functional heads.
– Key representatives from the functions and global businesses attend the ESG Committee
to provide insights on the implementation of the ESG strategy across the Group, allowing
the ESG Committee to make recommendations to the Board in respect of ESG matters.
Disclosure
location
Page 86
and 256
Page 86
and 252
Page 272
and 275
Page 263
and 268
Page 255
and 256
Page 255
Page 20
Page 86
and 255
Page 86
and 251
Page 86
Page 248
and 249
Page 251
68
HSBC Holdings plc Annual Report and Accounts 2022
Environmental
Task Force on Climate-related Financial Disclosures (‘TCFD’) continued
Recommendation
Response
Processes used to inform management
– The ESG Committee supports Group executives in the development and delivery of ESG strategy,
key policies and material commitments by providing oversight, coordination and management of
ESG commitments and activities. We also recognise that we require enhanced capabilities and
new sources of data.
– The Climate Risk Oversight Forum oversees all global risk activities relating to climate risk
management, including physical and transition risks. Equivalent forums have been established
at regional level.
– The Sustainability Target Operating Model Steering Committee oversees the implementation
of the Group’s organisational plan for the internal infrastructure, both within the Sustainability
function and the wider Group, to help deliver our climate ambitions.
Strategy
a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long term
Processes used to determine material risks
and opportunities
Relevant short, medium, and long term
time horizons
Transition or physical climate-related issues
identified
Risks and opportunities by sector and/or
geography
– To support the requirements for assessing the impacts of climate change, we have developed a set of
capabilities to execute climate stress testing and scenario analysis. These are used to improve our
understanding of our risk exposures for risk management and business decision making. Given the
challenges on data sourcing and processes, there has been an impact on certain climate disclosures.
– Climate scenario analysis was used as a risk assessment tool to provide insights on the long-term
effects of transition and physical risks across our corporate and retail banking portfolios, as well as
our own operations.
– Our sustainable finance ambition has enabled sustainable infrastructure and energy systems,
promoted decarbonisation efforts across the real economy, and enhanced investor capital through
sustainable investment.
– We aim to achieve net zero in our financed emissions by 2050, and in our own operations and
supply chain by 2030.
– We aim to provide and facilitate $750bn to $1tn of sustainable finance and investment for our
customers in their transition to net zero and a sustainable future.
– We have taken these time horizons into our consideration. Our assessment of climate risks
covers three distinct time periods: short term is up to 2025, medium term is 2026 to 2035;
and long term is 2036 to 2050.
– We enhanced our transition and physical risk questionnaire and scoring tool, which helps us to assess
and improve our understanding of the impact of transition and physical risk on our customers’
business models, and used it for our corporate clients in high climate transition risk sectors.
– We are supporting our customers in their transition through our sustainable finance and investment
ambition. Our sustainable finance data dictionary includes a detailed definition of contributing activities.
– In the UK, in line with our retail portfolio, the main perils that drive potential credit losses relate to
coastal, river and surface water flooding, although the impacts from these perils are not expected
to cause significant damages. Around 20% of our financed properties are in London, and most are
protected by the Thames Barrier.
– We identified six key sectors where our wholesale credit customers have the highest exposure
to climate transition risk, based on their carbon emissions. These are automotive, chemicals,
construction and building materials, metals and mining, oil and gas, and power and utilities.
– We continued to improve our identification and assessment of climate risk within our retail
mortgage portfolio, with increased investments in physical risk data and enhancements to our
internal risk assessment capabilities and models. We completed detailed analysis for the UK,
Hong Kong, Singapore and Australia, which together represent 73.8% of balances of the global
mortgage portfolio.
Disclosure
location
Page 86
and 251
Page 222
Page 86
Page 38
and 47
Page 64
Page 58
Page 49
Page 57
Page 139
Page 222
Page 58
Page 229
Page 223
Page 224
Concentrations of credit exposure to
carbon-related assets (supplemental
guidance for banks)
Climate-related risks (transition and
physical) in lending and other financial
intermediary business activities
(supplemental guidance for banks)
– Opportunities include sustainable finance, sustainable investment and sustainable infrastructure. For
Page 58
a detailed breakdown of our sustainable finance progress by geography, see the ESG Data Pack.
– We report our exposure to the six high transition risk sectors in the wholesale portfolio. For
details, see the ESG Data Pack.
– Since 2020, we have rolled out the questionnaire so that it included our largest customers in the
next highest climate transition risk sectors: agriculture, industrials, real estate, and transportation.
This was done across a larger geographical scope.
– As a result of our climate scenario analysis, our largest and most impacted sectors – power and
utilities, construction and building materials, and chemicals – are subject to increased levels of
transition risks due to their ongoing exposure to higher carbon-emitting activities.
– HSBC Asset Management is increasingly considering both physical and transition risks. As a result,
it integrated ESG and climate analysis to help ensure that risks faced by companies are considered
throughout the investment decision-making process.
Page 223
Page 227
Page 64
HSBC Holdings plc Annual Report and Accounts 2022
69
ESG review
ESG review | Environmental
Task Force on Climate-related Financial Disclosures (‘TCFD’) continued
Recommendation
Response
b) Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning
Impact on strategy, business, and financial
planning
– Transition to net zero represents one of our four strategic pillars. We aim to be net zero in our operations
and supply chain by 2030 and in our financed emissions by 2050.
– Scenario analysis supports our strategy by assessing our position under a range of climate scenarios.
It helps to build our awareness of climate change, plan for the future and meet our growing regulatory
requirements. We acknowledge that our systems, processes, controls and governance are developing.
– We continue to develop how we produce our climate scenario analysis exercises so that we can have a
more comprehensive understanding of climate headwinds, risks and opportunities that will support our
strategic planning and actions.
Disclosure
location
Page 49
Page 48
and 67
Page 67
– We do not currently fully disclose the impacts of climate-related issues on financial planning, and
Page 423
particularly the impact of climate-related issues on our financial performance and financial position.
In addition, we have considered the impact of climate-related issues on our businesses, strategy,
and financial planning, but not specifically in relation to acquisitions/divestments. Due to transitional
challenges such as process limitations, we do not disclose the climate-related impact in these areas.
We expect to further enhance our disclosure and processes in relation to acquisitions/divestments in
the medium term.
– We have considered the impact of climate-related issues on our businesses, strategy, and financial
planning. Our access to capital may be impacted by reputational concerns as a result of climate action
or inaction. In addition, if we are perceived to mislead stakeholders on our business activities or if we
fail to achieve our stated net zero ambitions, we could face greenwashing risk resulting in significant
reputational damage, impacting our revenue generating ability and potentially our access to capital.
Impact on products and services
– We aim to help our customers’ transition to net zero and a sustainable future through providing
and facilitating between $750bn and $1tn of sustainable finance and investment by 2030.
Impact on supply chain and/or value chain
– We will continue to engage with our supply chain through CDP, and through direct discussions
Impact on adaptation and mitigation
activities
with our suppliers on how they can further support our transition to net zero.
– We also have significant responsibilities in relation to asset ownership by our insurance business,
employee pension plans and asset management business.
– In October 2020, we announced our ambition to reduce our energy consumption by 50% by
2030, against a 2019 baseline. As part of our ambition to achieve 100% renewable power across
our operations by 2030, we continue to look for opportunities to procure green energy in each of
our markets. A key challenge remains the limited opportunity to pursue power purchase
agreements or green tariffs in key markets due to regulations.
Impact on operations
– Climate change poses a physical risk to the buildings that we occupy as an organisation,
Impact on investment in research and
development
including our offices, retail branches and data centres.
– We use stress testing to evaluate the potential for impact to our owned or leased premises. Our
scenario stress test, conducted in 2022, analysed how seven different climate change-related
hazards – comprising coastal inundation, extreme heat, extreme winds, wildfires, riverine
flooding, soil movement due to drought, and surface water flooding – could impact 500 of our
critical and important buildings.
– Our Climate Solutions Partnership is a five-year $100m philanthropic initiative that aims to
identify and remove barriers to scale for climate change solutions. Working with the World
Resources Institute, WWF and over 50 local partners, our support focuses on start-up
companies developing carbon-cutting technologies, nature-based solutions, renewable energy
initiatives in Asia and the WWF-led Asia Sustainable Palm Oil Links programme.
How we are striving to meet investor
expectations
– During Board meetings, the Directors continued to balance discussions on the Group’s
performance, emerging risks and duties to shareholders, while remaining conscious of
responsibilities to support communities and help customers.
Transition plan to a low-carbon economy
– In 2022, the Board approved an update to the thermal coal phase-out policy. It also approved the
publication of an updated energy policy.
– We have committed to publish our own climate transition plan in 2023. This plan will outline, in
one place, not only our commitments, targets and approach to net zero across the sectors and
markets we serve, but how we are transforming our organisation to embed net zero and finance
the transition.
Page 423
Page 58
Page 62
Page 64
Page 62
Page 229
Page 84
Page 20
Page 23
Page 49
c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C
or lower scenario
Embedding climate into scenario analysis
– Scenario analysis supports our strategy by assessing our position under a range of climate
scenarios. It helps to build our awareness of climate change, plan for the future and meet our
growing regulatory requirements.
– In 2022, we delivered our first internal climate scenario analysis exercise where we used four
scenarios that were designed to articulate our view of the range of potential outcomes for global
climate change. The analysis considered the key regions in which we operate, and assessed the
impact on our balance sheet between the 2022 and 2050 time period.
Page 67
and 226
Key drivers of performance and how these
have been taken into account
– Climate scenario analysis allows us to model how different potential climate pathways may
affect our customers and portfolios, particularly in respect of credit losses. Under the Current
Commitments scenario, we expect moderate levels of losses relating to transition risks. However,
the rise in global warming will lead to increasing levels of physical risk losses in later years.
Page 67
and 226
70
HSBC Holdings plc Annual Report and Accounts 2022
Environmental
Task Force on Climate-related Financial Disclosures (‘TCFD’) continued
Recommendation
Response
Scenarios used and how they factored in
government policies
– The scenario assumptions used for our climate stress testing exercise include varying levels of
governmental climate policy changes, macroeconomic factors and technological developments.
However, these scenarios rely on the development of technologies that are still unproven, such
as global hydrogen production to decarbonise aviation and shipping. For details of the
assumptions, see the ESG Data Pack.
Disclosure
location
Page 226
How our strategies may change and adapt
– The nature of the scenarios, our developing capabilities, and limitations of the analysis lead
to outcomes that are indicative of climate change headwinds, although they are not a direct
forecast.
– Developments in climate science, data, methodology, and scenario analysis techniques will help
us shape our approach further. We therefore expect this view of risk to change over time.
– We plan to continue to enhance our capabilities for climate scenario analysis and use the results
for decision making, particularly in respect of strategy, by using the range of scenario analysis
outcomes to shape our strategy across business and regions.
Page 67
and 226
Page 226
Page 67
– We do not currently fully disclose the impacts of transition and physical risk quantitatively, due
to transitional challenges including data limitations and evolving science and methodologies.
Page 423
Risk management
a) Describe the organisation’s processes for identifying and assessing climate-related risks
Traditional banking risk types considered
Process
– Our initial approach to managing climate risk was focused on understanding physical and
transition impacts across five priority risk types: wholesale credit risk, retail credit risk,
reputational risk, resilience risk and regulatory compliance risk.
– We have integrated climate risk into our existing risk taxonomy, and incorporated it within the
risk management framework through the policies and controls for the existing risks where
appropriate. We also recognise that we require enhanced capabilities and new sources of data.
– We consider greenwashing to be an important emerging risk that is likely to increase over time,
as we look to develop capabilities and products to achieve our net zero commitments, and work
with our clients to help them transition to a low-carbon economy. We also recognise that green
finance taxonomies are not consistent globally, and evolving taxonomies and practices could
result in revisions in our sustainable finance reporting going forward.
– We also use stress testing and scenario analysis to assess how these climate risks will impact our
customers, business and infrastructure.
Integration into policies and procedures
– In 2022, we incorporated climate considerations into our UK mortgage origination process for
our retail mortgage business and new money request process for our key wholesale businesses.
We also continued to enhance our climate risk scoring tool, which will enable us to assess our
customers’ exposures to climate risk. We also published our updated energy policy, covering the
oil and gas, power and utilities, hydrogen, renewables, nuclear and biomass sectors, as well as
updated our thermal coal phase-out policy after its initial publication in 2021.
– We are integrating climate risk into the policies, processes and controls across many areas of our
organisation, and we will continue to update these as our climate risk management capabilities
mature over time.
– In 2022, we expanded our scope to consider climate risk impacts on our other risk types
(including treasury risk and traded risk) in our risk taxonomy.
– We also analysed in our internal scenario analysis exercise how climate risks impact how we
manage other risks within our organisation, including credit risk, and on an exploratory basis:
market, operational, liquidity, insurance, and pension risks.
Consider climate-related risks in traditional
banking industry risk categories
(supplementary guidance for banks)
b) Describe the organisation’s processes for managing climate-related risks
Process and how we make decisions
– The Group Risk Management Meeting and the Group Risk Committee receive regular updates on our
climate risk profile, top and emerging climate risks, and progress of our climate risk programme.
– Our climate risk appetite supports the oversight and management of the financial and non-financial
risks from climate change, and supports the business to deliver our climate ambition in a safe and
sustainable way. We recognise that we require enhanced systems, processes, controls, governance
and new sources of data.
Page 221
Page 47
and 221
Page 47
and 221
Page 46
Page 223
Page 223
Page 221
and 226
Page 67
Page 222
Page 47
and 223
c) Describe how processes for identifying, assessing and managing climate-related risks are integrated into the organisation’s overall risk
management framework
How we have aligned and integrated our
approach
– Our climate risk approach is aligned to our Group-wide risk management framework and three
lines of defence model, which sets out how we identify, assess, and manage our risks.
How we take into account interconnections
between entities and functions
– In February 2022, we refreshed a high-level assessment of how climate risk may impact risk
types within the HSBC taxonomy over a 12-month horizon, and how the level of risk may increase
over longer time horizons.
– We developed our first internal climate scenario exercise, where we used four bespoke scenarios that
were designed to articulate our view of the range of potential outcomes for global climate change.
– Through our dedicated climate risk programme, we continued to embed climate considerations
throughout the organisation, including updating the scope of our programme to cover all risk
types, expanding the scope of climate-related training, developing new climate risk metrics to
monitor and manage exposures, and the development of our internal climate scenario exercise.
– We updated our climate risk management approach to cover all risk types in our risk taxonomy.
– We expanded the scope of climate-related training for employees to cover additional topics, such
as greenwashing risk, and increased the availability of training to the broader workforce.
Page 221
Page 222
Page 222
Page 135
Page 222
Page 222
HSBC Holdings plc Annual Report and Accounts 2022
71
ESG review
ESG review | Environmental
Task Force on Climate-related Financial Disclosures (‘TCFD’) continued
Recommendation
Metrics and targets
Response
Disclosure
location
a) Disclose the metrics used by the organisation to assess climate-related risk and opportunities in line with its strategy and risk management
process
Metrics used to assess the impact of
climate-related risks on our loan portfolio
Metrics used to assess progress against
opportunities
Board or senior management incentives
– We continue to disclose our wholesale loan exposure to the six high transition risk sectors, which
are automotive, chemicals, construction and building materials, metals and mining, oil and gas, and
power and utilities. The wholesale loan exposure is used as a metric to assess impact of climate risk
and help inform risk management, together with our transition risk questionnaire results.
– We continue to measure climate risk in our most material mortgage market, which is the UK,
where the primary physical risk facing properties is flooding. We also continue to identify the
current and potential EPC ratings for individual properties within the UK mortgage portfolio.
For further details, see our ESG Data Pack.
– Our climate risk management information dashboard includes metrics relating to our key climate
risks, and is reported to the Global Climate Risk Oversight Forum. However, we do not fully
disclose metrics used to assess the impact of climate-related risks on retail lending, parts of
wholesale lending and other financial intermediary business activities.
– We continue to track our progress against our ambition to provide and facilitate $750bn to $1tn of
sustainable finance and investment by 2030, aligned to our published data dictionary. The breakdown
of our sustainable finance and investment progress is included in our ESG Data Pack.
– We do not currently fully disclose the proportion of revenue or proportion of assets, capital
deployment or other business activities aligned with climate-related opportunities, including revenue
from products and services designed for a low-carbon economy, forward-looking metrics consistent
with our business or strategic planning time horizons. In addition, we do not currently disclose internal
carbon prices due to transitional challenges such as data challenges. We recognise that we require
enhanced systems, processes, controls, governance and new sources of data.
– To help us achieve our ESG ambitions, a number of measures are included in the annual incentive
and long-term incentive scorecards of the Group Chief Executive, Group Chief Financial Officer
and Group Executives.
Metrics used to assess the impact of
climate risk on lending and financial
intermediary business (supplemental
guidance for banks)
– As part of our internal climate scenario analysis, we carried out a detailed physical risk assessment of
four of our most material retail mortgage markets – the UK, Hong Kong, Singapore and Australia –
which represent 73.8% of balances in our retail mortgage portfolio. In 2022, we disclose our loan
maturity within the UK mortgage portfolio.
– We do not fully disclose metrics used to assess the impact of climate-related risks on retail lending,
parts of wholesale lending and other financial intermediary business activities (specifically credit
exposure, equity and debt holdings, or trading positions, each broken down by industry, geography,
credit quality, average tenor).
b) Disclose scope 1, scope 2 and, if appropriate, scope 3 greenhouse gas emissions and the related risks
Our own operations
– We reported our scope 1, 2 and part of scope 3 greenhouse gas emissions resulting from the
energy used in our buildings and employees’ business travel. In 2022, we started to disclose our
scope 3 supply chain emissions.
Greenhouse gas emissions for lending and
financial intermediary business
(supplemental guidance for banks)
– We expanded our coverage of sectors for on-balance sheet financed emissions. We also set out
the data and methodology limitations related to the calculation of scope 3 financed emissions.
– In 2022, HSBC Asset Management started to measure scope 1 and 2 emissions of companies
in its portfolio.
– Future disclosure on financed emissions, and related risks is reliant on our customers publicly
disclosing their carbon emissions and related risks. We aim to disclose financed emissions for
additional sectors in our Annual Report and Accounts 2023 and related disclosures.
c) Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets
Details of targets set and whether they are
absolute or intensity based
– One of our strategic pillars is to support the transition to a net zero global economy. To support
our ambition to align our financed emissions to achieve net zero by 2050 or sooner, we have set
interim 2030 targets for on-balance sheet financed emissions for eight sectors.
– For financed emissions we do not plan to set 2025 targets. We set targets in line with the Net-Zero
Banking Alliance (‘NZBA‘) guidelines by setting 2030 targets. In 2022, we disclose interim 2030
targets for on-balance sheet financed emissions for eight sectors.
– We do not currently disclose targets used to measure and manage physical risk, or internal carbon
price targets. This is due to transitional challenges and data limitations. But we considered
physical risk and carbon prices as an input in the climate scenario analysis exercise. We expect to
further enhance the disclosure in the medium term as more data becomes available. In addition,
we do not currently disclose a target for capital deployment. In 2022, we are internally reviewing
and enhancing the green bond framework, with further refinement to be undertaken in 2023. Our
continued monitoring of evolving taxonomies and practices over time could result in revisions in
our reporting going forward and lead to differences year-on-year as compared with prior years.
We do not consider water usage to be a material target for our business and therefore we have not
included a target in this year’s disclosure.
Page 223
Page 224
Page 423
Page 18
and 57
Page 47
and 423
Page 16
and 286
Page 224
Page 423
Page 18
and 63
Page 18
and 50
Page 56
Page 423
Page 18
Page 423
Other key performance indicators used
– We also use other indicators to assess our progress including energy consumption and
percentage of renewable electricity sourced.
Page 62
72
HSBC Holdings plc Annual Report and Accounts 2022
Social
Social
Building inclusion and resilience
We aim to play an active role in opening up a world of
opportunity for our customers, colleagues and communities as
we bring the benefits of connectivity and global economy to
more people around the world.
At a glance
Our relationships
Our purpose is opening up a world of
opportunity, and we aim to bring that
purpose to our customers, colleagues
and the communities in which we operate.
Inclusion is key to opening up a world of
opportunity. It involves a commitment to
remove unnecessary barriers to our people,
our customers and our communities in
realising their potential. Creating an inclusive
environment for our colleagues enables them
to flourish, and supports the strong and
purposeful delivery of our strategy.
We are committed to ensuring our colleagues
– and particularly our leadership – are
representative of the communities that we
serve, and that we support their well-being
and development so they can learn and grow
in their careers. We do this because we know
that when we build an inclusive, healthy and
stimulating workplace for our people, the
whole Group succeeds.
We are equally committed to ensuring there
are no unnecessary barriers to finance for our
customers. Customers should not find it more
difficult to access finance because of their
gender, their sexual orientation, their
neurodiversity or their disability. We have an
ambition to create a welcoming, inclusive and
accessible banking experience that opens up
a world of opportunity for our customers.
Building inclusion and resilience can also
mean working to address gaps where we
think we can make a difference. From working
for fair pay and representation for our
colleagues, to opening up access to finance
to underserved customer groups, to ensuring
HSBC branches and offices are safe spaces
for everyone, we are committed to fairness
and inclusivity.
Inclusion goes hand-in-hand with resilience.
We build resilience for our colleagues by
supporting their physical, mental and financial
well-being, and by ensuring they are equipped
with the skills and knowledge to further their
careers during a period of significant
economic transformation.
For our customers, we build resilience through
education: by helping them to understand their
finances and how to manage them effectively,
and by creating propositions that simplify the
banking experience while helping wealth
to grow. We also build resilience through
products and services that protect what our
customers value – their health, their families,
their homes and their belongings.
Finally, we aim to give back by engaging with
our communities through philanthropic giving,
disaster relief and volunteering. We are
focusing these efforts on our priorities: the just
transition to net zero and building inclusion
and resilience.
We believe building inclusion and resilience
helps us to create long-term value and growth.
By removing unnecessary barriers and striving
to be a fair and equitable bank, we can attract
and retain the best talent, support a wider
customer base to achieve their goals over
the long term, and stimulate growth in our
communities. This is how we open up a
world of opportunity for our colleagues, our
customers and our communities.
In this section
Promoting diversity
and fostering
inclusion
Our approach to diversity
and inclusion
We value diversity of thought and we are building an inclusive
environment that reflects our customers and communities.
Page 74
Creating a diverse
environment
Fostering an inclusive
culture
Building a healthy
workplace
Listening to our colleagues We run a Snapshot survey and report insights to our Group
Executive Committee and the Board.
Being a great place to work As the Covid-19 pandemic tested our colleagues, we expect the
way we work to change as the workforce meets new demands.
Well-being
Our global well-being programme is a key enabler of our people
strategy, especially as we move to a more hybrid way of working.
Learning and skills
development
We aim to build a dynamic, inclusive culture where colleagues can
develop skills and experiences that help them fulfil their potential.
Energising our colleagues
for growth
We are committed to offering colleagues the chance to develop
their skills while building pipelines of talented colleagues to
support the achievement of our strategic priorities.
Our approach to customer
inclusion and resilience
We aim to support financial well-being and remove barriers
people can face in accessing financial services.
Developing skills,
careers and
opportunities
Building customer
inclusion and
resilience
Engaging with our
communities
Building a more inclusive
world
We focus on a number of priorities where we can make a
difference to the community and support sustainable growth.
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Promoting diversity and fostering inclusion
Our approach to diversity and inclusion
Our purpose, ‘Opening up a world of
opportunity’, explains why we exist as an
organisation and is the foundation of our
diversity and inclusion strategy. Promoting
diversity and fostering inclusion contributes to
our ‘energise for growth’ priority. By valuing
difference, we can make use of the unique
expertise, capabilities, breadth and
perspectives of our colleagues for the
benefit of our customers.
To achieve progress, we are focused on
specific Group-wide priorities for which we
hold senior executives accountable. Alongside
Group targets, some executives have local
priorities, such as combating social inequality
in the UK, and the promotion of Hispanic
representation in the US, to allow flexibility for
a broader diversity and inclusion agenda that
is contextually relevant.
Our approach extends beyond our colleagues
and opens up a world of opportunity to our
customers and the communities in which we
operate. As we set out on the following pages,
we are pleased to report progress in 2022,
although we acknowledge there is more work
to be done.
How we hold ourselves to account
We set meaningful goals
Our executive Directors and Group
Executives have goals within their annual
performance scorecards that are tied to
remuneration plans. In 2022, we continued
to make progress against our three goals to:
– achieve a 35% representation of women
in senior leadership roles by 2025;
– achieve a 3.4% representation of Black
heritage colleagues in senior leadership
roles in the UK and US combined by
2025, aligned to our commitment to
double the number of Black colleagues
in leadership positions globally; and
We report and track progress
Data is critical and gives our Group Executive
Committee regular progress checks against
its goals. Our measures to track progress
consist of:
– a quarterly inclusion dashboard, which
tracks progress against goals with specific
data on hiring, promotion and exit ratios;
– a formal assessment of the Group Executive
Committee’s performance against its three
goals, run by our executive compensation
team, at the half-year, third quarter and the
end of the year, which is then reported to
the Group Remuneration Committee; and
– achieve a satisfaction score of at least
– semi-annual inclusion review meetings
75% in our Inclusion index, which looks
at the inclusivity of our culture by
measuring our colleagues’ feelings of
belonging, trust and psychological
safety, as recorded within our employee
Snapshot survey.
where our Head of Inclusion meets each
Group Executive to review data and their
progress against their goals, and to discuss
actions and provide recommendations to
support further progress.
We benchmark our performance
We use external disclosures and
benchmarks to measure the progress
we are making, and to provide us with
insight into what actions to prioritise.
In 2022, we achieved:
– the Parker Review target of having at
least one Director from a minority ethnic
group on its Board, with three Board
members;
– Stonewall’s Gold standard and rank as a
top global LGBTQ+ inclusion employer;
– a score of 87.2 in the Bloomberg
Gender Equality Index, which tracks
the performance of public companies
committed to transparency in gender
data reporting. This was 13.1 percentage
points above the financial sector average.
A data driven approach to inclusion
Our approach to collecting ethnicity data through colleagues’ self-identification underpins our ethnicity strategy to better reflect the
communities we serve. Allowing colleagues to self-identify helps us to set market representation goals. We have enabled 91% of our
workforce to be able to share their ethnic heritage with us. A total of 55% of our colleagues have now made disclosures on their ethnic
background, where legally permissible.
Strong self-declaration rates in the UK and US have enabled us to develop our ethnicity strategy with market-specific Black heritage
representation goals. We define Black heritage to include all colleagues in the UK who identify as Black or mixed race where one of the
ethnicities is stated as Black, and in the US for all colleagues who identify as Black or African-American.
Employees can also share their disability, gender identity and sexual orientation data where legally and culturally acceptable to do so.
These self-identification options are enabled for 90%, 81% and 70% of our workforce, respectively.
Engaging with diversity at the Board level
We have a designated non-executive Director
responsible for workforce engagement,
whose role is to bring the voice of the
employee into the boardroom. Our employee
resource group leadership community is an
important contributor and communicator
related to workforce engagement.
Additionally, non-executive Directors are
aligned to each of our employee resource
groups.
In 2022, we continued our Bank Director
Programme that invites a diverse group of
senior leaders from across the Group to gain
exposure to boards and develop board skills.
This programme is building an internal pool
of diverse talent that we will be able to assign
to roles with our subsidiary boards.
For further details of Board diversity, see our
Corporate governance report on page 247.
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Creating a diverse environment
Women in senior leadership
After achieving our ambition of having 30% of
senior leadership positions held by women in
2020, we set a new goal to reach 35% by 2025.
We remain on track, with 33.3% of senior
leadership roles held by women at the end of
2022, an increase of 1.6 percentage points since
2021. A total 35.7% of all external appointments
into senior positions were female, down from
37.8% in 2021, and 38.1% of all promotions into
senior leadership roles were female.
Talent programmes, including Accelerating
Female Leaders, helped increase the visibility,
sponsorship and network of our high-
performing senior women. Since starting the
programme in 2017, 38% of participants have
either been promoted or taken a lateral move
to develop their careers. We have also retained
87% of colleagues who have completed
the programme.
In our Accelerating into Leadership
programme, which prepares high potential,
mid-level colleagues for future leadership roles,
44% of participants in 2022 were women.
We also had more than 2,600 women
participating in our Coaching Circles
programme, which involves senior leaders
advising and supporting colleagues to develop
their leadership skills and build their networks.
Our succession planning for key leadership
roles includes an assessment of the diversity
of our succession plans. We are improving the
gender diversity of those in roles deemed most
critical to the organisation, and successors to
those roles. In 2022, 36% of the succession
pool for these roles were women.
In our support of our people throughout the
different stages of their lives and careers, and
in our aim to enable equal participation at
work, we introduced gender neutral parental
leave in the US and Australia, and improved
paid maternity and paternity leave in Mexico
and Argentina.
Black colleagues in senior leadership
We are on track to double the number of Black
colleagues in senior leadership roles globally
by 2025, having increased the number of
Black senior leaders by 37% since 2020.
During 2022 we set a new Group-wide
ethnicity strategy with the principle of better
reflecting the communities we serve. We test
this principle by comparing our workforce
to national census data and setting goals to
narrow material representation gaps over
time. Our analysis highlighted Black heritage
representation gaps in the UK and the US. We
therefore set a goal of having 3.4% of Black
heritage colleagues in senior leadership roles
in the UK and US combined by 2025. While
we are on track to meet this, with 2.5% of
leadership roles held by Black heritage
colleagues in 2022, we know there is more to
be done to be representative of the societies
we serve.
Our ethnicity strategy is overseen by a
committee of senior leaders, led by our
Group Chief Risk and Compliance Officer.
The committee provides strategic direction
to the Global Ethnicity Inclusion Programme.
In 2022, we continued to focus on inclusive
hiring, investing in talent and growing
leadership effectiveness. We have launched
programmes to provide sponsorship and
mentoring such as Solaris in the UK, which
supports talented Black female colleagues, and
a Black heritage programme in Global Banking
and Markets, where 25% of participants at
Director level secured promotion within 12
months of commencing the programme. In
2023, we will extend the programme to
Commercial Banking colleagues and to
colleagues in the US, with an additional focus
on Hispanic colleagues. To help us attract
diverse talent, we partner with specialist
recruitment organisations that engage
ethnically diverse talent. We also introduced
reverse mentoring, which pairs Group
Executives with Black heritage colleagues.
Gender diversity statistics
Gender diversity data
Holdings
Board
Group
Executives
Combined
Group
Executives and
direct reports1
Subsidiary
directors2
Senior
leadership3
Middle
management3
Junior
management3
All employees
8
4
17
4
170
89
616
315
6,226
3,103
18,897
11,257
53,363
51,541
107,863
115,907
Male
Female
67%
33%
81%
19%
66%
34%
66%
34%
67%
33%
63%
37%
51%
49%
48%
52%
1 Combined Group Executives and direct reports
includes HSBC Group Executives and their
direct reports (excluding administrative staff)
as at 31 December 2022.
2 Directors (or equivalent) of subsidiary companies
that are included in the Group’s consolidated
financial statements, excluding corporate
directors.
3 In our leadership structure, we classify: senior
leadership as those at career band 3 and above;
middle management as those at global career
band 4; and junior management as those at global
career bands 5 and 6.
Representation and pay gaps
We have reported gender representation and
pay gap data since 2017 for the UK, and
extended this to include gender data for the
UK, the US, mainland China, Hong Kong,
India and Mexico, alongside ethnicity data for
the UK and US. In 2022, we extended this to
include gender data for Singapore and the
UAE. This covers over 70% of our workforce.
In 2022, our mean aggregate UK-wide
gender pay gap was 45.2%, compared with
44.9% in 2021, and the ethnicity pay gap
was 0.4%, compared with -0.8% in 2021.
Our UK gender pay gap is driven by the
shape of our workforce. There are more men
than women in senior, higher-paid roles and
more women than men in junior roles. Given
differences in variable pay levels across
these roles, the increase in the 2021 variable
pay pool contributed to the slight widening
of our pay gap for 2022.
While we are confident in our approach
to pay equity, until women and ethnically
diverse colleagues are proportionately
represented across all areas and levels of the
organisation we will continue to see gaps in
average pay. We are committed to paying
colleagues fairly regardless of their gender
or ethnic heritage and have processes to
ensure that remuneration is free from bias.
We review our pay practices and undertake
a pay equity review annually, including an
independent third-party review of equal pay
in major markets. If pay differences are
identified that are not due to objective,
tangible reasons such as performance, skills
or experience, we make adjustments.
For further details on our representation data,
pay gap data, and actions, see www.hsbc.
com/diversitycommitments and the ESG Data
Pack at www.hsbc.com/esg.
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Fostering an inclusive culture
In our annual Snapshot survey’s Inclusion
index, which measures our colleagues’ sense
of belonging, psychological safety, perception
of fairness and trust, we achieved a
favourability score of 76% in 2022, one point
higher than our goal, and four points above
the financial services industry benchmark.
Looking to the future on disability
Our ambition is to become a leading disability
confident employer and a digitally accessible
financial services provider. In 2022, we
continued to focus on driving our digital
accessibility programme so that our products
and service can be accessible for all.
There was a three-point increase in colleagues
feeling able to speak up without fear of
negative consequences. This was a positive
indicator of our strengthening culture of
inclusion, which is a critical component of
our ‘energise for growth’ strategy.
To educate our leaders and colleagues on
driving an inclusive culture, we provided
a number of inclusive leadership training
programmes, and enhanced our ‘Making
HSBC more inclusive’ training. More than
10,500 colleagues also completed inclusive
hiring training, which is aimed at enabling fair
and inclusive hiring decisions that are in line
with our hiring principles.
Employee resource groups
Our employee resource groups foster an
inclusive culture, and contribute significant
value to tens of thousands of colleagues,
with networks focused on a range of issues,
including: age, disability, parents and careers,
ethnicity, gender and LGBTQ+.
Our employee resource groups celebrate key
dates in the diversity calendar and hold events
for colleagues to raise awareness, and build
empathy and allyship. These included Pride,
our network for LGBTQ+ colleagues and allies,
holding a global ‘24 hours of Pride’ campaign
that engaged our workforce to collectively
celebrate our LGBTQ+ colleagues. Our
Embrace network for ethnicity hosted its
first global summit, attended by over 1,300
colleagues, including senior leaders across
three regions.
For our customers and colleagues, we
improved the accessibility of our public
websites, mobile applications and internal
systems. AbilityNet, the digital accessibility
charity, benchmarked HSBC as having the
most accessible website compared with other
local competitor banks in 10 of 13 of our key
Wealth and Personal Banking markets.
We are transforming our internal systems to
be digitally accessible. In 2022, we engaged
over 2,000 colleagues in digital accessibility
awareness and training, supported by the
launch of a digital accessibility hub, which
provides training and knowledge resources.
The hub achieved the best digital accessibility
award at the 2022 Digital Impact Awards.
We are looking to extend our UK workplace
adjustments process to other key markets,
ensuring our colleagues have the right tools
and technologies to perform their roles. The
programme will help colleagues with a
physical or sensory disability, long-term
mental health conditions or neurodiversity
needs to get advice and request additional
equipment or software to enable them to do
their work.
In 2022, HSBC UK was recognised as a Gold
Standard employer, following an assessment
by the Business Disability Forum, with a score
of 95.8%, the highest score awarded. We
were praised on our commitment, drive and
innovation with regards to disability inclusion.
In 2023, we will continue to progress the
execution of our disability confidence strategy
with a particular focus on improving the
experiences of colleagues with a disability
across the key stages of their career journeys.
Empowering diverse customers
Aligned to our purpose of opening up a
world of opportunity, we are committed
to identifying and removing the different
barriers customers face in accessing financial
services. In 2022, we contributed to this
through several initiatives, including the
launch of a $1bn lending fund to invest in
female-owned businesses. We introduced
new processes to support refugees fleeing
the conflict in Ukraine so they can access the
financial services they need to set up a new
life in the UK. We also sponsor the Hong Kong
Lutheran Social Service to develop the ‘Health
dollar fun’ app to boost digital literacy among
the elderly.
For further details of how we are making
financial services more accessible and fair,
see ‘Our approach to customer inclusion and
resilience’ on page 83.
Creating more equal communities
We partner with external organisations to
open up opportunities for those groups who
have historically been disadvantaged. In 2022,
initiatives included:
– working with the Indian Academy for
Self-Employed Women to provide business
training and support to access digital
marketplaces;
– partnering with Rural Education and
Development India to train 500 youths
from migrant and rural families to equip
them with skills for the healthcare and
apparel sector; and
– supporting the National Council of
Social Service in Singapore to support
employability services for persons who
have recovered from mental health issues.
Starting our journey on social mobility
We believe in the principle that the
circumstances of someone’s birth
should not define their future.
In 2022, we began to collect the socio-
economic diversity data of our colleagues
within the UK, with the aim to improve social
mobility. We will use this data to help us
understand the representation and
progression of colleagues from lower
socio-economic backgrounds.
We also joined ProgressTogether, a
membership body of firms aimed at
addressing career progression and retention
for those identifying with a lower socio-
economic background. We established our
‘Strive’ employee resource group, which will
support and advocate for colleagues from
lower socio-economic backgrounds. We
plan to expand Strive to other markets as
our work matures.
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Building a healthy workplace
Listening to our colleagues
We were founded on the strength of different
experiences, attributes and voices. We believe
that seeking out and listening to the views of
our colleagues is a fundamental part of who
we are and how we work. This has been
especially important in 2022, as we looked to
continue defining the future of work and
driving change in how we work.
In 2022, we also held a global ‘employee jam’,
where over 18,000 colleagues across 63
markets came together for a live online
conversation (see panel below). The Snapshot
survey is also a key source of insight to inform
our approaches to well-being. For further
details of our approach to well-being, see
page 80.
Employee conduct and harassment
We expect our people to treat each other
with dignity and respect, and do not tolerate
bullying or harassment on any grounds. Over
the past few years, we have strengthened
our approach to bullying and harassment,
improving our collective understanding of,
and response to, these issues.
Our global anti-bullying and harassment code
helps us to maintain consistent high standards
of conduct across the Group, while
accommodating local cultural requirements. In
2022, we added further anti-bullying and
harassment messages to our mandatory
training for all our colleagues, and continued
our campaign to encourage colleagues to be
‘active bystanders’ and speak up when they
see or experience poor behaviours or things
that do not seem right.
We have mandatory local procedures for
handling employee concerns, including
complaints of bullying and harassment. Where
investigations are required, we have a global
framework setting the standards for those
investigations, which we improved throughout
2022. We monitor bullying and harassment
cases to inform our response and the data is
reported to management committees.
Listening to colleague sentiment
In 2022, we changed how we run our
all-employee Snapshot survey, reducing
the frequency from once every six months
to once a year, with a focus on increasing
participation to enable more granular
reporting throughout the organisation. We
received a record 167,668 responses to the
survey in September, with 78% of employees
participating, surpassing the previous year’s
record of 64%.
This increase has enabled us to put more data
directly in the hands of our people managers
to understand how their teams feel about life
at HSBC, with 5,000 managers given access
to results, discussion guides and learning
resources to help them engage with the
feedback at a team level. We continue to
report insights to our Group Executive
Committee and the Board, and local results
are shared across the Group to provide senior
leaders across business areas with detailed
insight to help plan and make decisions.
We complement this all-colleague survey with
targeted listening activities throughout the
year, with employee lifecycle surveys aimed
at new joiners, internal movers and voluntary
leavers.
In May and June, we received more than
13,000 responses to our ‘Future of work’
survey, which explored how colleagues feel
towards hybrid working. For further details
of the findings and our approach to hybrid
working, see ‘Being a great place to work’
on page 79.
In 2022, 1,159 concerns were raised related
to bullying, harassment, discrimination and
retaliation. Of the 811 cases where an
investigation has concluded, 47% were
substantiated. We take action where we see
standards fall short of our expectation. In
2022, 591 colleagues were dismissed in
relation to misconduct, including 27 as a result
of bullying, harassment or discrimination. We
are not complacent and know that there is
more we can do. Our refreshed values will
guide and inform our plans to continue
creating and promoting an inclusive working
environment
Employee engagement
73%
Employee engagement score
(2021: 72%)
68%
Of colleagues feel able to achieve their career
objectives at this company
(2021: 67%)
77%
Of colleagues who feel confident about this
company’s future
(2021: 74%)
Holding a live global online conversation
In April, we held a global ‘employee jam’,
where over 18,000 colleagues came
together digitally for a live conversation
around three key themes: embedding our
purpose, values and strategy; enhancing the
colleague experience; and enhancing the
customer experience.
Mirroring what we have heard in Snapshot
surveys, colleagues told us that they believe in
our purpose, strategy and values, but want to
have a better understanding of their tangible
impacts – both inside and outside HSBC – as
well as their direct role in driving these.
Colleagues said that we have made progress
in areas such as diversity, future skills and
trust, but that the focus should now be
placed on building a culture of inclusion
and empowerment, and on a more
consistent approach to well-being. They also
said the Group should focus on simplifying
internal processes.
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Listening to our colleagues continued
Employee engagement
We use eight Snapshot indices to measure key areas of focus and compare against peer institutions, including a new index focused on inclusion
that we introduced in 2022. The table below sets out how we performed.
Index
Score1
vs
2021
HSBC vs
benchmark2 Questions that make up the index
Employee
engagement
73% +1
+3
Employee
focus
72% +1
+2
Strategy
75% +3
+4
Change
leadership
76% +2
+2
Speak-up
76% +1
+8
Trust
77% +1
+3
Career
68% +1
+4
Inclusion
(new)3
76% +1
+4
I am proud to say I work for this company.
I feel valued at this company.
I would recommend this company as a great place to work.
I generally look forward to going to work.
My work gives me a feeling of personal accomplishment.
My work is challenging and interesting.
I have a clear understanding of this company’s strategic objectives.
I am seeing the positive impact of our strategy.
I feel confident about this company’s future.
Leaders in my area set a positive example.
My line manager does a good job of communicating reasons behind important changes that are made.
Senior leaders in my area communicate openly and honestly about changes to the business.
My company is genuine in its commitment to encourage colleagues to speak up.
I feel able to speak up when I see behaviour which I consider to be wrong.
Where I work, people can state their opinion without the fear of negative consequences.
I trust my direct manager.
I trust senior leadership in my area.
Where I work, people are treated fairly.
I feel able to achieve my career objectives at this company.
I believe that we have fair processes for moving/promoting people into new roles.
My line manager actively supports my career development.
I feel a genuine sense of belonging to my team.
I feel able to achieve my career objectives at this company.
I feel able to be myself at work.
I trust my direct manager.
Where I work, people are treated fairly.
Where I work, people can state their opinion without the fear of negative consequences.
1 Each index comprises constituent questions, with the average of these questions forming the index score.
2 We benchmark Snapshot results against a peer group of global financial services institutions, provided by our research partner, Karian and Box. Scores for each
question are calculated as the percentage of employees who agree to each statement. For further details on the constituent questions and past results, see the
ESG Data Pack at www.hsbc.com/esg.
3 The Inclusion index was introduced in 2022. It comprises questions that were asked in earlier surveys, so we are able to report a comparison with 2021.
For further details of well-being, see page 80, and for further details of inclusion, see page 76.
What we learned
All eight of our Snapshot indices improved
slightly in 2022. Employee engagement, which
is our headline measure, was three points
above benchmark and one point above 2021
levels, and exceeded our target to maintain
engagement levels during the year. The
Strategy index continued to improve in relation
to the financial services’ benchmark.
Our colleagues continued to cite our
approach to hybrid and flexible working as a
reason to recommend HSBC, a theme that
has been consistent since 2020. A greater
proportion of colleagues also said they
experienced a positive environment
and culture, as well as saw training and
progression opportunities, helping to
drive our Employee engagement score.
One of the other top five factors identified to
influence the Employee engagement score is
colleagues’ confidence in the company’s
future. Within the Strategy index, employees
recorded feeling increasingly confident about
the future of the company and understanding
of our strategic objectives.
With inflationary pressures and the rising cost
of living around the world, pay and financial
well-being are growing concerns among
colleagues. We saw an increase in comments
relating to pay in the Snapshot survey, and
self-reported financial well-being declined by
four points, despite a four-point increase in
employees reporting that they know how to
get support about their financial capability. For
further details of our approach to financial
well-being, see page 80.
Our Snapshot survey showed 65% of
colleagues reported they intend to stay with
HSBC for five or more years, a one-point
increase, while 19% said they intend to leave
in the next two years, a two-point decrease.
Despite this, involuntary turnover decreased
to 3.3% and voluntary turnover increased to
14.1%, as labour markets picked up globally.
Both our Snapshot and voluntary leaver
surveys tell us that career development
and pay and benefits continue to be key
influencing factors for voluntary attrition,
and they remain central to our people strategy.
For further details of how we help our people
develop their careers, see ‘Developing skills,
careers and opportunities’ on page 81.
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Being a great place to work
We continued to support our colleagues
during the Covid-19 pandemic, and ensured
their safe return to the office. In 2022, we
made it a priority to support even more
colleagues to work flexibly, while ensuring we
are there for our customers when and where
they need us.
Hybrid working is a key part of our flexible
working proposition and requires trust. We
have empowered our people to find the right
balance, guided by the three principles of:
– customer focus, by delivering excellent
outcomes for our customers;
– team commitment, by connecting with
each other, building our community and
collaborating; and
– two-way flexibility, by providing more
choice on how, when and where we work,
suitable for the roles we perform.
Our flexible working approach
Colleagues consistently tell us that our
approach to flexible and hybrid working is
a key reason to recommend HSBC as an
employer. In June 2022, our ‘Future of work’
survey showed 81% of colleagues speak
positively about our approach to flexible and
hybrid working, and 80% feel it improves their
work-life balance.
In 2022, we refreshed our flexible working
policies to provide more choice and make it
easier to request a flexible working
arrangement. Choices include flexible and
staggered hours, job sharing, reduced hours
and hybrid working. These new policies are
available to more than 90% of colleagues,
including our branch network and non-
permanent employees. We have encouraged
teams to have open conversations about
flexible working opportunities.
More colleagues than ever are working in
a hybrid way, where working time is split
between the office and home or another
location. According to our Snapshot survey
in September, 59% of our colleagues work
in a hybrid way, compared with 37% in 2021.
Different markets are at different stages of
embedding hybrid working, and in 2022 some
continued to operate under Covid-19 conditions.
Getting the balance right
While working at home eliminates
commuting time and provides more
opportunities to balance work and life,
some benefits of being together in person
cannot be recreated remotely.
Overall, we have seen that colleagues
in hybrid roles feel more productive and
engaged than those who are unable to
work remotely. However, nearly half of
our colleagues told us that the networks
of people they regularly interacted with
decreased during the pandemic, and they
missed social connections.
As a result, we have equipped leaders to
achieve the right balance of remote and
in-person working for their teams. Our people
managers have access to in-person and
on-demand learning to develop the skills
needed to lead hybrid teams effectively.
Nearly 8,000 hybrid working learning
curriculums were completed by our people
leaders in 2022. In addition, we ran targeted
events to stimulate a successful return to the
office and create new hybrid working habits.
With more colleagues adopting balanced hybrid
working patterns, the Snapshot survey showed
77% of colleagues said they have enough
opportunities to connect and collaborate with
people outside their immediate teams.
Our offices will continue to evolve to support
increased collaboration. We are rolling out a
digital app in several locations that will offer
greater visibility of who is in the office to
support teams coming together.
86%
Of people managers are confident their
teams have the right balance of remote and
in-person working to meet customer and
stakeholder needs.
Our approach to fair
pay and performance
As part of our approach to performance
management, we ask colleagues to
set goals with the support of their line
managers, which are regularly reviewed.
We encourage people managers to hold
regular performance and development
conversations, incorporating feedback,
and discussing well-being and progress.
In the Snapshot survey, 76% of
colleagues indicated they were happy
with the support their manager provided
for career development.
While our overall Career index, which
measures employee sentiment towards
career development, improved by
one point, results from our employee
listening channels indicated that
sentiment around pay and career
opportunities were key factors in
colleagues’ decisions to leave HSBC.
In 2023, we will review our approach to
pay and performance to ensure we are
able to motivate colleagues in a way that
is authentic to our culture and values.
Our approach will help colleagues have
clarity on performance expectations,
awareness of development
opportunities and access to resources.
As part of this programme, we are
proposing to simplify assessments
of colleagues and shift the focus to
conversations about performance and
growth, while improving transparency
and structure in our fixed and variable
pay design.
For further details of our approach to
colleague remuneration see page 281, and
for details of our average standard entry
level wages compared with local minimum
wage, see our ESG Data Pack at www.
hsbc.com/esg.
Greater front-line flexibility with far reaching benefits
Colleagues have embraced hybrid working across our eight global service centres that
support our customer operations and services. Through a ‘Hello hybrid’ campaign, over
38,000 employees completed hybrid skills e-learning and nearly 850 colleagues took part in
team dialogue sessions. The campaign helped our colleagues identify the best of remote and
office working for their differing customer needs, cultures and regulatory requirements. As a
result of the campaign, employee sentiment improved by 6% for the question ‘I generally look
forward to my work day.’ In our main contact centres, colleagues now spend up to 67% of
their working time on customer-facing activities.
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Well-being
We want our colleagues to be at their best
at work, so we invest significantly in their
well-being and will continue to seek new
ways to provide support. Guided by data
and colleague feedback, the pillars of our
well-being programme are mental, physical,
financial and social well-being. In our
employee Snapshot survey carried out in
September, 70% of our colleagues said they
believe HSBC cares about their well-being.
Mental well-being
Supporting our colleagues’ mental health
remains a top priority, with the Covid-19
pandemic still presenting mental health
challenges in many countries. Our Snapshot
survey revealed an increase in mental
well-being, with 84% of colleagues rating
their mental health as positive, compared with
82% in 2021. It also revealed that 73% of
colleagues felt comfortable talking to their
manager about their mental health, a slight
increase from 72% in 2021.
We have continued to make telephone
counselling services and Headspace, a
meditation app, available to all colleagues
globally. Use of these services increased
by 3% and 28% in 2022, respectively.
More than 240,000 colleagues and contractors
took part in mental health awareness training
as part of global mandatory training. Our
voluntary mental health e-learning has now
been completed by 30,000 employees, with
people managers making up 17% of the
completions. We also provide an in-depth
classroom course designed for line managers
and those wanting to be mental health
champions, which has been completed by
800 colleagues.
To celebrate World Mental Health Day, we ran
a global awareness campaign on alleviating
stigma and encouraging colleagues to feel
able to speak up if they need help. Throughout
October, we held over 100 virtual events,
featuring internal and external experts
providing advice on mental health and
well-being related topics.
Physical well-being
The Snapshot survey revealed a decrease in
physical well-being, with 71% of colleagues
rating their physical health as positive,
compared with 75% in 2021.
In February, we ran a survey about our
employee benefits, which showed 37% of
colleagues wanted more support with physical
activity and exercise. In response, we ran a
five-month pilot with 2,000 colleagues to test
mobile apps that incentivise physical activity.
The pilot showed that the use of apps and
community challenges helped up to 70% of
users increase their physical activity, to
varying degrees. As a result, we are looking
at expanding the initiative to more countries
in 2023.
We have continued to provide access to
private medical insurance in the majority of
our countries and territories, covering 98% of
permanent employees. In certain countries we
provide on-site medical centres that the
majority of colleagues can access.
We have enhanced fertility, adoption, and
surrogacy benefits for our colleagues in the
US and Canada. We are also expanding our
gender dysphoria benefits for LGBTQ+
colleagues in the UK and Philippines
from 2023.
Financial well-being
Our Snapshot survey revealed a decrease in
financial well-being, with 60% of colleagues
reporting positively, compared with 64% in
2021. We believe this is an impact of rising
inflation and cost of living in many countries.
However, colleagues felt more supported to
manage their financial well-being, at 62%, an
increase of four points from 2021. The same
survey revealed that 81% of colleagues felt
they had the right skills and knowledge to
manage their day-to-day finances, and 77%
said they are well prepared to meet their
financial goals.
programmes on healthy financial habits
and saving strategies. Since their launch,
over 2,400 colleagues have used these
programmes.
We review our approach to employee share
ownership plans in line with country demand,
operational capacity and local legislation. In 2022,
we expanded our global share plan to colleagues
in Bahrain, Qatar and Kuwait, meaning that 90%
of our people globally now have access to share
ownership plans. We continue to look to offer the
plan in new locations.
In the UK, we introduced a green car scheme
to encourage colleagues to transition to
electric vehicles and benefit from reduced
running costs and CO2 emissions.
Social well-being
We introduced social well-being as a new
pillar of our programme in 2022, to focus on
social connections and work-life balance.
Snapshot surveys showed 75% of colleagues
say they can integrate their work and personal
life positively, a slight decrease compared with
76% in 2021. We will continue to facilitate this
by enabling flexible working arrangements,
including hybrid working, in line with our
future of work initiative (see page 76).
Colleagues feel more confident talking to their
manager about work-life balance, with 80%
saying they do, compared with 77% in 2021.
In 2021, we upgraded our At Our Best
recognition online platform, which allows
for real-time recognition and appreciation
between colleagues. The upgrade enables
colleagues to record and send video messages
to accompany recognitions. In 2022, there
were more than 1.2 million recognitions made,
an 11% increase on 2021. We also enabled
colleagues globally to donate their points
directly to humanitarian relief agencies
supporting those impacted by the war in
Ukraine. To date more than 1,100 colleagues
have made personal donations to this cause.
Our benefits survey showed that 31% of
colleagues want more support around
financial education. In response, we have
continued to promote our financial education
Awards
CCLA Global 100 Mental Health
Benchmark
– Ranked #1 global employer
Promoting a culture of well-being
In July 2022, we became a founding member of the World Wellbeing Movement, a coalition
of global leaders from business, civil society and academia. A key objective of the movement
is to develop a simple and universally acceptable standard for measuring well-being that
leads to meaningful action. We believe that having a standard ESG indicator on well-being
will improve transparency and enable organisations to better target actions to create positive
change.
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Developing skills, careers and opportunities
Learning and skills development
We aim to build a dynamic environment
where our colleagues can develop skills and
undertake experiences that help them fulfil
their potential. Our approach helps us to
meet our strategic priorities and support
our colleagues’ career goals.
Our resources
The way we work and the way we learn has
changed, driven by the adoption of hybrid
working styles and digital capabilities. We use
a range of resources to help colleagues take
ownership of their development and career,
including:
– HSBC University, which is our home for
learning and skills accessed online and
through a network of training centres.
Learning is organised through technical
academies aligned to businesses and
functions, complemented with enterprise-
wide academies on topics of strategic
importance;
– My HSBC Career Portal, which offers career
development information and resources to
help colleagues manage the various stages
of their career, from joining through to
career progression; and
– HSBC Talent Marketplace, which is our
online platform that uses artificial
intelligence (‘AI’) to match colleagues
interested in developing specific skills with
opportunities that exist throughout our
global network.
Learning foundations
We expect all colleagues, regardless of their
contract type, to complete global mandatory
training each year. This training plays a critical
role in shaping our culture, ensuring a focus on
the issues that are fundamental to our work
– such as sustainability, financial crime risk, and
our intolerance of bullying and harassment.
New joiners attend our Global Discovery
programme, which is designed to build their
knowledge of the organisation and engage
them with our purpose, values and strategy.
As the risks and opportunities our business
faces change, our technical academies adapt
to offer general and targeted development.
Our Risk Academy provides learning for
every employee in traditional areas of risk
management such as financial crime risk,
but also offers more specific development
for those in high-risk roles and for emerging
issues, such as climate risk, or the ethics and
conduct of AI and big data.
Preparing for the future
Our approach to learning is skills based.
Our academy teams work with businesses and
functions to identify the key skills and
capabilities they need now, and in the future.
We use people analytics, strategic workforce
planning, and learning needs analysis to identify
current and future skills demand, and to help
colleagues develop in new areas that match
their aspirations and support career growth.
Throughout 2022 we continued to run
skills campaigns to create the impetus for
individual-led learning, and have used our
skills influencer network of more than
1,800 colleagues to build engagement and
enthusiasm around the Talent Marketplace,
and opportunities for development.
Evolving how we learn
During the Covid-19 pandemic, we
strengthened our digital offering to enable
colleagues to develop their skills in a hybrid
environment. Our colleagues can access
HSBC University online via our Degreed
learning platform, using it to identify, assess
and develop skills through internal and
external courses and resources in a way
which suits them.
Degreed materials range from short videos,
articles or podcasts to packaged programmes
or curated learning pathways that link content
in a logical structure. By December, more than
187,000 colleagues were registered on the
platform. In 2022, overall training volumes
were 28.8 hours per FTE, up from 26.7 hours
per FTE in 2021.
However, we recognise that most
development happens while our colleagues
work, through regular coaching, feedback and
performance management. To enable even
more opportunities for colleagues to grow in
this way, our Talent Marketplace matches
colleagues to projects and new experiences
based on their aspirations and career goals.
In 2022, we rolled the platform out to an
additional 83,000 colleagues across 18
countries and territories. Over 150,000
colleagues now have access to the platform,
and to date over 3,000 projects and
networking requests have been facilitated, and
over 70,000 hours of activity have taken place.
Training at HSBC
6.3 million
Training hours carried out by our
colleagues in 2022.
(2021: 5.9 million)
28.8 hours
Training hours carried out per FTE in 2022.
(2021: 26.7 hours)
Identifying and retaining
future talent
The starting point to identifying talent is
having a fair and inclusive recruitment
process. To help managers hire in line
with our principles, we have launched
compulsory inclusive hiring training. In
2022, over 5,000 managers received the
certification, in addition to 13,500 in 2021.
Our talent programmes have been
designed to enable talented employees
to make the successful transition into
more complex roles and to support
participants in planning for a long-term
career at HSBC. Our key programmes
include:
– Accelerating Female Leaders, which
increases the visibility, sponsorship
and network of female participants.
Colleagues are supported with
development plans to help them
prepare for the next level of
leadership, and matched with
sponsors from our senior leadership
and external executive coaches;
– Accelerating into Leadership, which
prepares participants for leadership
roles through peer-based development
activities, senior sponsorship and
executive coaches. Topics of focus
include network building, developing
resilience and navigating the
organisation. We measure the
retention of colleagues post-
programme to assess the success; and
– ‘UGrow’, which is our programme
that supports the retention and
development of colleagues while
strengthening our leadership pipeline.
The programme offers masterclasses
focused on career planning, driving
results and adaptability for aspiring
colleagues.
Our global emerging talent programmes
welcomed over 800 graduates and 600
interns to the organisation in 2022. Our
programmes are a key enabler of our
broader diversity goals (see page 74). In
2022, our graduate intake was 48%
female, and comprised graduates from
46 nationalities and over 30 ethnicities.
We welcomed our graduates with a
three-day induction programme, which
introduced them to key topics such as
our purpose, values and strategy, as
well as our role in delivering a
sustainable future.
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Energising our colleagues for growth
We are committed to offering colleagues the
chance to develop their skills while building
pipelines of talented colleagues to support
the achievement of our strategic priorities.
It remains critical to our ability to energise
for growth that we demonstrate the right
leadership, and create the optimal conditions
for our people to perform. Our leadership and
culture is guided by our purpose, values and
delivering our strategy.
The Sustainability Academy
To support our ambitions to become net zero
in our own operations by 2030, and to align
our financed emissions to the Paris Agreement
goal of net zero by 2050, we launched the
Sustainability Academy in 2022. The academy
is available to all colleagues across the Group
and serves as a central point for colleagues to
access learning plans and resources, and
develop practical skills.
The academy has resources to help all
colleagues understand broad topics such
as climate change or biodiversity, and is
supplemented with more advanced content
for key groups of colleagues who are
supporting customers through their transition.
We intend to align content to support business
outcomes by educating our colleagues on
topics such as energy efficiency, renewable
energy, sustainability and ESG reporting.
As part of our strategy to align the provision
of finance to the Paris Agreement, the
Sustainability Academy is supporting our
colleagues to build their knowledge and
capability in the sectors in which we have
begun to measure and set financed emissions
targets, including the oil and gas, and power
and utilities sectors.
We will continue to update the academy with
new research and content related to ESG
issues, including those related to social and
governance issues.
Supporting our Asia wealth strategy
At the heart of our ambition to offer best-in
class international wealth management
services to our customers is the accelerated
expansion of our offering in Asia. To achieve
this, we are providing opportunities for our
colleagues to reskill and build career resilience
through our Accelerating Wealth Programme.
The programme offers a skills-based
development plan for colleagues who
are looking to pursue a career in wealth
management. Participants on the programme
are allocated 20% of their working week to
focus on learning and skills development.
They are then regularly assessed to ensure
they are making progress with developing
the right skills to meet our client needs.
We recognise the role that diverse experiences
can bring to our customers, and have
therefore ensured that the programme is open
to colleagues from all global businesses and
functions based in Asia.
Building leadership capabilities
We have strengthened the training we give to
leaders at all levels of the Group to ensure they
are equipped with the skills and knowledge
to energise and develop our colleagues.
We have continued the executive leadership
programme for our most senior leaders,
creating a programme of high-quality modules
that draws on internal and external expertise.
The programme focuses on the shifting
expectations of leaders, embedding the clarity
and alignment to achieve our goals and
tackling strategic change. We complemented
this with educational resources focused on the
opportunities presented by Cloud, artificial
intelligence, and blockchain technology.
Our Country Leadership Programme aims
to prepare and develop future country CEOs
and executives for highly complex roles.
The programme builds the confidence and
competence of leaders across themes such
as managing cyber risk, building regulatory
relationships, representing HSBC’s net zero
ambitions and upholding customer-centricity.
Participants learn through simulation exercises
and coaching from seasoned executives,
subject matter experts and Board members.
Leadership development for our colleagues
at managing director level includes new
programmes that have been created in
partnership with business schools and
industry practitioners. Topics focus on a range
of issues, including critical skills areas such as
influence, inclusion, and Agile methodologies.
We recognise the importance of people
managers in shaping the experience of our
colleagues. We have revised our training for
people managers to better support living our
purpose, values and strategy, and to reflect
the challenges of retaining talent. Our core
leadership development programme is made
up of four modules that are available in
face-to-face and virtual formats. The
programme is focused on the role and
expectations of managers, how to design and
organise work, how to handle relationships
with employees and how to nurture a
productive team environment.
Supporting UK emerging talent
In the UK, we have continued to broaden our emerging talent programmes beyond
traditional graduate and internship schemes. Our programmes support those from non-
traditional education backgrounds, and are supportive of our social mobility ambitions,
outlined on page 75. In 2022, we provided over 180 apprenticeship opportunities for external
and internal applicants. We have also provided over 600 structured work placements for
secondary school students, and developed partnerships with Brampton Manor, Generating
Genius and the #merky foundation to provide financial literacy support to over 6,400 14 to
16 year olds. We have recently launched a career accelerator programme, in partnership
with Zero Gravity, which involves over 120 of our graduates providing career coaching and
mentorship to university students. HSBC UK also uses its apprenticeship levy to support
work opportunities at small and medium-sized business through a partnership with West
Midlands Combined Authority.
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Building customer inclusion and resilience
Our approach to customer inclusion and resilience
We believe that financial services, when
accessible and fair, can reduce inequality and
help more people access opportunities. We
aim to play an active role in opening up a
world of opportunity for individuals by
supporting their financial well-being, and
removing the different barriers that people
can face in accessing financial services.
Access to products and services
We aim to provide innovative solutions
that address the barriers people can face in
accessing products and services. In 2022, we
introduced a new process to help refugees
fleeing the conflict in Ukraine to access the
financial services they need to set up a new
life in the UK. Over 9,000 Ukrainian refugees
have now opened a bank account with us.
As part of our efforts to help vulnerable
customers access digital services, since 2021,
HSBC UK has given over 1,500 vulnerable
customers a free tablet device. This allows
customers who previously had no way of
accessing our online or mobile banking
services the ability to do so.
Making banking accessible
Number of no-cost accounts held for
customers who do not qualify for a standard
account or who might need additional support
due to social or financial vulnerability.1
2022
2021
2020
716,957
692,655
678,554
1 The scope of this disclosure has expanded from 2021,
where we only reported the number of accounts opened
for homeless, refugees and survivors of human trafficking.
Supporting financial knowledge
and education
We continue to invest in financial education
content and features across different channels
to help customers, colleagues and communities
be confident users of financial services.
Between the beginning of 2020 and the end
of 2022, we received over 4 million unique
visitors to our global digital financial education
content, achieving our 2019 goal. We will
continue to engage customers with financial
education content and build their financial
capabilities through the introduction of
personal financial management tools. Since
launching a financial fitness score in the UK,
74,325 customers have used the tool to
understand the healthiness of their finances
based on details about their spending,
borrowing and saving habits.
We support programmes that deliver financial
education to our local communities. HSBC Life
is sponsoring the Hong Kong Lutheran Social
Service to develop the Health Dollar Fun App,
to boost digital literacy among the elderly,
enhance their physical well-being and
encourage social interaction. Throughout 2021
and 2022, we also partnered with Injaz
Al-Arab, member of JA Worldwide, to deliver
our ‘Saving for good’ programme, which
focuses on building the financial capability of
low-income workers in Bahrain, Egypt, Kuwait,
Qatar and the UAE. We have now supported
over 1,700 individuals to grasp basic financial
concepts such as budgeting, saving and
investing through a combination of
customised training courses and mentorship.
We also understand the importance of
building financial capability in young people
to ensure future resilience. In Mexico, we
offer a podcast that covers a relevant
financial educational theme in each episode.
To date, the podcast has been downloaded
more than 73,000 times.
In collaboration with BBC Children in Need,
HSBC UK has worked with financial education
charity Young Enterprise to adapt its award-
winning Money Heroes programme for
children and young people experiencing a
range of issues and challenges in their lives.
The education resources have been adapted
to ensure they are accessible, with books
available in braille and large-print, as well
as British Sign Language signed videos,
audiobooks and a new early-reader e-book.
Creating an inclusive banking experience
We aim to ensure that our banking products
and services are designed to be accessible for
customers experiencing either temporary or
permanent challenging circumstances, such
as disability, impairment or a major life event.
We are committed to becoming a digitally
accessible bank so that our digital channels
are usable by everyone, regardless of ability.
We have been recognised by the charity
AbilityNet as having the most accessible
website compared with other local competitor
banks in 10 out of 13 of our key Wealth and
Personal Banking markets.
Support for customers extends beyond our
digital channels. In recognition of the fact that
not all disabilities are visible or immediately
obvious to others, we have now joined the
Hidden Disabilities Sunflower Lanyard
Scheme in the UK and Hong Kong. The
lanyard indicates that an individual may need
additional support, help or a little more time.
We also launched ‘quiet hours’ across all of
our UK branches and ‘quiet corners’ at
designated branches in Hong Kong, to provide
a calmer and more inclusive environment.
Supporting women and minority-led businesses
We aim to support our diverse customers
by opening up a world of opportunity for
women and minorities.
In May 2022, we launched a Female
Entrepreneur Fund that aims to provide $1bn
in lending to female-owned businesses.
Other programmes include our Mujeres Al
Mundo (Women of the World) programme
in Mexico, which supports the personal
and professional development of women
as customers. Mujeres Al Mundo offers
women exclusive benefits across financial
products and services, discounts on
workshops and programmes taught by
the University Anahuac Mexico.
We have also begun lending from the
$100m that we allocated in 2021 for
companies founded and led by women
and minorities through HSBC Ventures.
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Engaging with our communities
Building a more inclusive world
We have a long-standing commitment to
support the communities in which we operate.
We aim to provide people with the skills and
knowledge needed to thrive in the post-
pandemic environment, and through the
transition to a sustainable future.
We are empowering our people and those
in our communities to develop skills for the
future. Through our charitable partnerships
and volunteering opportunities, our people
share their skills and create a positive impact
in society.
Our global reach is our unique strength.
Bringing together diverse people, ideas and
perspectives helps us open up opportunities
and build a more inclusive world.
Building community and future skills
Our Future Skills strategy, launched in 2018,
has supported over 6.6 million people through
more than $197m in charitable donations.
Current projections from our charity partners
indicate our support during 2022 reached
more than 1.45 million people through
donations of $41m.
In anticipation of global economies
transitioning towards a low-carbon future,
our colleagues and charity partners initiated
programmes that help people and
communities respond to opportunities and
challenges through building relevant skills:
– In the Middle East, we partner with the
Posterity Institute and the Arab Youth
Council for Climate Change to develop
an open-source curriculum for teaching
sustainability skills in higher education
institutions in the region.
– In Argentina, the Academia Solar
programme aims to train students in
design, installation and commissioning
of photovoltaic solar energy systems.
– In India, the Babuji Rural Enlightenment and
Development Society teaches rural farmers
sustainable farming practices, including soil
and water management, helping them to
increase their income.
We also work with our charity partners
around the world to promote employability
and financial capabilities in disadvantaged
communities, and to respond to local needs:
– We support The Prince’s Trust Group to
help marginalised young people in Australia,
Canada, India, Malaysia, Malta and the
UK to develop employable skills.
– Our award-winning partnership with the
Scouts has led to the creation of the first
ever Money Skills Activity Badge for
Beaver and Cub groups in the UK.
– We support Feeding America to help users
of food banks in the US get on-site job skill
training.
– We work with the China Volunteer Service
Foundation to improve the financial
capability of elderly people in Beijing,
Shanghai, and Guangzhou.
Our support for Covid-19 relief efforts also
continued in 2022, with a door-to-door
vaccination programme in Hong Kong aiming
to help 10,000 elderly or people with
disabilities.
Community engagement and
volunteering
We offer paid volunteering days, and
encourage our people to give time, skills
and knowledge to causes within their
communities. In 2022, our colleagues gave
over 67,000 hours to community activities
during work time.
Engagement with pressure groups
We aim to maintain a constructive
dialogue on important topics that are often
raised by campaigning organisations and
pressure groups.
Charitable giving in 2022
Social, including Future Skills: 50%
Environment, including the Climate
Solutions Partnership: 20%
Local priorities: 16%
Disaster relief and other giving: 14%
Total cash giving towards charitable
programmes
$116.8m
Hours volunteered during work time
>67,000
People reached through our Future Skills
programme
1.45m
Awards
Investor and Financial Education
Awards 2022 Hong Kong
– IFEA (Corporate) Gold Award
Climate Solutions Partnership
Our Climate Solutions Partnership is a five-year $100m philanthropic initiative that aims to
identify and remove barriers to scale for climate change solutions. Working with the World
Resources Institute, WWF and over 50 local partners, our support focuses on start-up
companies developing carbon-cutting technologies, nature-based solutions, renewable
energy initiatives in Asia and the WWF-led Asia Sustainable Palm Oil Links programme.
Since 2020, we have committed $95.8m of our $100m funding target to non-governmental
organisation (‘NGO’) partners, supporting projects with the potential to make significant
impacts in the mission to achieve a net zero, resilient and sustainable future.
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Governance
Governance
Acting responsibly
We remain committed to high standards of governance.
We work alongside our regulators and recognise our
contribution to building healthy and sustainable societies.
At a glance
Our relationship
We act on our responsibility to run our
business in a way that upholds high standards
of corporate governance.
Customer experience is at the heart of how
we operate. It is imperative that we treat our
customers well, that we listen, and that we act
to resolve complaints quickly and fairly. We
measure customer satisfaction through net
promoter scores across each of our business
lines, listen carefully to customer feedback so
we know where we need to improve, and take
steps to do this.
We are committed to working with our
regulators to manage the safety of the
financial system, adhering to the spirit and
the letter of the rules and regulations
governing our industry.
We strive to meet our responsibilities to
society, including through being transparent in
our approach to paying taxes. We also seek to
ensure we respect global standards on human
rights in our workplace and our supply chains,
and continually work to improve our
compliance management capabilities.
For further details of our corporate
governance, see our corporate
governance report on page 239.
In this section
Setting high
standards of
governance
Human rights
Customer
experience
How ESG is governed
We expect that our ESG governance approach is likely to continue to
develop, in line with our evolving approach to ESG matters and
stakeholder expectations.
Our respect for human
rights
As set out in our Human Rights Statement, we strive for continual
improvement in our approach to human rights.
Customer satisfaction
While customer satisfaction improved during the year, we have work
to do to improve our rank position against competitors.
How we listen
We aim to be open and transparent in how we track, record and
manage complaints.
Integrity, conduct
and fairness
Safeguarding the
financial system
We have continued our efforts to combat financial crime and
reduce its impact on our organisation, customers and communities
that we serve.
Whistleblowing
Our global whistleblowing channel, HSBC Confidential, allows our
colleagues and other stakeholders to raise concerns confidentially.
A responsible approach
to tax
We seek to pay our fair share of tax in all jurisdictions in which
we operate.
Acting with integrity
We aim to act with courageous integrity and learn from past events
to prevent their recurrence.
Conduct: Our product
responsibilities
Our conduct approach guides us to do the right thing and to focus on
the impact we have on our customers and the geographies in which
we operate.
Our approach with
our suppliers
We require suppliers to meet our compliance and financial stability
requirements, as well as to comply with our supplier code of
conduct.
Safeguarding data
Data privacy
We are committed to protecting and respecting the data we hold
and process, in accordance with the laws and regulations of the
geographies in which we operate.
Cybersecurity
We invest in our business and technical controls to help prevent,
detect and mitigate cyber threats.
Page 86
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HSBC Holdings plc Annual Report and Accounts 2022
85
ESG review ESG review | Governance
Setting high standards of governance TCFD
How ESG is governed
The Board takes overall responsibility for ESG
strategy, overseeing executive management
in developing the approach, execution and
associated reporting. Progress against our ESG
ambitions is reviewed through Board discussion
and review of key topics such as updates on
our climate ambition and transition, customer
experience and employee sentiment. The Board
is regularly provided with specific updates on
ESG matters, including the energy policy, human
rights and employee well-being. Board members
receive ESG-related training as part of their
induction and ongoing development, and seek
out further opportunities to build their skills and
experience in this area. For further details of
Board members’ ESG skills and experience, see
page 240. For further details of their induction
and training in 2022, see page 252.
Given the wide-ranging remit of ESG matters,
the governance activities are managed through
a combination of specialist governance
infrastructure and regular meetings and
committees, where appropriate. These include
the Group Disclosure and Controls Committee
and Group Audit Committee, which provide
oversight for the scope and content of ESG
disclosures, and the Group People Committee,
which provides oversight support for the
Group’s approach to performance
management. For some areas, such as climate
where our approach is more advanced,
dedicated governance activities exist to support
the wide range of activities, from sustainable
finance solution development in the
Sustainability Execution Review Group to
climate risk management in the Climate Risk
Oversight Forum.
The Group Chief Risk and Compliance Officer
and the chief risk officers of our PRA-regulated
businesses are the senior managers responsible
for climate financial risks under the UK Senior
Managers Regime. Climate risks are considered
in the Group Risk Management Meeting and
the Group Risk Committee, with scheduled
updates provided, as well as detailed reviews
of material matters, such as climate-related
stress testing exercises.
The diagram on the right provides an illustration
of our ESG governance process, including how
the Board’s strategy on climate is cascaded and
implemented throughout the organisation. It
identifies examples of forums that manage both
climate-related opportunities and risks, along
with their responsibilities and the responsible
chair. The structure of the process is similar for
the escalation of problems, with issues either
resolved in a given forum or raised to the
appropriate level of governance with appropriate
scope and authority.
We expect that our ESG governance approach
is likely to continue to develop, in line with
our evolving approach to ESG matters
and stakeholder expectations.
Opportunities
Risks
How HSBC’s climate
strategy is cascaded
Board level governance
HSBC Holdings Board
Group Executive Committee
Group Audit Committee
Group Risk Committee
Management level governance
ESG Committee
Group Risk Management Meeting
Supports the development and delivery
of the Group’s ESG strategy, key
policies and material commitments by
providing oversight, coordination and
management of ESG commitments
and initiatives.
Co-Chairs: Group Company Secretary
and Chief Governance Officer, and
Group Chief Sustainability Officer
Receives updates on climate risk,
and reviews climate risk appetite
and top and emerging climate risks.
Chair: Group Chief Risk and
Compliance Officer
Supporting governance
Sustainability Execution
Review Group
Oversees the delivery of our ambition
to provide and facilitate $750bn to
$1tn of sustainable finance and
investment, and realisation of
commercial opportunities.
Chair: Group Chief Executive
Climate Risk Oversight Forum
Oversees global risk activities relating
to climate risk management, including
physical and transition risks. Equivalent
forums have been established at
regional level.
Chair: Group Head of Risk Strategy
and Macroeconomic Risk
Regional, global business and global functions
Examples of ESG-related management governance
The following governance bodies support management in its delivery of ESG activities.
Digital Business
Services Executive
Committee
Oversees the global
delivery of ESG
activities within our
own operations,
services and
technology
elements of our
strategy.
Chair: Group Chief
Operating Officer
Group Reputational
Risk Committee
Oversees global
executive support
for identification,
management and
ongoing monitoring
of reputational risks.
Chair: Group
Chief Risk and
Compliance Officer
Human Rights
Steering
Committee
Oversees the
Group’s evolving
approach to human
rights and provides
enhanced
governance.
Chair: Group
Chief Risk and
Compliance Officer
Sustainability
Target Operating
Model Steering
Committee
Oversees the
implementation
of the Group’s
organisational plan
for the internal
infrastructure,
both within the
Sustainability
function and the
wider Group,
to deliver our
climate ambitions.
Chair: Group Chief
Sustainability
Officer
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HSBC Holdings plc Annual Report and Accounts 2022
Governance
Human rights
Our respect for human rights
As set out in our Human Rights Statement, we
recognise the role of business in respecting
human rights. Our approach covers all aspects
of internationally recognised human rights and
is guided by the UN Guiding Principles on
Business and Human Rights (‘UNGPs’) and the
OECD Guidelines for Multinational Enterprises.
Refreshing our salient human rights issues
In 2022, building on an earlier human rights
review that had identified modern slavery and
discrimination as priority issues, we reviewed
our salient human rights issues following the
methodology set out in the UNGPs. These are
the human rights at risk of the most severe
potential negative impact through our business
activities and relationships. It is important to
understand these as inherent risks, based on
the nature of our business. Identifying and
regularly reviewing these risks helps us to
validate and evolve our overall approach to
human rights.
Through this review, we identified the following
five human rights risks (salient human rights
issues) inherent to HSBC’s business globally:
– Right to decent work: This covers freedom
from forced labour including freedom from
slavery and child labour and protection from
inhumane, harsh or degrading treatment or
punishment. It also includes the right to just
and favourable conditions of work including
the right to reasonable working hours, fair
working conditions and pay. It also covers the
right to health and safety at work, including
appropriate living conditions for workers as
well as protection of their mental and
physical health and safety while at work.
– Right to equality and freedom from
discrimination: This covers the right to equal
opportunity and freedom from discrimination
on the basis of protected characteristics.
– Right to privacy: This includes the right to
protection against interference with privacy.
– Cultural and land rights: This includes
Stakeholder engagement
As part of the process of validating our
assessment of our salient human rights
issues, we engaged with a range of internal
and external stakeholders. These included:
– drawing on the experience of our
employee groups, which gave us valuable
feedback on human rights challenges in
the workplace;
– working with civil society groups with
expertise in one or more of our salient
human rights issues, who could represent
the views of potentially impacted people;
Our salient human rights issues
Illustration of HSBC Group’s inherent human rights risks mapped to business activities.
Inherent human rights risks
Employer
Buyer
Right to
decent
work
Freedom from forced
labour
Just and favourable
conditions of work
Right to health and safety
at work
Right to equality and freedom from
discrimination
Right to privacy
Cultural and land rights
Right to dignity and justice
◆
◆
◆
◆
◆
◆
◆
◆
◆
◆
◆
1 Investor includes our activities in HSBC Asset Management.
HSBC activities
Provider of products and
services
Personal
customers
Business
customers
Investor1
◆
◆
◆
◆
◆
◆
◆
◆
◆
◆
◆
◆
◆
◆
◆
◆
◆
self-determination and the enjoyment of
culture, religion and language, and the rights
of indigenous people.
– Right to dignity and justice: This includes
freedom of opinion and expression and
freedom from arbitrary arrest, detention
or exile.
The assessment also considered our business
activities and relationships in the context of
our roles: as an employer; as a buyer of goods
and services; as a provider of financial
products and services to personal customers
and, separately, to business customers; and as
an investor, including all investment activities.
We assessed how each of these five roles
might intersect with our five salient human
rights issues. The table above shows the areas
where we assessed severe negative impacts
on human rights would be most likely to arise,
in the absence of action to mitigate them. This
additional analysis allows us to focus our
efforts as we review the range of measures
already in place to manage risks, and consider
enhancements.
Managing risks to human rights
In 2022, we began the process of adapting our
risk management procedures to reflect what
we learned from the work on salient human
rights issues described above. This included
the development of Group guidance on human
rights, which incorporates the salient human
rights issues assessment and provides
colleagues with practical advice, including
case studies, on how to identify, prevent,
mitigate and account for how we address our
impacts on human rights.
We incorporated additional human rights
elements into our existing procurement
processes and supplier code of conduct,
and we extended existing human rights due
– interviewing of our largest investors to hear
their assessments of the potential human
rights impacts associated with the financial
services industry, and we listened to their
expectations of us in responding to the
risks; and
– discussing our salient human rights issues
with some of our key suppliers, our large
business customers and the companies in
which we invest, to understand their views
of human rights impacts in different parts of
the world and to develop collaborative
approaches to addressing those impacts.
These stakeholder engagements and input
from external human rights experts led us to
alter or extend our initial assessments in
several ways. For example, our discussions
with civil society groups helped us
understand the potential impact of our
investments on all five of our salient human
rights issues. Engagement with investors in
HSBC informed our assessment of the way
in which our salient human rights issues
overlap with our approach to climate change
and our commitment to a just transition (see
next page).
HSBC Holdings plc Annual Report and Accounts 2022
87
ESG review ESG review | Governance
Our respect for human rights continued
diligence processes for suppliers and business
customers. We continued to develop our
in-house capability on human rights, including
by launching online resources for all staff and
delivering bespoke human rights training for
520 employees across our network.
Financial crime controls
The risk of us causing, contributing or being
linked to adverse human rights impacts is
also mitigated by our financial crime risk
management framework, which includes our
global policies and associated controls.
For further details of how we fight financial crime,
see www.hsbc.com/who-we-are/esg-and-
responsible-business/fighting-financial-crime.
Other policies
HSBC’s Principles for the Ethical Use of Data
and Artificial Intelligence describe how we
seek to respect rights to privacy while making
use of these technologies.
Driving change
We continued to be active participants in
industry forums, including the Thun Group of
Banks, which is an informal group that seeks to
promote understanding of the UNGPs within
the sector.
HSBC has been an active member of the
Mekong Club since 2016. We are a regular
participant in its monthly financial services
working group and use its informative
typological toolkits, infographics, and other
multimedia resources covering current and
emerging human trafficking and modern
slavery issues. Our Compliance teams
regularly collaborate and engage with the
Mekong Club in designing bank-wide
knowledge sharing and training sessions.
Supporting those impacted and those
potentially at risk
We continued to expand our Survivor Bank
programme, which has now benefited over
2,000 survivors of modern slavery and human
trafficking in the UK, and is a model for
making financial services more accessible to
vulnerable communities worldwide.
The actions we are taking to address these
salient human rights issues are consistent
with our values, and will help us to meet our
commitments on diversity and inclusion, and
those we have made under the UN Global
Compact and the World Economic Forum
metrics on risk for incidents of child, forced
or compulsory labour.
For further details of the actions we have taken to
respect the right to decent work, see our Annual
Statement under the UK Modern Slavery Act at
www.hsbc.com/modernslaveryact.
For further details of the actions taken to
respect the right to equality and freedom from
discrimination, see ’Our approach to diversity
and inclusion’ on page 74.
Sector policies
Some of our business customers operate in
sectors in which the risk of adverse human
rights impact is greater. Our sector policies for
agricultural commodities, energy, forestry,
mining and metals cover human rights issues
such as forced labour, harmful or exploitative
child labour, land rights, the rights of
indigenous peoples, including ‘free prior and
informed consent’, workers’ rights, and the
health and safety of communities.
Through our membership of international
certification schemes such as the Forestry
Stewardship Council, the Roundtable on
Sustainable Palm Oil and the Equator Principles,
we actively support the continual improvement
of standards aimed at respecting human rights.
Our sector policies are reviewed periodically to
ensure they reflect our priorities.
For further details of our policy prohibitions and
other financing restrictions, see our sector-
specific sustainability risk policies at www.hsbc.
com/who-we-are/esg-and-responsible-business/
managing-risk/sustainability-risk.
We built on this experience in developing
access to banking services for customers
in the UK and in Hong Kong with no fixed
abode, providing over 4,000 accounts under
these programmes.
We also responded to the devastating effects
of the conflict in Ukraine by introducing a
new process to help refugees to access the
financial services they need to set up a new
life in the UK. Over 9,000 people fleeing the
conflict have opened a bank account with us.
For further details of our work to support
vulnerable communities, see page 83.
Effectiveness
The table below includes indicative metrics we
use to measure year-on-year continual
improvement to our human rights processes.
Contracted suppliers who had
either confirmed adherence to the
code of conduct or provided their
own alternative that was accepted
by our Global Procurement
function (%)
93%
No-cost accounts held for
customers who do not qualify for
a standard account or who might
need additional support due to
social or financial vulnerability
Employees who have received
bespoke training on human rights
Votes against management for
reasons including human rights1
Concerns raised related to
bullying, harassment,
discrimination and retaliation
716,957
520
87
1,159
1 The figure represents the number of resolutions at
investee company shareholder meetings (including
AGMs) where votes were cast against management
for reasons related to human rights.
Working for a just transition
We aim to play a leading role in mobilising the transition to a global net zero economy, not just by
financing it, but by helping to shape and influence the global policy agenda. When designing and
implementing low-carbon pathways it is important to consider the communities and areas of the
economy that will be facing the greatest challenges. This aligns closely with our commitments on
human rights more broadly. This was demonstrated in June 2022 when HSBC and US fashion
group PVH Corp. announced the first sustainable supply chain finance programme that includes
human rights performance standards.
For further details on this programme, see page 58. See also our paper on Just and Inclusive Climate
Transition for investors at www.assetmanagement.hsbc.co.uk/-/media/files/attachments/common/
news-and-articles/articles/campaign-2022-11-02-hsbc-responsible-investment-insights-q4-2022.pdf.
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HSBC Holdings plc Annual Report and Accounts 2022
Governance
Customer experience
We remain committed to improving
customers’ experiences. In 2022, we gathered
feedback from over one million customers
across our three global businesses to help us
understand our strengths and the areas of
focus. Our recommendation scores improved
in more than 66% of our markets, although
we still have work to do to improve our rank
position against competitors.
Customer satisfaction
Listening to drive continual improvement
In 2022, we continued to embed our feedback
system so we can better listen, learn and act
on our customers’ feedback. We use the net
promoter score (‘NPS’) to provide a consistent
measure of our performance. NPS is
measured by subtracting the percentage
of ‘Detractors’ from the percentage of
‘Promoters’. ‘Detractors’ are customers who
provide a score of 0 to 6, and ‘promoters’ are
customers who provide a score of 9 to 10 to
the question: ‘On a scale on 0 to 10, how likely
is it that you would recommend HSBC to a
friend or colleague’.
We run studies that allow us to benchmark
ourselves against other banks. In 2022, we
expanded our surveys to 14 markets to cover
India, France and Germany. We try to make it
as easy as possible for customers to give us
feedback, accelerating our use of digital
real-time surveys to capture insight. By sharing
this and other feedback with our front-line
teams, and allowing them to respond directly
to customers, we are improving how we
address issues and realising opportunities.
Our WPB ‘Customer in the room’ programme
launched in 2022 to bring our senior
leadership closer to customers by providing
them with direct access to customer
feedback. The programme helps to
demonstrate the impact of our decisions on
our customers, and helps ensure we use
customer feedback in all aspects of how we
run our business.
How we fared
In WPB, our NPS increased in four of our six
key markets, which were the UK, Hong Kong,
mainland China and Singapore. Our NPS in
Mexico remained unchanged, while our NPS
in India saw a small decline. In Hong Kong,
we were ranked in first place, with improved
scores in wealth advisory, life insurance and
investment products. Our PayMe payments
app was also ranked in second place for
digital wallets.
Our ranks in mainland China and India
remained in the top three, while our rank in
India declined to third place. Our NPS in India
declined across the mobile app, branch and
call centre channels. Our overall rank in
Singapore improved, and we remained in the
top three among our mass affluent and high
net worth customers. Our rank in the UK
remained unchanged, with improvements in
our loan products and wealth advisory scores.
However, customers told us we needed to
focus more on making digital platforms more
accessible; making payments easier;
improving our account opening experience;
and helping customers better monitor their
spending. We have made a commitment to
invest in making improvements in these areas.
In our private bank, our global NPS decreased
to 25, compared with 31 in 2021. This was
largely due to a decrease in our scores in Hong
Kong, the US and Luxembourg, with mainland
China and Taiwan now included in the
overall score.
In CMB, our NPS increased in four of our
six key markets, which were Hong Kong,
mainland China, Singapore and Mexico. Our
NPS declined in the UK and India. Our rank
positions in Hong Kong, India, mainland China,
Singapore and Mexico either improved
compared with 2021, or were in the top three
against competitors. However, our rank in
India declined to third place. This was driven
by a decline in NPS among our Business
Banking customers. In the UK, our overall rank
remained unchanged. We were ranked in the
top three among our large corporate and
mid-market enterprise customers in the UK,
and we saw a small decline in NPS among
our Business Banking customers. We continue
to see some challenges in service delivery,
particularly for our Business Banking customers.
Among other initiatives, we have been working
hard to resolve telephony resourcing, which has
impacted our responsiveness.
In GBM, our global NPS improved from 13 to
17 points. Our global rank position remained in
fifth place. We continued to be ranked in the
top three against competitors in MENA, while
our US rank improved. Our digital satisfaction
score fell marginally by one point. We
remained ranked first for the quality of our
digital trade finance platforms.
Number of markets in top three
or improving rank1
WPB
CMB
2022
4 out of 6
5 out of 6
1 In 2022, we updated the markets we measure
our rank positions for both our WPB and CMB
businesses to align with executive incentive
scorecards. They comprise: the UK, Hong Kong,
Mexico, mainland China, India and Singapore.
Rank positions are provided using data gathered
through third-party research agencies
Acting on feedback
We continued to focus on improving our
products and services to enable better
customer experiences.
Across WPB, we launched our Global
Money proposition, initially in the UK, which
allows customers to open a multi-currency
account and be able to use it within
minutes. We also introduced a new mobile
account opening journey in Singapore in
response to preferences for mobile-first
experiences.
In CMB, we deployed digital onboarding
solutions to 12 markets in 2022, using
external data sourcing to streamline client
and colleague journeys. These deliveries
increased our digital penetration by 14%
from 2021, extending our digital products
and services to more customers globally.
Through using technology to digitise our
operations, there was close to a 6% increase
in 2022 in trade transactions initiated digitally
by our customers, and nearly a 62% increase
in payments completed using the HSBCnet
mobile app.
In response to client feedback, we made a
number of changes to our client coverage
model in GBM during 2022. We reshaped
our Institutional Client Group, particularly our
approach to financial sponsors, sovereign
wealth funds and global investors. We
enhanced our corporate multinational model
to focus on our largest relationships through
regional account managers. We also
launched a series of transaction banking
solutions to improve the experience for
our clients, and created a new digital
collaboration layer to drive clearer
accountability and coordination of global
teams when delivering these solutions.
HSBC Holdings plc Annual Report and Accounts 2022
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ESG review ESG review | Governance
How we listen
To improve how we serve our customers, we
must be open to feedback and acknowledge
when things go wrong. We have adapted
quickly to support our customers facing
new challenges and new ways of working,
especially as a result of Covid-19-related
lockdown restrictions.
We aim to be open and consistent in how
we track, record and manage complaints,
although as we serve a wide range of
customers – from personal banking and
wealth customers to large corporates,
institutions and governments – we tailor our
approach in each of our global businesses. As
the table on the right demonstrates, we have a
consistent set of principles that enable us to
remain customer-focused throughout the
complaints process.
For further details on complaints volumes by
geography, see our ESG Data Pack at www.
hsbc.com/esg.
How we handle complaints
Our principles
Our actions
Making it easy for
customers to
complain
Customers can complain via the channel that best suits them. We
provide a point of contact along with clear information on next
steps and timescales.
Acknowledging
complaints
Keeping the
customer up to
date
Ensuring fair
resolution
All colleagues welcome complaints as opportunities and exercise
empathy to acknowledge our customers’ issues. Complaints are
escalated if they cannot be resolved at first point of contact.
We set clear expectations and keep customers informed throughout
the complaint resolution process via their preferred channel.
We thoroughly investigate all complaints to address concerns and
ensure the right outcome for our customers.
Providing available
rights
We provide customers with information on their rights and the
appeal process if they are not satisfied with the outcome of the
complaint.
Undertaking root
cause analysis
Complaint causes are analysed on a regular basis to identify and
address any systemic issues and to inform process improvements.
Wealth and Personal Banking (‘WPB’)
In 2022, we received approximately 1.2 million
complaints from customers. The ratio of
complaints per 1,000 customers per month
in our large markets decreased slightly from
2.4 to 2.3.
accessing and using our digital platforms. We
are addressing these by seeking to improve our
digital capabilities, timely staff reinforcement,
enhanced guidance of how to use our digital
platforms and improved customer journeys.
In the UK, complaints fell 8% partly due to a
decline in transaction disputes, which had
risen during the Covid-19 pandemic. The
reduction in these complaint volumes can also
be attributed to journey improvements we
made to deal with these disputes more quickly.
We continue to be focused on improving the
customer experience to reduce complaint
volumes further during 2023.
The increase in complaints in Hong Kong was
mainly related to reduced operations in our
branches during Covid-19-related restrictions,
an increase in fraudulent activities, and the
migration by customers towards new ways of
The decrease in complaints in Mexico was
driven by improvements in fraud detection,
as our fraud teams took actions to protect
customers, including carrying out an upgrade
to a monitoring tool for credit and debit cards
and making adjustments to fraud rules.
In our private bank in 2022, we received 331
complaints, a 23% decrease on 2021, largely
due to the reduction in administration and
service issues. Within this category a high
proportion were attributable to processing or
client reporting delays/errors. In 2022, the
private bank resolved 344 complaints.
WPB complaint volumes1
(per 1,000 customers per month)
Total2
UK3
Hong Kong3
Mexico3
2022
2021
2.3
2.4
1.4
1.4
1.0
0.7
5.1
5.5
1 A complaint is any expression of dissatisfaction
about WPB’s activities, products or services
where a response or resolution is explicitly or
implicitly expected.
2 Markets included: Hong Kong, mainland China,
France, the UK, UAE, Mexico, Canada and the US.
3 The UK, Mexico and Hong Kong make up 86% of
total complaints.
Acting on feedback
In 2022, we launched a Group-wide plan to
deliver an improved experience for our
customers around the world. The plan will
strengthen our capabilities to hear, understand
and act on what our customers are telling
us on a regular basis. Across markets we
enhanced our measurement and tracking
capabilities, and developed the skills and tools
our colleagues need to improve their customer
experience each day. We also sought to
standardise our customer-focused approach
in our processes.
This allows us to have a structured approach
to manage feedback.
For our colleagues focused on improving our
customers’ experiences, we enhanced and
launched regular forums in 15 of our key
markets to ensure systematic reviews are
carried out to prioritise feedback and
implement improvements quickly regarding
our customers’ online and offline experiences.
In Hong Kong, we analyse customer feedback
and detect their pain points at an early stage
through a feedback mechanism. Our
colleagues are now able to reach out to
our customers with unhappy experiences
proactively to resolve their outstanding issues.
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Governance
How we listen continued
Commercial Banking (‘CMB’)
In 2022, we received 62,995 customer
complaints, a decrease of 23.4% from 2021.
Of the overall volumes, 78.1% came from the
UK and 12.9% from Hong Kong. The most
common complaint related to operations,
namely payment processing errors and delays.
The reduced volume of received complaints in
the UK was largely as a result of a reduction in
Covid-19-related complaints. This was mainly
due to the fact we received fewer complaints
related to the Bounce Back Loan scheme, and
we also resolved the under-resourcing in UK
servicing centres, which had led to delays in
customer support in 2021 and into the first
half of 2022.
Acting on feedback
In Hong Kong, volumes were higher in the first
half of the year due to the consequences of
Covid-19-related restrictions that placed stress
on servicing centre capacity. Additional
recruiting of servicing staff, improvements
in the customer due diligence policy and the
payment investigations process helped to
reduce complaints volumes in the second half
of the year, resulting in annual volumes that
were in line with 2021.
We resolved 65,018 complaints globally
in 2022. The average resolution time for
complaints reduced by 23% to an average
of 5.7 days, which is within our global target
of 20 days.
CMB complaint volumes1
(000s)
Total
UK
2022
2021
63.0
82.2
49.2
67.1
Hong Kong
8.1
8.2
In 2022, we continued to invest in our client
feedback tool, moving our products and local
operations onto the platform. The Global
Payments Solutions business adopted the
tool during the year, and CMB staff in Hong
Kong and India are due to begin logging and
managing complaints in early 2023.
In late 2022, we also introduced new
reporting functionality for complaints logged
on the tool, which will update complaints
on a daily basis, and enable colleagues
responsible for managing complaints within
markets and product teams to more closely
manage volumes and operations.
We seek to ensure that we treat customers
fairly when managing complaints, especially
those who may be considered vulnerable or
who have enhanced care needs. In 2022, we
reported 865 complaints associated with such
customers and have managed these closely to
ensure fair outcomes for the customer.
Global Banking and Markets (‘GBM’)
In 2022, we received 2,127 customer
complaints in Global Banking, a decrease
of 8% from 2021.
Of the overall Global Banking complaints
volumes, 45.6% were from complaints in
Europe and 28.0% came from the MENA
region. With regard to the types of complaint,
82% for Global Banking related to servicing
and payment processing, which is in line with
previous years.
In the Markets and Securities Services
business, complaint volumes decreased by
6% from 2021. Of the overall Markets and
Securities Services complaint volumes, 48%
were in Asia and 43% in Europe. Our Markets
and Securities Services business remains
focused on providing a high standard of client
service and commitment to resolving issues in
a timely manner, with 93% closed within our
service standards.
GBM complaint volumes1
Total
2022
2021
2,419 2,619
Global Banking2
2,127 2,310
Global Markets and
Securities Services
292
309
Acting on feedback
We have continued to invest in our client
feedback tool to create a consistent and
streamlined experience for front-line staff in
Global Banking and Markets and the
wholesale businesses globally. In the fourth
quarter, we launched a new reporting
module driven from our client feedback tool,
which will provide real-time complaints
volumes, complaint details and operational
metrics for our complaints users. This
additional information will enable
management to respond to complaints
volumes.
1 Globally, a complaint is any expression of dissatisfaction, whether justified or not, relating to the provision of, or failure to provide, a specific product or service or
service activity. Within the UK, a complaint is any expression of dissatisfaction – whether justified or not – about our products, services or activities which suggests
we have caused (or might cause) financial loss, or material distress or material inconvenience.
2 Global Banking also includes Global Payments Solutions (previously known as Global Liquidity and Cash Management) and complaints relating to payment
operations, which is part of Digital Business Services.
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ESG review ESG review | Governance
Integrity, conduct and fairness
Safeguarding the financial system
We have continued our efforts to combat
financial crime and reduce its impact on our
organisation, customers and the communities
that we serve. Financial crime includes fraud,
bribery and corruption, tax evasion, sanctions
and export control violations, money
laundering, terrorist financing and
proliferation financing.
We are committed to acting with integrity,
and have a financial crime risk management
framework that is applicable across all global
businesses and functions, and all countries
and territories in which we operate. The
financial crime risk framework, which is
overseen by the Board, is supported by our
financial crime policies that are designed to
enable adherence to applicable laws and
regulations globally. Annual mandatory
training is provided to all colleagues, with
additional targeted training tailored to certain
individuals. We carry out regular risk
assessments, identifying where we need to
respond to evolving financial crime threats, as
well as monitoring and testing our financial
crime risk management programme.
We continue to invest in new technology,
including through the deployment of a
capability to monitor correspondent banking
activity, the enhancements to our fraud
monitoring capability and our trade screening
controls, and the application of machine
learning to improve the accuracy and
timeliness of our detection capabilities. These
new technologies should enhance our ability
to respond effectively to unusual activity and
be more granular in our risk assessments.
This helps us to protect our customers, the
organisation and the integrity of the global
financial system against financial crime.
Our anti-bribery and corruption policy
Our global anti-bribery and corruption policy
requires that all activity must be: conducted
without intent to bribe or corrupt; reasonable
and transparent; considered to not be lavish
nor disproportionate to the professional
relationship; appropriately documented
with business rationale; and authorised at
an appropriate level of seniority. Our global
anti-bribery and corruption policy requires
that we identify and mitigate the risk of our
customers and third parties committing
bribery or corruption. Among other controls,
we use customer due diligence and
transaction monitoring to identify and help
mitigate the risk that our customers are
involved in bribery or corruption. We perform
anti-bribery and corruption risk assessments
on third parties that expose us to this risk.
The scale of our work
Each month, on average, we monitor
over 1.2 billion transactions for signs of
financial crime. During 2022, we filed
over 73,000 suspicious activity reports
to law enforcement and regulatory
authorities where we identified potential
financial crime. In addition, we screen
approximately 117 million customer
records monthly for sanctions exposure.
99%
Total percentage of employees who have
received financial crime training, including
on anti-bribery and corruption.
Whistleblowing
We want colleagues and stakeholders to have
confidence in speaking up when they observe
unlawful or unethical behaviour. We offer a
range of speak-up channels to listen to the
concerns of individuals and have a zero
tolerance for acts of retaliation.
Listening through whistleblowing
channels
Our global whistleblowing channel, HSBC
Confidential, is one of our speak-up channels,
which allows our colleagues and other
stakeholders to raise concerns confidentially
and, if preferred, anonymously (subject to
local laws). In most of our markets, HSBC
Confidential concerns are raised through an
independent third party, offering 24/7 hotlines
and a web portal in multiple languages. We
also provide and monitor an external email
address for concerns about accounting,
internal financial controls or auditing matters
(accountingdisclosures@hsbc.com). Concerns
are investigated proportionately and
independently, with action taken where
appropriate. This can include disciplinary
action, dismissal, and adjustments to variable
pay and performance ratings.
We promote our full range of speak-up
channels to colleagues to help ensure their
concerns are handled through the most
effective route. In 2022, 18% fewer concerns
were raised through HSBC Confidential
compared with 2021. Of the concerns
investigated through the HSBC Confidential
channel in 2022, 83% related to behaviour
and conduct, 11% to security and fraud risks,
6% to compliance risks and less than 1% to
other categories.
The Group Audit Committee has overall
oversight of the Group’s whistleblowing
arrangements, and the chair of the
Group Audit Committee acts as HSBC’s
whistleblowers’ champion with responsibility
for ensuring and overseeing the integrity,
independence and effectiveness of the
organisation’s policies and procedures.
Compliance sets the whistleblowing policy
and procedures, and provides the Group
Audit Committee with periodic updates on
their effectiveness. Specialist Compliance
teams and investigation functions own
whistleblowing controls, with monitoring in
place to determine control effectiveness.
For further details of the role of the Group Audit
Committee in relation to whistleblowing, see
page 266.
HSBC Confidential concerns raised
in 2022:
1,817
(2021: 2,224)
Substantiation rate of concerns
investigated through HSBC Confidential
in 2022:
41%
(2021: 42%)
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HSBC Holdings plc Annual Report and Accounts 2022
Governance
A responsible approach to tax
We seek to pay our fair share of tax in all
jurisdictions in which we operate and to minimise
the likelihood of customers using our products
and services to evade or inappropriately avoid
tax. We also abide by international protocols that
affect our organisation. Our approach to tax and
governance processes is designed to achieve
these goals.
Through adoption of the Group’s risk
management framework, we seek to ensure
that we do not adopt inappropriately tax-
motivated transactions or products, and that
tax planning is scrutinised and supported by
genuine commercial activity. HSBC has no
appetite for using aggressive tax structures.
With respect to our own taxes, we are guided
by the following principles:
– We are committed to applying both the
letter and spirit of the law. This includes
adherence to a variety of measures arising
from the OECD Base Erosion and Profit
Shifting initiative.
– We seek to have open and transparent
relationships with all tax authorities. Given
the size and complexity of our organisation,
which operates across over 60 jurisdictions,
a number of areas of differing interpretation
or disputes with tax authorities exist at
any point in time. We cooperate with the
relevant local tax authorities to mutually
agree and resolve these in a timely manner.
– We have applied the OECD/G20 Inclusive
Framework Pillar 2 guidance to identify those
jurisdictions in which we operate that have nil
or low tax rates (15% or below). We have
identified seven such jurisdictions in which
we operated during 2022 that may be
impacted by adjustments required under the
Pillar 2 Framework. We continually monitor
the number of active subsidiaries within each
jurisdiction as part of our ongoing entity
rationalisation programme. We seek to
ensure that our entities active in nil or low tax
jurisdictions have clear business rationale for
why they are based in these locations and
appropriate transparency over their activities.
With respect to our customers’ taxes, we are
guided by the following principles:
– We have made considerable investments to
support external tax transparency initiatives
and reduce the risk of banking services being
used to facilitate customer tax evasion.
Initiatives include the US Foreign Account
Tax Compliance Act, the OECD Standard for
Automatic Exchange of Financial Account
Information (‘Common Reporting Standard’),
and the UK legislation on the corporate
criminal offence of failing to prevent the
facilitation of tax evasion.
– We implement processes that aim to ensure
that inappropriately tax-motivated products and
services are not provided to our customers.
Our tax contributions
The effective tax rate for the year of 4.9%
was reduced by 14.3% by the recognition of
previously unrecognised deferred tax assets in
the UK and France in light of improvements in
forecast profits in these jurisdictions. Further
details are provided on page 357. The UK bank
levy charge for 2022 of $13m is lower than the
charge of $116m for 2021 as it includes
adjustments made to prior period UK bank
levy charges recognised in the current year.
As highlighted below, in addition to paying
$5.5bn of our own tax liabilities during 2022,
we collected taxes of $10.2bn on behalf of
governments around the world. A more
detailed geographical breakdown of the taxes
paid in 2022 is provided in the ESG Data Pack.
Taxes paid – by type of tax
Taxes paid – by region
Taxes collected – by region
Tax on profits $2,429m (2021: $2,711m)
Withholding taxes $361m (2021: $366m)
Employer taxes $1,041m (2021: $1,125m)
Bank levy $314m (2021: $479m)
Irrecoverable VAT $1,152m (2021: $1,315m)
Other duties and levies1 $232m (2021: $278m)
Europe $2,745m (2021: $3,170m)
Asia-Pacific $1,894m (2021: $2,077m)
Middle East and North Africa $259m
(2021: $236m)
North America $207m (2021: $469m)
Latin America $424m (2021: $322m)
Europe $4,197m (2021: $3,177m)
Asia-Pacific $3,274m (2021: $3,584m)
Middle East and North Africa $67m
(2021: $78m)
North America $1,129m (2021: $1,081m)
Latin America $1,493m (2021: $1,343m)
1 Other duties and levies includes property taxes of $94m (2021: $126m).
Acting with integrity
We aim to act with courageous integrity and
learn from past events to prevent their
recurrence. We recognise that restoration of
trust in our industry remains a significant
challenge, but it is a challenge we must
continue to pursue. We owe this not just to our
customers and to society at large, but to our
colleagues to ensure they can be rightly proud
of the organisation where they work. We aim to
make decisions based on doing the right thing
for our customers and never compromising our
ethical standards or integrity.
Further information regarding the measures
that we have taken to prevent the recurrence
of past mistakes can be found at www.hsbc.
com/who-we-are/esg-and-responsible-
business/esg-reporting-and-policies.
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Conduct: Our product responsibilities
Our conduct approach guides us to do the
right thing and to focus on the impact we have
for our customers and the financial markets in
which we operate. It is embedded into the way
we design, approve, market and manage
products and services, with a focus on five
clear outcomes:
– We understand our customers’ needs.
– We provide products and services that
offer a fair exchange of value.
– We service customers’ ongoing needs,
and put it right if we make a mistake.
– We act with integrity in the financial markets
we operate in.
– We operate resiliently and securely to avoid
harm to customers and markets.
We train all our staff on our approach to
conduct, helping to ensure our conduct
outcomes are part of everything we do.
Designing products and services
Our approach to product development is set
out in our policies, and provides a clear basis
on which informed decisions can be made.
Our policies require that products must be
fit-for-purpose throughout their existence,
meeting regulatory requirements and
associated conduct outcomes.
Our approach includes:
– designing products to meet identified
customer needs;
– managing products through governance
processes, helping to ensure they meet
customers’ needs and deliver a fair
exchange of value;
– periodically reviewing products to help
ensure they remain relevant and perform
in line with expectations we have set; and
– improving, or withdrawing from sale,
products which do not meet our customers’
needs or no longer meet our high standards.
Meeting our customers’ needs
Our policies and procedures set standards to
ensure that we consider and meet customer
needs. These include:
– enabling customers to understand the key
features of products and services;
– enabling customers to make informed
decisions before purchasing a product or
service; and
– ensuring processes are in place for the
provision of advice to customers.
They help us provide the right outcomes for
customers, including those with enhanced
care needs. This helps us to support
customers who are more vulnerable to
external impacts, including the current cost of
living crisis (see ‘Supporting our customers
facing a rising cost of living’ on page 15).
Financial promotion
Our policies help to ensure that in the sale of
products and services, we use marketing and
product materials that support customer
understanding and fair customer outcomes.
This includes providing information on
products and services that is clear, fair and not
misleading. We also have controls in place to
ensure our cross-border marketing complies
with relevant regulatory requirements.
Product governance
Our product governance arrangements
cover the entire lifecycle of the product.
This helps ensure that our products meet
our policy requirements before we sell
them. It also allows continued risk-based
oversight of product performance against
the intended customer outcomes.
When we decide to withdraw a product
from sale, we aim to consider the
implications for our existing customers,
and agree actions to help them achieve a
fair outcome where appropriate.
Our approach with our suppliers
We maintain global standards and procedures
for the onboarding and use of third-party
suppliers. We require suppliers to meet
our compliance and financial stability
requirements, and to comply with our
supplier code of conduct.
Supplier code of conduct
We have a supplier code of conduct, revised in
2022, which sets out our commitments to the
environment, diversity and human rights, and
which outlines the minimum commitments
we expect of our suppliers on these issues.
Sustainable procurement
In October 2022, we introduced an internal
sustainable procurement procedure to set out
the minimum sustainability requirements for
procurement activity. This helps us to manage
the risks related to sustainability in our supply
chain, and balance the social, environmental
and economic considerations in procurement
decisions.
We formalise commitment to the code with
clauses in our supplier contracts, which
support the right to audit and act if a breach
is discovered.
At the end of 2022, 93% of approximately
9,600 contracted suppliers had either
confirmed adherence to the supplier code of
conduct or provided their own alternative that
was accepted by our Global Procurement
function.
Managing environmental and social risk
In 2022, we updated our ESG reputational risk
assessment tool to identify the environmental
and social risks for suppliers that are
considered to be in sectors with high ESG risk.
Previously, the assessment was applied to
suppliers with higher value contracts only. The
tool provides an ESG reputational risk score for
the supplier. A high-risk score results in a
further review to establish whether we are
able to mitigate the risk and onboard
the supplier.
For further details of the number of suppliers by
geographical region, see the ESG Data Pack at
www.hsbc.com/esg.
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HSBC Holdings plc Annual Report and Accounts 2022
Governance
Safeguarding data
Data privacy
We are committed to protecting and
respecting the data we hold and process,
in accordance with the laws and regulations
of the markets in which we operate.
Our approach rests on having the right
talent, technology, systems, controls, policies
and processes to help ensure appropriate
management of privacy risk. Our Group-wide
privacy policy and principles aim to provide a
consistent global approach to managing data
privacy risk, and must be applied by all of our
global businesses and global functions. Our
privacy principles are available at www.hsbc.
com/who-we-are/esg-and-responsible-
business/managing-risk/operational-risk.
We conduct regular employee training and
awareness sessions on data privacy and
security issues throughout the year. This
includes global mandatory training for all our
colleagues, with additional training sessions,
where needed, to keep up to date with new
developments in this space.
We provide transparency to our customers
and stakeholders on how we collect, use
and manage their personal data, and their
associated rights. Where relevant, we work
with third parties to help ensure adequate
protections are provided, in line with our data
privacy policy and as required under data
privacy law. We offer a broad range of
channels in the markets where we operate,
through which customers and stakeholders
can raise concerns on the privacy of their data.
Our dedicated privacy teams report to the
highest level of management on data privacy
risks and issues, and oversee our global data
privacy programmes. We review data privacy
regularly at multiple governance forums,
including at Board level, to help ensure
appropriate challenge and visibility for senior
executives. Data privacy laws and regulations
continue to evolve globally. We continually
monitor the regulatory environment to ensure
we respond appropriately to any changes.
As part of our three lines of defence model,
our Global Internal Audit function provides
independent assurance as to whether our
data privacy risk management approaches
and processes are designed and operating
effectively. In addition, we have established
data privacy governance structures, and
continue to embed accountability across
all businesses and functions.
We continue to implement industry practices
for data privacy and security. Our privacy
teams work closely with our data protection
officers, industry bodies and research
institutions to drive the design, implementation
and monitoring of privacy solutions. We
conduct regular reviews and privacy risk
assessments, and continue to develop solutions
to strengthen our data privacy controls.
We continue to enhance our internal data
privacy tools to improve accountability for
data privacy. We have procedures to articulate
the actions needed to deal with data privacy
considerations. These include notifying
regulators, customers or other data subjects,
as required under applicable privacy laws and
regulations, in the event of a reportable
incident occurring.
Intellectual property rights practices
We have policies, controls and guidance
to manage risk relating to intellectual
property. This is to help ensure that
intellectual property is identified, maintained
and protected appropriately, and to help
ensure we do not infringe third-party
intellectual property rights during the course
of business and/or operation.
These policies and controls support our
management of intellectual property risk,
and operate to help ensure that intellectual
property risk is controlled consistently and
effectively in line with our risk appetite.
Data Privacy Day
In January 2022, we hosted an internal
global data privacy event for our
colleagues to mark International Data
Privacy Day. The event, which was
broadcast online, was hosted by our
Global Head of Data Privacy Legal and
the Global Data Risk Steward. The
President and CEO of the International
Association of Privacy Professionals
was a guest speaker at the event.
Key themes included an exploration of
developments in US state and federal
data privacy legislation and regulations,
developments in the implementation and
embedding of existing data privacy laws,
key challenges to organisations such as
cross-border data transfers and data
localisation requirements, and the
evolving enforcement environment
within which we operate.
The ethical use of data and AI
Artificial intelligence and other emerging technologies give us the ability to process and
analyse data at a depth and breadth not previously possible. While these technologies offer
significant potential benefits for our customers, they also pose potential ethical risks for the
financial services industry and society as a whole. We have developed a set of principles to
help us consider and address the ethical issues that could arise. HSBC’s Principles for the
Ethical Use of Data and Artificial Intelligence are available at www.hsbc.com/who-we-are/
esg-and-responsible-business/our-conduct.
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ESG review ESG review | Governance
Cybersecurity
The threat of cyber-attacks remains a concern
for our organisation, as it does across the
financial sector. As cyber-attacks continue
to evolve, failure to protect our operations
may result in disruption for customers,
manipulation of data or financial loss.
This could have a negative impact on
our customers and our reputation.
We continue to monitor ongoing geopolitical
events and changes to the cyber threat
landscape, and take necessary proactive
measures with the aim to reduce any impact
to our customers.
Prevent, detect and mitigate
We invest in business and technical controls
to help prevent, detect and mitigate cyber
threats. We apply a ’defence in depth’
approach to cyber controls, recognising the
complexity of our environment. Our ability
to detect and respond to attacks through
round-the-clock security operations centre
capabilities helps to reduce the impact
of attacks.
We continually evaluate threat levels for the
most prevalent attack types and their potential
outcomes. We have a cyber intelligence and
threat analysis capability, which proactively
collects and analyses external cyber
information. We input into the broader cyber
intelligence community through technical
expertise in investigations and contributions
to the cyber-sharing ecosystem in the financial
services industry, alongside government
agencies around the world.
In 2022, we further strengthened our cyber
defences and enhanced our cybersecurity
capabilities to help reduce the likelihood and
impact of unauthorised access, security
vulnerabilities being exploited, data leakage,
third-party security exposure and advanced
malware. These defences build upon a
proactive data analytical approach to help
identify advanced targeted threats.
Policy and governance
We have a comprehensive range of
cybersecurity policies and systems designed
to help ensure that the organisation is well
managed, with oversight and control.
We operate a three lines of defence model,
aligned to the operational risk management
framework, to help ensure oversight and
challenge of our cybersecurity capabilities
and priorities. In the first line of defence,
we have risk owners within global businesses
and functions who are accountable for
identifying and managing the cyber risk.
They work with control owners to apply the
appropriate risk treatment in line with our risk
appetite. Our controls are executed in line with
policies produced by our Resilience Risk
teams, and are reviewed and challenged by
the second line of defence. They are overseen
by the Global Internal Audit function, the third
line of defence.
We regularly report and review cyber risk and
control effectiveness at relevant governance
forums, including to the Board and across
global businesses, functions and regions.
In addition, we work with our third parties
to help reduce the threat of cyber-attacks
impacting our business processes. We have
an assessment capability to review third
parties’ compliance with our information
security policies and standards.
Cyber training and awareness
We understand the important role our people
play in protecting against cybersecurity threats.
Our mission is to equip every colleague with
the appropriate tools and behaviours they need
to keep our organisation and customers’ data
safe. We provide cybersecurity training and
awareness to all our people, ranging from our
top executives to IT developers to front-line
relationship managers around the world.
Over 92% of our IT developers hold at least one
of our enhanced security certifications to help
ensure we build secure systems and products.
We host an annual cyber awareness month
for all colleagues, covering topics such as
online safety at home, social media safety,
safe hybrid working and cyber incidents
and response. Our dedicated cybersecurity
training and awareness team provides regular
programmes to our colleagues and customers.
We provide a wide range of education
and guidance to both customers and our
colleagues about how to spot and prevent
online fraud.
Over 97%
Employees completed mandatory
cybersecurity training on time.
Over 92%
IT developers who hold at least one of our
internal secure developer certifications.
Over 140
Cybersecurity education events held globally.
Over 97%
Survey respondents to cybersecurity
education events who said they have
a better understanding of cybersecurity
following these events.
Educating customers online
Our Fraud and Cyber Awareness app, which launched in the UK in May 2021, has been
enhanced and extended to eight markets in the Middle East and North Africa as a pilot to
improve the financial education of our customers. The app is available free of charge for both
personal and business customers, and is designed to keep customers and non-customers up
to date with the latest trends concerning fraud, scams and cyber-attacks. It enables users to
subscribe to real-time notifications about emerging fraud and cybercrime trends. Since May
2021, the app has been downloaded approximately 28,000 times and has a 4.8 rating on
Google Play and iOS app store. We plan to roll out the app to further markets in 2023.
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Financial
review
The financial review gives detailed reporting
of our financial performance at Group level
as well as across our different global
businesses and geographical regions.
98
Financial summary
109
Global businesses and geographical regions
128
Reconciliation of alternative performance measures
Pioneering a sustainable supply
chain finance programme
In June 2022, we worked closely with US-based fashion group
PVH Corp. to launch the first sustainable supply chain finance
programme tied to environmental and social objectives, and
based on suppliers’ sustainability ratings.
The programme provides the company’s global suppliers
with access to critical funding based on a set of science-based
environmental targets, as well as a series of social elements,
including a healthy and safe working environment,
compensation and benefits, and employment issues, such
as forced labour, child labour, and harassment and abuse.
Sustainable supply chain finance supports leading companies
and key sectors like the apparel industry to help ensure progress
is made towards their targets and commitments.
HSBC Holdings plc Annual Report and Accounts 2022
97
Financial review Financial summary
Financial summary
Contents
98
98
98
99
99
100
101
105
Use of alternative performance measures
Changes to presentation from 1 January 2022
Changes to presentation from 1 January 2023
Future accounting developments
Critical accounting estimates and judgements
Consolidated income statement
Income statement commentary
Consolidated balance sheet
Use of alternative performance
measures
Our reported results are prepared in accordance with IFRSs
as detailed in the financial statements starting on page 324.
To measure our performance, we supplement our IFRSs figures with
non-IFRSs measures, which constitute alternative performance
measures under European Securities and Markets Authority guidance
and non-GAAP financial measures defined in and presented in
accordance with US Securities and Exchange Commission rules and
regulations. These measures include those derived from our reported
results that eliminate factors that distort year-on-year comparisons.
The ‘adjusted performance’ measure used throughout this report is
described below. Definitions and calculations of other alternative
performance measures are included in our ‘Reconciliation of
alternative performance measures’ on page 128. All alternative
performance measures are reconciled to the closest reported
performance measure.
The global business segmental results are presented on an adjusted
basis in accordance with IFRS 8 ‘Operating Segments’ as detailed in
Note 10 ‘Segmental analysis’ on page 360.
Adjusted performance
Adjusted performance is computed by adjusting reported results for
the effects of foreign currency translation differences and significant
items, which both distort year-on-year comparisons.
We consider that adjusted performance provides useful information
for investors by aligning internal and external reporting, identifying and
quantifying items management believes to be significant, and
providing insight into how management assesses year-on-year
performance.
Management does not assess forward-looking reported operating
expenses as a target of the business, and therefore a reconciliation of
the adjusted operating expenses target to an equivalent IFRS
measure is not available without unreasonable efforts.
Significant items
‘Significant items’ refers collectively to the items that management
and investors would ordinarily identify and consider separately to
improve the understanding of the underlying trends in the business.
The tables on pages 109 to 112 and pages 119 to 124 detail the
effects of significant items on each of our global business segments,
geographical regions and selected countries/territories in 2022, 2021
and 2020.
Foreign currency translation differences
Foreign currency translation differences reflect the movements of the
US dollar against most major currencies during 2022.
We exclude them to derive constant currency data, allowing us to
assess balance sheet and income statement performance on a like-
for-like basis and to better understand the underlying trends in the
business.
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HSBC Holdings plc Annual Report and Accounts 2022
Foreign currency translation differences
Foreign currency translation differences for 2022 are computed by
retranslating into US dollars for non-US dollar branches, subsidiaries, joint
ventures and associates:
•
the income statements for 2021 and 2020 at the average rates of
exchange for 2022; and
the balance sheets at 31 December 2021 and 31 December 2020 at
the prevailing rates of exchange on 31 December 2022.
•
No adjustment has been made to the exchange rates used to translate
foreign currency-denominated assets and liabilities into the functional
currencies of any HSBC branches, subsidiaries, joint ventures or
associates. The constant currency data of HSBC’s Argentina subsidiaries
has not been adjusted further for the impacts of hyperinflation. Since
1 June 2022, Türkiye has been deemed a hyperinflationary economy for
accounting purposes. HSBC has an operating entity in Türkiye and the
constant currency data has not been adjusted further for the impacts of
hyperinflation.
When reference is made to foreign currency translation differences in
tables or commentaries, comparative data reported in the functional
currencies of HSBC’s operations have been translated at the appropriate
exchange rates applied in the current period on the basis described
above.
Changes to presentation from
1 January 2022
Application of IAS 29 ‘Financial Reporting in
Hyperinflationary Economies’
Since 1 June 2022, Türkiye has been deemed a hyperinflationary
economy for accounting purposes. The results of HSBC’s operations
with a functional currency of the Turkish lira have been prepared in
accordance with IAS 29 ‘Financial Reporting in Hyperinflationary
Economies’ as if the economy had always been hyperinflationary. The
results of those operations for the 12-month period ended
31 December 2022 are stated in terms of current purchasing power
using the Türkiye Consumer Price Index (’CPI’) at 31 December 2022
with the corresponding adjustment presented in the consolidated
statement of comprehensive income. In accordance with IAS 21 ‘The
Effects of Changes in Foreign Exchange Rates’, the results have been
translated and presented in US dollars at the prevailing rates of
exchange on 31 December 2022. The Group’s comparative
information presented in US dollars with respect to the 12-month
periods ended 31 December 2021 and 31 December 2020 has not
been restated. Argentina remains a hyperinflationary economy for
accounting purposes. The impact of applying IAS 29 and the
hyperinflation provisions of IAS 21 in the current period for both
Türkiye and Argentina was a decrease in the Group’s profit before tax
of $548m, comprising a decrease in revenue of $541m (including a
loss of net monetary position of $543m) and an increase in ECL and
operating expenses of $7m. The CPI at 31 December 2022 for Türkiye
was 1,047 (movement 2022: 359.94) and for Argentina was 1,147
(movement 2022: 563.92, 2021: 197.47).
Changes to presentation from
1 January 2023
Foreign currency and notable items
From 1 January 2023, ‘adjusted performance’ will no longer exclude
the impact of significant items. Rather it will be computed by
adjusting reported results only for the effects of foreign currency
translation differences between periods to enable users to
understand the impact this has had on the Group’s performance. We
will separately disclose ‘notable items‘, which are components of our
income statement which management and investors would consider
as outside the normal course of business and generally non-recurring
in nature. We will recalibrate applicable targets and guidance to reflect
the impact of these changes, as well as the impact on our targets
following the implementation of IFRS 17 ‘Insurance Contracts’, and
intend to communicate these as part of our first quarter results in
May 2023.
Reporting by legal entity
From 1 January 2023, the Group will no longer present results by
geographical regions. We will instead report performance by our main
legal entities to better reflect the Group’s structure.
Future accounting developments
IFRS 17 ‘Insurance Contracts’
IFRS 17 ‘Insurance Contracts’ was issued in May 2017, with
amendments to the standard issued in June 2020 and December
2021. Following the amendments, IFRS 17 is effective for annual
reporting periods beginning on or after 1 January 2023 and is applied
retrospectively, with comparatives restated from 1 January 2022.
On the basis of the implementation work performed to date, our
current assumption remains that the accounting changes will result in
a reduction in the earnings of our insurance business by
approximately two thirds on transition to IFRS 17, albeit within a
range of expected outcomes and before the effect of market impacts
in specific periods. Unlike current accounting where market impacts
and changes in assumptions are reported immediately in profit or
loss, under IFRS 17 these are primarily accumulated with the
contractual service margin (‘CSM’) and recognised in profit or loss
over the remaining life of the contracts. While IFRS 17 changes the
timing of profit recognition, there is no impact to the underlying
economics of the insurance business, including solvency, capital and
cash generation.
Results of work performed to date on the half-year to 30 June 2022
IFRS17 comparatives indicate there would be a likely reduction to
reported profit before tax for our insurance manufacturing operations
from $0.6bn under IFRS 4, to approximately $0.3bn under IFRS 17.
IFRS 4 based profit before tax included negative market impacts of
$0.7bn and a $0.3bn specific pricing update for policyholder funds
held on deposit with us in Hong Kong. The consolidated Group
insurance accounting considers the effect of eliminating intra-group
distribution fees between insurance manufacturing and non-insurance
Group entities, and instead includes the costs of selling insurance
contracts incurred by such entities within the Group CSM. These
factors generate a further impact on the 30 June 2022 Group IFRS 17
profit before tax of negative $0.1bn, in addition to the impact on
insurance manufacturing operations.
We also anticipate some impact on selected key Group metrics. We
expect an estimated reduction of approximately $1.1bn to the first
half of 2022 Group net interest income due to the reclassification of
assets supporting policyholder liabilities from amortised cost to fair
value through profit and loss classification, following which the
associated interest income will be included within the ‘net income/
(expense) from assets and liabilities of insurance businesses,
including related derivatives, measured at fair value through profit or
loss’ line item. Group operating expenses are expected to reduce by
approximately $0.3bn as a result of the IFRS 17 requirement for
directly attributable costs to be included in the CSM and recognised
within the insurance service result line, within revenue.
These estimates are based on accounting policies, assumptions,
judgements and estimation techniques that remain subject to change.
Critical accounting estimates and
judgements
The results of HSBC reflect the choice of accounting policies,
assumptions and estimates that underlie the preparation of HSBC’s
consolidated financial statements. The significant accounting policies,
including the policies which include critical accounting estimates and
judgements, are described in Note 1.2 on the financial statements.
The accounting policies listed below are highlighted as they involve a
high degree of uncertainty and have a material impact on the financial
statements:
• Impairment of amortised cost financial assets and financial assets
measured at fair value through other comprehensive income
(‘FVOCI’): The most significant judgements relate to defining what
is considered to be a significant increase in credit risk, determining
the lifetime and point of initial recognition of revolving facilities,
selecting and calibrating the probability of default (‘PD’), the loss
given default (‘LGD’) and the exposure at default (‘EAD’) models,
as well as selecting model inputs and economic forecasts, and
making assumptions and estimates to incorporate relevant
information about late-breaking and past events, current conditions
and forecasts of economic conditions. A high degree of
uncertainty is involved in making estimations using assumptions
that are highly subjective and very sensitive to the risk factors.
See Note 1.2(i) on page 341.
• Deferred tax assets: The most significant judgements relate to
those made in respect of recoverability, which is based on
expected future profitability. See Note 1.2(l) on page 346.
• Valuation of financial instruments: In determining the fair value of
financial instruments a variety of valuation techniques are used,
some of which feature significant unobservable inputs and are
subject to substantial uncertainty. See Note 1.2(c) on page 339.
• Impairment of investment in subsidiaries: Impairment testing
involves significant judgement in determining the value in use, and
in particular estimating the present values of cash flows expected
to arise from continuing to hold the investment, based on a
number of management assumptions. The most significant
judgements relate to the impairment testing of HSBC Holdings’
investment in HSBC North America Holdings Limited and HSBC
Bank Bermuda Limited. See Note 1.2(a) on page 337.
• Impairment of interests in associates: Impairment testing involves
significant judgement in determining the value in use, and in
particular estimating the present values of cash flows expected to
arise from continuing to hold the investment, based on a number
of management assumptions. The most significant judgements
relate to the impairment testing of our investment in Bank of
Communications Co., Limited (‘BoCom’). See Note 1.2(a) on
page 337.
• Impairment of goodwill and non-financial assets: A high degree of
uncertainty is involved in estimating the future cash flows of the
cash-generating units (‘CGUs’) and the rates used to discount
these cash flows. See Note 1.2(a) on page 337.
• Provisions: Significant judgement may be required due to the high
degree of uncertainty associated with determining whether a
present obligation exists, and estimating the probability and
amount of any outflows that may arise. See Note 1.2(m) on
page 346.
• Post-employment benefit plans: The calculation of the defined
benefit pension obligation involves the determination of key
assumptions including discount rate, inflation rate, pension
payments and deferred pensions, pay and mortality. See
Note 1.2(k) on page 345.
• Non-current assets and disposal groups held for sale:
Management judgement is required on determining the likelihood
of the sale to occur, and the anticipated timing in assessing
whether the held for sale criteria have been met. See Note 1.2(o)
on page 347.
Given the inherent uncertainties and the high level of subjectivity
involved in the recognition or measurement of the items above, it is
possible that the outcomes in the next financial year could differ from
the expectations on which management’s estimates are based,
resulting in the recognition and measurement of materially different
amounts from those estimated by management in these financial
statements.
HSBC Holdings plc Annual Report and Accounts 2022
99
Financial review Financial summary
Consolidated income statement
Summary consolidated income statement
Net interest income
Net fee income
Net income from financial instruments held for trading or managed on a fair value basis
Net income/(expense) from assets and liabilities of insurance businesses, including related
derivatives, measured at fair value through profit or loss
Change in fair value of designated debt and related derivatives1
Changes in fair value of other financial instruments mandatorily measured at fair value through
profit or loss
Gains less losses from financial investments
Net insurance premium income
Impairment loss relating to the planned sale of our retail banking operations in France2
Other operating income/(loss)
Total operating income
Net insurance claims and benefits paid and movement in liabilities to policyholders
Net operating income before change in expected credit losses and other
credit impairment charges3
Change in expected credit losses and other credit impairment charges
Net operating income
Total operating expenses excluding impairment of goodwill and other intangible assets
Impairment of goodwill and other intangible assets
Operating profit
Share of profit in associates and joint ventures
Profit before tax
Tax expense
Profit for the year
Attributable to:
– ordinary shareholders of the parent company
– preference shareholders of the parent company
– other equity holders
– non-controlling interests
Profit for the year
Five-year financial information
Basic earnings per share
Diluted earnings per share
Dividends per ordinary share (paid in the period)4
Dividend payout ratio5
Post-tax return on average total assets
Return on average ordinary shareholders’ equity
Return on average tangible equity
Effective tax rate
2022
$m
32,610
11,451
10,469
2021
$m
26,489
13,097
7,744
2020
$m
27,578
11,874
9,582
2019
$m
30,462
12,023
10,231
2018
$m
30,489
12,620
9,531
(3,394)
4,053
2,081
3,478
(1,488)
(77)
(182)
231
90
(97)
226
(3)
12,825
(2,378)
(133)
61,596
(9,869)
798
455
812
695
569
10,870
—
502
63,940
(14,388)
653
10,093
—
527
63,074
(12,645)
335
10,636
—
2,957
71,024
(14,926)
218
10,659
—
960
63,587
(9,807)
51,727
49,552
50,429
56,098
53,780
(3,592)
48,135
(33,183)
(147)
14,805
2,723
17,528
(858)
16,670
14,822
—
1,213
635
16,670
2022
$
0.75
0.74
0.27
%
44
0.6
8.7
9.9
4.9
928
50,480
(33,887)
(733)
15,860
3,046
18,906
(4,213)
14,693
12,607
7
1,303
776
14,693
2021
$
0.62
0.62
0.22
%
40
0.5
7.1
8.3
22.3
(8,817)
41,612
(33,044)
(1,388)
7,180
1,597
8,777
(2,678)
6,099
3,898
90
1,241
870
6,099
2020
$
0.19
0.19
—
%
79
0.2
2.3
3.1
30.5
(2,756)
53,342
(34,955)
(7,394)
10,993
2,354
13,347
(4,639)
8,708
5,969
90
1,324
1,325
8,708
2019
$
0.30
0.30
0.51
%
100
0.3
3.6
8.4
34.8
(1,767)
52,013
(34,622)
(37)
17,354
2,536
19,890
(4,865)
15,025
12,608
90
1,029
1,298
15,025
2018
$
0.63
0.63
0.51
%
81
0.6
7.7
8.6
24.5
1 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.
2 Includes impairment of goodwill of $425m.
3 Net operating income before change in expected credit losses and other credit impairment charges also referred to as revenue.
4
Includes an interim dividend of $0.09 per ordinary share in respect of the financial year ending 31 December 2022, paid in September 2022, and an
interim dividend of $0.18 per ordinary share in respect of the financial year ending 31 December 2021, paid in April 2022.
5 Dividend per share, in respect of the period, as a percentage of earnings per share adjusted for certain items (recognition of certain deferred tax
assets: $0.11 reduction in EPS; planned sales of the retail banking operations in France and banking business in Canada: $0.09 increase in EPS). No
items were adjusted in 2021, 2020, 2019 or 2018.
Unless stated otherwise, all tables in the Annual Report and Accounts 2022 are presented on a reported basis.
For a summary of our financial performance in 2022, see page 28.
For further financial performance data for each global business and geographical region, see pages 109 to 112 and 117 to 127 respectively. The
global business segmental results are presented on an adjusted basis in accordance with IFRS 8 ‘Operating Segments’, in Note 10: Segmental
analysis on page 360.
100
HSBC Holdings plc Annual Report and Accounts 2022
Income statement commentary
The following commentary compares Group financial performance for the year ended 2022 with 2021.
Net interest income
Interest income
Interest expense
Net interest income
Average interest-earning assets
Gross interest yield1
Less: gross interest payable1
Net interest spread2
Net interest margin3
31 Dec
2022
$m
55,059
(22,449)
32,610
2,203,639
Year ended
31 Dec
2021
$m
36,188
(9,699)
26,489
2,209,513
%
2.50
(1.24)
1.26
1.48
%
1.64
(0.53)
1.11
1.20
31 Dec
2020
$m
41,756
(14,178)
27,578
2,092,900
%
2.00
(0.81)
1.19
1.32
31 Dec
2022
$m
19,548
(9,970)
9,578
2,178,281
Quarter ended
30 Sep
2022
$m
14,656
(6,075)
8,581
2,170,599
%
3.56
(2.21)
1.35
1.74
%
2.68
(1.36)
1.32
1.57
31 Dec
2021
$m
9,219
(2,438)
6,781
2,251,433
%
1.62
(0.52)
1.10
1.19
1 Gross interest yield is the average annualised interest rate earned on average interest-earning assets (‘AIEA’). Gross interest payable is the average
annualised interest cost as a percentage on 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.
Summary of interest income by type of asset
2022
2021
Average
balance
Interest
income Yield
Average
balance
Interest
income
Short-term funds and loans and advances to banks
Loans and advances to customers
Reverse repurchase agreements – non-trading
Financial investments
Other interest-earning assets
Total interest-earning assets
Summary of interest expense by type of liability
$m
446,178
1,023,606
231,052
430,327
72,476
2,203,639
$m
5,596
32,607
4,886
9,836
2,134
55,059
%
1.25
3.19
2.11
2.29
2.94
2.50
$m
450,678
$m
1,105
1,060,658 26,071
1,019
6,729
1,264
2,209,513 36,188
206,246
438,840
53,091
Deposits by banks1
Customer accounts2
Repurchase agreements – non-trading
Debt securities in issue – non-trading
Other interest-bearing liabilities
Total interest-bearing liabilities
2022
Average
balance
Interest
expense
$m
75,739
1,342,342
118,309
179,814
87,719
1,803,923
$m
770
10,903
3,085
5,608
2,083
22,449
2021
Average
balance
Interest
expense
$m
75,671
1,362,580
114,201
193,137
70,929
1,816,518
$m
198
4,099
363
3,603
1,436
9,699
Cost
%
1.02
0.81
2.61
3.12
2.37
1.24
2020
Average
balance
Interest
income
$m
298,255
$m
1,264
1,046,795 29,391
1,819
8,143
1,139
2,092,900 41,756
221,901
463,542
62,407
2020
Average
balance
Interest
expense
$m
65,536
1,254,249
125,376
219,610
76,395
$m
330
6,478
963
4,944
1,463
1,741,166 14,178
Yield
%
0.42
2.81
0.82
1.76
1.83
2.00
Cost
%
0.50
0.52
0.77
2.25
1.92
0.81
Yield
%
0.25
2.46
0.49
1.53
2.38
1.64
Cost
%
0.26
0.30
0.32
1.87
2.02
0.53
1
2
Including interest-bearing bank deposits only.
Including interest-bearing customer accounts only.
Net interest income (‘NII’) for 2022 was $32.6bn, an increase of
$6.1bn or 23% compared with 2021. The increase reflected the
benefit of rising global interest rates, while actively managing our
pricing strategy and funding requirements, with growth in all regions,
notably in Asia and the UK.
Excluding the unfavourable impact of foreign currency translation
differences, net interest income increased by $7.7bn or 31%.
NII for the fourth quarter was $9.6bn, up 41% compared with the
previous year, and 12% compared with the previous quarter. This was
driven by higher interest rates and management of our funding costs,
with growth in all regions, notably in Asia and the UK.
Net interest margin (‘NIM’) for 2022 of 1.48% was up 28 basis
points (‘bps’) compared with 2021, as the gross yield on AIEA
improved by 86bps in the high interest rate environment. This was
partly offset by the rise in the funding cost of average interest-bearing
liabilities of 71bps. Excluding the adverse impact of foreign currency
translation differences, net interest income increased by 29bps.
NIM for the fourth quarter of 2022 was 1.74%, up 55bps year on
year, and up 17bps compared with the previous quarter,
predominantly driven by the impact of higher market interest rates.
Interest income for 2022 of $55.1bn increased by $18.9bn or 52%,
primarily due to higher average interest rates compared with 2021, as
the yield on AIEA rose by 86bps, mainly driven by loans and advances
to customers, short-term funds, loans and advances to banks, and
reverse repurchase agreements. However, mortgage yields rose
more modestly due to competitive pressures and market factors in
the UK and Hong Kong. The increase in interest income included
adverse effects of foreign currency translation differences of $2.2bn.
Excluding this, interest income increased by $21.1bn.
Interest income of $19.5bn in the fourth quarter was up $10.3bn year
on year, and up $4.9bn from the previous quarter. The increase was
driven by the impact of higher interest rates, resulting in improved
yields on loans and advances to customers and reverse repurchase
agreements.
HSBC Holdings plc Annual Report and Accounts 2022
101
Financial review
Financial summary
Interest expense for 2022 of $22.4bn increased by $12.8bn or 131%
compared with 2021. This reflected the increase in funding cost of
71bps, mainly arising from higher interest rates paid on interest-
bearing customer accounts, repurchase agreements and debt
securities in issue. The increase in interest expense included the
favourable effects of foreign currency translation differences of
$0.6bn. Excluding this, interest expense increased by $13.4bn.
Included within net interest income in 2022 is a $2.5bn interest
expense representing a component of centrally allocated funding
costs associated with generating ‘net income from financial
instruments held for trading or managed on a fair value basis’. This
compared with an interest expense of $0.4bn in 2021.
Interest expense of $10.0bn in the fourth quarter of 2022 was up
$7.5bn year on year, and up $3.9bn compared with the previous
quarter. The steep rise in interest expense was mainly driven by
higher funding cost on customer accounts as interest rates increased,
particularly in Asia and Europe.
Net fee income of $11.5bn was $1.6bn lower than in 2021, and
included an adverse impact from foreign currency translation
differences of $0.6bn. Net fee income fell in WPB and GBM, although
it increased in CMB.
In WPB, net fee income decreased by $0.9bn. The reduction was
mainly in Wealth, as adverse market sentiment resulted in lower
customer demand, mainly in Hong Kong. Fee income fell due to lower
sales of unit trusts and from subdued customer demand in funds
under management, as well as from lower broking income. Cards
income grew as spending increased compared with 2021. This also
resulted in higher fee expense.
In GBM, net fee income decreased by $0.8bn. This was driven by
lower fee income from underwriting, in line with the reduction in the
global fee pool. Fee income also decreased in credit facilities and in
corporate finance, reflecting subdued client demand.
In CMB, net fee income increased by $0.1bn. Fee income grew in
cards, as spending increased compared with 2021, and in account
services, reflecting greater client activity in transaction banking,
notably Global Payments Solutions (‘GPS’).
Net income from financial instruments held for trading or
managed on a fair value basis of $10.5bn was $2.7bn higher
compared with 2021. This primarily reflected a strong trading
performance in Global Foreign Exchange due to increased client
activity, driven by elevated levels of market volatility.
This was partly offset by adverse fair value movements on non-
qualifying hedges of $0.5bn.
Net expense from assets and liabilities of insurance businesses,
including related derivatives, measured at fair value through
profit or loss of $3.4bn compared with a net income of $4.1bn in
2021. This reduction primarily reflected unfavourable equity market
performances in Hong Kong and France. This compared with 2021,
which benefited from favourable equity markets.
This adverse movement resulted in a corresponding movement in
liabilities to policyholders and the present value of in-force long-term
insurance business (‘PVIF’) (see ‘Other operating income/expense’).
This reflected the extent to which the policyholders and shareholders
respectively participate in the investment performance of the
associated assets.
Changes in fair value of other financial instruments mandatorily
measured at fair value through profit or loss of $0.2bn was $0.6bn
lower compared with 2021. This primarily reflected lower revaluation
gains in our Principal Investments business in GBM.
Gains less losses from financial investments of $3m were $0.6bn
lower compared with 2021, reflecting lower gains on the disposal of
debt securities.
102
HSBC Holdings plc Annual Report and Accounts 2022
Net insurance premium income of $12.8bn was $2.0bn higher than
in 2021, primarily reflecting higher sales volumes, particularly in Hong
Kong, which had a higher proportion of single premium products in its
product mix, as well as in Singapore following our acquisition of AXA
Insurance Pte Limited.
Impairment loss relating to the sale of the retail banking
operations in France was $2.4bn. In accordance with IFRS 5 ‘Non-
current Assets Held for Sale and Discontinued Operations’, the
disposal group was classified as held for sale on 30 September 2022,
at which point the Group recognised the estimated impairment of
$2.4bn, which included impairment of goodwill of $0.4bn and related
transaction costs.
Other operating income/expense was an expense of $0.1bn
compared with an income of $0.5bn in 2021, and included an adverse
impact from foreign currency translation differences of $0.4 bn. The
reduction also reflected losses of $0.4bn related to the planned sales
of our branch operations in Greece and our business in Russia, as well
as the non-recurrence of a prior year gain on the sale of a property in
Germany. These reductions were partly offset by a gain of $0.1bn on
the completion of our acquisition of AXA Singapore and a favourable
change in PVIF of $0.2bn.
The favourable change in PVIF included a $0.2bn increase in the value
of new business, notably in Hong Kong, a $0.5bn favourable impact
from sharing lower investment returns with policyholders, and a
$0.3bn gain following a pricing update for our policyholders’ funds
held on deposit with us in Hong Kong to reflect the cost to provide
this service. These factors were partly offset by a $0.7bn reduction
from assumption changes, primarily reflecting the impact of higher
interest rates in Hong Kong.
PVIF is presented in accordance with IFRS 4 ‘Insurance Contracts’. As
set out on page 335, IFRS 17 ‘Insurance Contracts’ is effective from
1 January 2023. Under IFRS 17, there will be no PVIF asset
recognised. Instead, the estimated future profit will be included in the
measurement of the insurance contract liability as the contractual
service margin and gradually recognised in revenue as services are
provided over the duration of the insurance contract.
Net insurance claims and benefits paid and movement in
liabilities to policyholders was $4.5bn lower, primarily in France and
Hong Kong due to a reduction in returns on financial assets
supporting contracts where the policyholder is subject to part or all of
the investment risk. This was in part mitigated by higher sales
volumes in Hong Kong.
Change in expected credit losses and other credit impairment
charges (‘ECL’) were a charge of $3.6bn, compared with a net
release of $0.9bn in 2021.
The charges in 2022 reflected stage 3 charges of $2.2bn, in part
relating to exposures to the commercial real estate sector in mainland
China. We also recognised stage 1 and stage 2 charges in all global
businesses, reflecting a deterioration in the macroeconomic
environment, with many markets experiencing increased interest
rates, continued inflation, supply chain risks and heightened
recessionary risks. These economic conditions also contributed to the
increase in stage 3 charges, mainly in CMB and GBM. These
increases were in part mitigated by the release of most of our
remaining Covid-19-related allowances.
The charge in 2022 compared with a net release in 2021, primarily
relating to Covid-19-related allowances previously built up in 2020.
For further details on the calculation of ECL, including the
measurement uncertainties and significant judgements applied to
such calculations, the impact of the economic scenarios and
management judgemental adjustments, see pages 153 to 162.
Operating expenses – currency translation and significant items
Significant items
– customer redress programmes
– disposals, acquisitions and investment in new businesses
– impairment of goodwill and other intangibles
– restructuring and other related costs
– currency translation on significant items
Currency translation
Year ended 31 Dec
Operating expenses
Gross employee compensation and benefits
Capitalised wages and salaries
Goodwill impairment
Property and equipment
Amortisation and impairment of intangibles
UK bank levy1
Legal proceedings and regulatory matters
Other operating expenses2
Total operating expenses (reported)
Total significant items (including currency translation on significant items)
Currency translation
Total operating expenses (adjusted)
Year ended
2022
$m
2,864
(31)
18
(4)
2,881
2,864
Year ended
2022
$m
19,288
(922)
—
5,005
1,716
13
246
7,984
33,330
(2,864)
30,466
2021
$m
2,335
49
—
587
1,836
(137)
2,181
4,516
2021
$m
19,612
(870)
587
5,145
1,438
116
106
8,486
34,620
(2,335)
(2,181)
30,104
1 The UK bank levy charge for the year ended 2022 includes adjustments made to prior period UK bank levy charges recognised in the current year.
2 Other operating expenses includes professional fees, contractor costs, transaction taxes, marketing and travel. The decrease was driven by favourable
currency translation movements, partly offset by higher costs related to our cost reduction programme.
Staff numbers (full-time equivalents)1
Global businesses
Wealth and Personal Banking
Commercial Banking
Global Banking and Markets
Corporate Centre
At 31 Dec
2022
2021
2020
128,764
43,640
46,435
360
219,199
130,185
42,969
46,166
377
219,697
135,727
43,221
46,729
382
226,059
1 Represents the number of full-time equivalent people with contracts of service with the Group who are being paid at the reporting date.
HSBC Holdings plc Annual Report and Accounts 2022
103
Financial review
Financial summary
Operating expenses of $33.3bn were $1.3bn or 4% lower than in
2021, primarily as foreign currency translation differences resulted in
a favourable impact of $2.2bn, and due to the non-recurrence of a
2021 goodwill impairment of $0.6bn related to our WPB business in
Latin America.
Reported operating expenses also reflected the impact of ongoing
cost discipline across the Group. This helped mitigate growth from
increased investment in technology of $0.5bn, which included
investments in our digital capabilities, the impact of business volume
growth, and inflation. Restructuring and other related costs increased
by $1.0bn.
In 2022, cost to achieve spend, included within restructuring and
other related costs, was $2.9bn. This three-year programme ended on
31 December 2022 with a total spend of $6.5bn and cumulative gross
saves realised of $5.6bn. We expect additional gross cost savings of
approximately $1bn to be delivered in 2023 due to actions taken in
2022.
The number of employees expressed in full-time equivalent staff
(‘FTE’) at 31 December 2022 was 219,199, a decrease of 498
compared with 31 December 2021. The number of contractors at
31 December 2022 was 6,047, a decrease of 145.
Share of profit in associates and joint ventures of $2.7bn was
$0.3bn lower, primarily as 2021 included a higher share of profit from
Business Growth Fund in the UK due to the recovery in asset
valuations. This was partly offset by an increase in the share of profit
from The Saudi British Bank.
In relation to Bank of Communications Co., Limited (‘BoCom’), we
continue to be subject to a risk of impairment in the carrying value of
our investment. We have performed an impairment test on the
carrying amount of our investment and confirmed there was no
impairment at 31 December 2022.
For more information, see Note 18: Interests in associates and joint
ventures on page 379.
Tax expense
Reported tax charge
Currency translation
Tax significant items
– tax credit on significant items
– recognition of losses
– uncertain tax positions
– currency translation
Adjusted tax charge
Year ended
2022
$m
858
3,429
1,118
2,330
(19)
4,287
2021
$m
4,213
(279)
307
328
(4)
—
(17)
4,241
Tax expense
The effective tax rate for 2022 of 4.9% was lower than the 22.3% in
2021. Tax in 2022 included a $2.2bn credit arising from the
recognition of a deferred tax asset from historical tax losses in HSBC
Holdings, which was recognised as a significant item. This was a
result of improved profit forecasts for the UK tax group, which
accelerated the expected utilisation of these losses and reduced
uncertainty regarding their recoverability. We also benefited from
other deferred tax asset reassessments during 2022. Excluding these,
the effective tax rate for 2022 was 19.2%, which was 3.1 percentage
points lower than in 2021. The effective tax rate for 2022 was also
decreased by the remeasurement of deferred tax balances following
the substantive enactment in the first quarter of 2022 of legislation to
reduce the rate of the UK banking surcharge from 8% to 3% from
1 April 2023.
Supplementary table for planned
disposals
The income statements and selected balance sheet metrics for the
year ended 31 December 2022 of our banking business in Canada and
our retail banking operations in France are shown below.
The asset and liability balances relating to these planned disposals are
reported on the Group balance sheet within ‘Assets held for sale’ and
‘Liabilities of disposal groups held for sale’, respectively, as at
31 December 2022.
Income statement and selected balance sheet metrics of disposal
groups held for sale
Year ended 2022
Revenue
ECL
Operating expenses3
Profit before tax
Loans and advances to customers
Customer accounts
RWA4
Canada1
$bn
1.9
(0.1)
(1.0)
0.8
55.2
60.6
31.9
France
retail2
$bn
0.6
—
(0.5)
0.1
25.0
22.3
5.0
1 Under the terms of the sale agreement, the pre-tax profit on the sale
will be recognised through a combination of the consolidation of HSBC
Canada’s results into the Group’s financial statements from 30 June
2022 until completion, and the remaining gain on sale recognised at
completion.
2 France retail includes the transferring retail banking business, HSBC
SFH and associated supporting services. For more information, see
Note 23: Assets held for sale and liabilities of disposal groups held for
sale on page 389.
3 Includes $0.3bn in Canada and $0.1bn in France retail in respect of
Group recharges and other costs not transferring as part of the planned
transactions.
4 Includes $3.0bn in Canada and $0.9bn in France retail in respect of
operational risk RWAs.
104
HSBC Holdings plc Annual Report and Accounts 2022
Consolidated balance sheet
Five-year summary consolidated balance sheet
Assets
Cash and balances at central banks
Trading assets
Financial assets designated and otherwise mandatorily measured at fair value
through profit or loss
Derivatives
Loans and advances to banks
Loans and advances to customers
Reverse repurchase agreements – non-trading
Financial investments
Assets held for sale1
Other assets
Total assets at 31 Dec
Liabilities and equity
Liabilities
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Trading liabilities
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Liabilities of disposal groups held for sale1
Liabilities under insurance contracts
Other liabilities
Total liabilities at 31 Dec
Equity
Total shareholders’ equity
Non-controlling interests
Total equity at 31 Dec
Total liabilities and equity at 31 Dec
2022
$m
2021
$m
2020
$m
2019
$m
2018
$m
327,002
218,093
403,018
248,842
304,481
231,990
154,099
254,271
162,843
238,130
45,063
49,804
45,553
43,627
41,111
284,146
104,882
924,854
253,754
425,564
115,919
267,253
2,966,530
66,722
1,570,303
127,747
72,353
127,327
285,764
78,149
114,597
114,844
212,696
2,770,502
196,882
83,136
1,045,814
241,648
446,274
3,411
239,110
2,957,939
101,152
1,710,574
126,670
84,904
145,502
191,064
78,557
9,005
112,745
190,989
2,751,162
307,726
81,616
1,037,987
230,628
490,693
299
253,191
2,984,164
82,080
1,642,780
111,901
75,266
157,439
303,001
95,492
—
107,191
204,019
2,779,169
242,995
69,203
1,036,743
240,862
443,312
123
229,917
2,715,152
59,022
1,439,115
140,344
83,170
164,466
239,497
104,555
—
97,439
194,876
2,522,484
187,484
8,544
196,028
2,966,530
198,250
8,527
206,777
2,957,939
196,443
8,552
204,995
2,984,164
183,955
8,713
192,668
2,715,152
207,825
72,167
981,696
242,804
407,433
735
203,380
2,558,124
56,331
1,362,643
165,884
84,431
148,505
205,835
85,342
313
87,330
167,261
2,363,875
186,253
7,996
194,249
2,558,124
1 ‘Assets held for sale’ in 2021, including $2.4bn of loans and advances to customers in relation to our exit of mass market retail banking business in the
US, were reported within ‘Other assets’ in the Annual Report and Accounts 2021. Similarly, $8.8bn of customer accounts classified as ‘Liabilities of
disposal groups’ were previously presented within ‘Other liabilities’.
A more detailed consolidated balance sheet is contained in the financial statements on page 326.
HSBC Holdings plc Annual Report and Accounts 2022
105
Financial review
Financial summary
Five-year selected financial information
Called up share capital
Capital resources1
Undated subordinated loan capital
Preferred securities and dated subordinated loan capital2
Risk-weighted assets
Total shareholders’ equity
Less: preference shares and other equity instruments
Total ordinary shareholders’ equity
Less: goodwill and intangible assets (net of tax)
Tangible ordinary shareholders’ equity
Financial statistics
Loans and advances to customers as a percentage of customer accounts
Average total shareholders’ equity to average total assets
Net asset value per ordinary share at year-end ($)3
Tangible net asset value per ordinary share at year-end ($)4
Tangible net asset value per fully diluted share at year-end ($)
Number of $0.50 ordinary shares in issue (millions)
Basic number of $0.50 ordinary shares outstanding (millions)
Basic number of $0.50 ordinary shares outstanding and dilutive potential ordinary
shares (millions)
Closing foreign exchange translation rates to $:
$1: £
$1: €
2022
$m
10,147
162,423
1,967
29,921
839,720
187,484
(19,746)
167,738
(18,383)
149,355
58.9%
6.34%
8.50
7.57
7.51
20,294
19,739
2021
$m
10,316
177,786
1,968
28,568
838,263
198,250
(22,414)
175,836
(17,643)
158,193
61.1%
6.62%
8.76
7.88
7.84
20,632
20,073
2020
$m
10,347
184,423
1,970
30,721
857,520
196,443
(22,414)
174,029
(17,606)
156,423
63.2%
6.46%
8.62
7.75
7.72
20,694
20,184
2019
$m
10,319
172,150
1,968
33,063
843,395
183,955
(22,276)
161,679
(17,535)
144,144
72.0%
6.97%
8.00
7.13
7.11
20,639
20,206
2018
$m
10,180
173,238
1,969
35,014
865,318
186,253
(23,772)
162,481
(22,425)
140,056
72.0%
7.16%
8.13
7.01
6.98
20,361
19,981
19,876
20,189
20,272
20,280
20,059
0.830
0.937
0.739
0.880
0.732
0.816
0.756
0.890
0.783
0.873
1 Capital resources are regulatory total capital, the calculation of which is set out on page 205.
2 Including perpetual preferred securities, details of which can be found in Note 29: Subordinated liabilities on page 393.
3 The definition of net asset value per ordinary share is total shareholders’ equity, less non-cumulative preference shares and capital securities, divided
by the number of ordinary shares in issue, excluding own shares held by the company, including those purchased and held in treasury.
4 The definition of tangible net asset value per ordinary share is total ordinary shareholders’ equity excluding goodwill, PVIF and other intangible assets
(net of deferred tax), divided by the number of basic ordinary shares in issue, excluding own shares held by the company, including those purchased
and held in treasury.
Combined view of customer lending and customer deposits
31 December 2021. The movement in this ratio reflected the
reclassifications to held for sale mentioned above.
2022
$m
2021
$m
Assets
Combined customer lending
Loans and advances to customers
Loans and advances to customers of
disposal groups reported in ‘Assets held
for sale’
– Canada
– France retail banking operations
– other1
At 31 Dec
Combined customer deposits
Customer accounts
Customer accounts reported in ‘Liabilities
of disposal groups held for sale’
– Canada
– France retail banking operations
– other1
At 31 Dec
924,854
1,045,814
80,576
2,385
55,197
25,029
350
1,005,430
2,385
1,048,199
1,570,303
1,710,574
85,274
8,750
60,606
22,348
2,320
1,655,577
8,750
1,719,324
1 At 31 December 2021, ‘other’ included loans and advances and
customer accounts relating to the disposal of the US mass market
retail banking business. This sale completed in February 2022.
Balance sheet commentary compared with
31 December 2021
At 31 December 2022, total assets of $3.0tn, were broadly
unchanged on a reported basis and increased by $161bn or 6% on a
constant currency basis.
During the period, asset and liability balances mainly relating to the
planned sales of our retail banking operations in France and our
banking business in Canada were reclassified to ‘Assets held for sale’
and ‘Liabilities of disposal groups held for sale’.
Reported loans and advances to customers as a percentage of
customer accounts was 58.9%, compared with 61.1% at
106
HSBC Holdings plc Annual Report and Accounts 2022
Cash and balances at central banks decreased by $76bn or 19%,
which included a $32bn adverse impact of foreign currency translation
differences. The decrease was mainly in the US, reflecting the
redeployment of liquidity into reverse repurchase agreements, and
also due to a reduction in customer accounts. In addition, lower
balances in the UK primarily reflected growth in lending to customers
and banks, on a constant currency basis.
Trading assets decreased by $31bn or 12%, reflecting a reduction in
equity and debt securities held, particularly in Hong Kong and the UK,
reflecting weaker client demand.
Derivative assets increased by $87bn or 44%, mainly in Europe,
reflecting favourable revaluation movements on interest rate
contracts due to movements in long-term yield curve rates in most
major markets. Foreign exchange contracts also increased, primarily
in the UK, as a result of foreign exchange rate movements. The
increase in derivative assets was consistent with the increase in
derivative liabilities, as the underlying risk is broadly matched.
Loans and advances to banks increased by $22bn or 26%, primarily
reflecting increases in the UK and Hong Kong.
Loans and advances to customers of $925bn decreased by $121bn
or 12% on a reported basis. This included the following items:
• adverse impacts of foreign currency translation differences of
$55bn; and
• the reclassification of $81bn to ‘Assets held for sale’ primarily
relating to the planned sales of our retail banking operations in
France and our banking business in Canada in 2022, and $2bn in
2021 primarily associated with the US mass market retail banking
business sales which were disposed of during 2022.
On a constant currency basis and including balances classified as held
for sale, loans and advances to customers increased by $12bn. This
included the impact of the subsequent sale of US mass market retail
balances that were held for sale at 31 December 2021 of $2bn with
the remaining growth of $14bn reflecting the following movements.
In WPB, customer lending increased by $15bn, reflecting growth in
mortgage balances, notably in the UK (up $9bn), Hong Kong (up $3bn)
and Australia (up $2bn).
Derivative liabilities increased by $95bn or 50%, which is consistent
with the increase in derivative assets, since the underlying risk is
broadly matched.
In CMB, customer lending was $3bn higher from term lending
increases in India, Australia and the US. Lending also increased in the
UK, primarily in trade lending. This was partly offset by a reduction in
term lending of $8bn in Hong Kong as customer demand for lending
softened in the second half of 2022.
In GBM, lending fell by $3bn due to a reduction in Global Banking
term lending in the fourth quarter of 2022, primarily in Hong Kong,
partly offset by a growth in overdrafts balances in the UK.
Financial investments decreased by $21bn or 5%, mainly in Europe
from the adverse impact of foreign currency translation differences
since 31 December 2021. The reduction included adverse fair value
movements recorded in ‘other comprehensive income’ in equity on
debt securities, treasury and other eligible bills as a result of higher
yield curves and wider macroeconomic pressures. It also included
reductions due to disposals and maturity of these securities. The
reductions were partly offset by increases in debt instruments
measured at amortised cost, as we repositioned our portfolio to
reduce capital volatility.
Assets held for sale of $116bn primarily comprised the assets
relating to the planned sales of our retail banking operations in France
and our banking business in Canada.
Other assets increased by $28bn, reflecting growth in cash collateral
of $21bn due to an increase in the fair value of derivative liabilities.
Liabilities
Deposits by banks decreased by $34bn or 34%, primarily in Europe,
Hong Kong and the US.
Customer accounts of $1.6tn decreased by $140bn or 8% on a
reported basis. This included the following items:
• adverse impacts of foreign currency translation differences of
$88bn; and
• the reclassification of $85bn to ‘Liabilities of disposal groups held
for sale’ primarily relating to the planned sales of our retail banking
operations in France and our banking business in Canada in 2022,
and $9bn in 2021 primarily associated with the US mass market
retail banking business which was disposed of during 2022.
On a constant currency basis and including balances classified as held
for sale, customer accounts increased by $24bn. This included the
impact of the subsequent sale of US mass market retail balances that
were held for sale at 31 December 2021 of $9bn with the remaining
growth of $33bn reflecting the following movements.
In GBM, customer accounts rose by $16bn. This was driven by
growth in interest-bearing and term deposit balances as customers
demonstrated a preference for higher yielding accounts as interest
rates rose, notably in Europe.
In WPB, customer accounts grew by $17bn, reflecting higher interest-
bearing and term deposit balances, as interest rates rose, primarily in
the UK and Asia.
In CMB, customer accounts remained broadly stable, with reductions
in Hong Kong, the US, and the UK, mitigated by growth in other Asia
markets.
Liabilities of disposal groups held for sale of $115bn primarily
comprised the liabilities relating to the planned sales of our retail
banking operations in France and our banking business in Canada.
Other liabilities increased by $22bn, notably from growth in cash
collateral of $20bn, mainly due to the increase in fair value of
derivative assets.
Equity
Total shareholders’ equity, including non-controlling interests,
decreased by $11bn or 5% compared with 31 December 2021.
Profits generated of $17bn were offset by net losses through other
comprehensive income (‘OCI’) of $17bn. In addition, shareholders’
equity fell as a result of dividends paid of $7bn, the redemption of
perpetual subordinated contingent convertible capital securities of
$3bn and the impact of our $1bn share buy-back announced at our
2021 results in February 2022.
The net losses in OCI of $17bn included adverse movements of $5bn
on financial instruments designated as hold-to-collect-and-sell, which
are held as hedges to our exposure to interest rate movements, as a
result of the increase in term market yield curves in 2022. The net
loss also included an adverse impact from foreign exchange
differences of $10bn and losses of $4bn on cash flow hedges. These
losses were partly offset by fair value gains on liabilities related to
changes in own credit risk of $2bn.
In the earlier stages of a rising interest rate environment, the Group is
positively exposed to rising interest rates through net interest income,
although there is an impact on our capital base due to the fair value of
hold-to-collect-and-sell instruments. These instruments are reported
within ‘financial investments’. There is an initial negative effect
materialising through reserves, after which the net interest income is
expected to result in a net benefit for the Group over time, provided
policy rates follow market implied rates.
Over time, these adverse OCI movements will unwind as the
instruments reach maturity, although not all will necessarily be held to
maturity.
Risk-weighted assets
Risk-weighted assets (‘RWAs’) totalled $839.7bn at 31 December
2022, a $1.4bn increase since 2021. Excluding foreign currency
translation differences of $41.9bn, RWAs rose by $43.3bn in 2022.
This was mainly due to the following movements:
• a $20.9bn asset size increase, mostly caused by CMB and WPB
lending growth in Europe and Asia, offset by reduced lending in
GBM; and
• a $24.2bn increase in RWAs due to changes in methodology and
policy. This was mostly due to regulatory changes, data
enhancements driven by internal and external reviews of our
regulatory reporting processes and the reversal of the beneficial
changes to the treatment of software assets.
HSBC Holdings plc Annual Report and Accounts 2022
107
Financial review Financial summary
Customer accounts by country/territory
Europe
– UK
– France1
– Germany
– Switzerland
– other
Asia
– Hong Kong
– Singapore
– mainland China
– Australia
– India
– Malaysia
– Taiwan
– Indonesia
– other
Middle East and North Africa (excluding Saudi Arabia)
– United Arab Emirates
– Türkiye
– Egypt
– other
North America
– US
– Canada1
– other
Latin America
– Mexico
– other
At 31 Dec
2022
$m
601,473
493,028
33,726
28,949
5,167
40,603
784,236
542,543
61,475
56,948
28,506
22,636
16,008
15,316
5,840
34,964
43,933
23,331
3,497
6,045
11,060
109,093
100,404
—
8,689
31,568
25,531
6,037
1,570,303
2021
$m
667,769
535,797
56,841
22,509
10,680
41,942
792,098
549,429
57,572
59,266
28,240
24,507
16,500
15,483
6,019
35,082
42,629
20,943
4,258
6,699
10,729
178,565
111,921
58,071
8,573
29,513
23,583
5,930
1,710,574
1 At 31 December 2022, customer accounts of $85bn met the criteria to be classified as held for sale and are reported within ‘Liabilities of disposal
groups held for sale’ on the balance sheet, of which $61bn and $22bn belongs to the planned sales of the banking business in Canada and retail
banking operations in France, respectively. Refer to Note 23 on page 389 for further details.
Loans and advances, deposits by currency
$m
Loans and advances to banks
Loans and advances to customers
Total loans and advances
Deposits by banks
Customer accounts
Total deposits
$m
Loans and advances to banks
Loans and advances to customers
Total loans and advances
Deposits by banks
Customer accounts
Total deposits
USD
34,495
182,719
217,214
23,133
430,866
453,999
USD
21,474
169,055
190,529
37,962
453,864
491,826
GBP
12,292
265,988
278,280
16,963
422,087
439,050
GBP
3,991
280,909
284,900
20,909
463,232
484,141
At
31 Dec 2022
EUR
6,328
57,077
63,405
8,830
112,399
121,229
HKD
5,188
221,150
226,338
4,002
312,052
316,054
At
31 Dec 2021
EUR
3,970
83,457
87,427
24,393
133,604
157,997
HKD
524
223,714
224,238
2,757
318,702
321,459
CNY
7,833
49,036
56,869
4,707
63,032
67,739
CNY
6,545
44,093
50,638
5,049
65,052
70,101
Others1
38,746
148,884
187,630
9,087
229,867
238,954
Total
104,882
924,854
1,029,736
66,722
1,570,303
1,637,025
Others1
46,632
244,586
291,218
10,082
276,120
286,202
Total
83,136
1,045,814
1,128,950
101,152
1,710,574
1,811,726
1 ‘Others’ includes items with no currency information available ($1,519m for loans to banks (2021: $11,028m), $3,405m for loans to customers (2021:
$64,491m), $13m for deposits by banks (2021: $23m) and $6m for customer accounts (2021: $5m)).
RWAs by currency
$m
RWAs1
$m
RWAs
USD
223,657
GBP
143,474
USD
216,664
GBP
150,130
At
31 Dec 2022
EUR
60,843
HKD
152,804
At
31 Dec 2021
EUR
67,934
HKD
145,851
CNY
49,867
Others
209,075
Total
839,720
CNY
55,343
Others
202,341
Total
838,263
1 RWAs of $840bn includes credit risk, market risk and operational risk RWAs.
108
HSBC Holdings plc Annual Report and Accounts 2022
Global businesses and geographical regions
Contents
109
109
112
112
117
119
Summary
Reconciliation of reported and adjusted items – global businesses
Reconciliation of reported and adjusted risk-weighted assets
Supplementary tables for WPB and GBM
Analysis of reported results by geographical regions
Reconciliation of reported and adjusted items – geographical
regions
125
Analysis by country
.
Summary
The Group Chief Executive, supported by the rest of the Group
Executive Committee (‘GEC‘), reviews operating activity on a number
of bases, including by global business and geographical region. Our
global businesses – Wealth and Personal Banking, Commercial
Banking, and Global Banking and Markets – along with Corporate
Centre are our reportable segments under IFRS 8 ‘Operating
Segments’ and are presented below and in Note 10: Segmental
analysis on page 360.
Geographical information is classified by the location of the principal
operations of the subsidiary or, for The Hongkong and Shanghai
Banking Corporation Limited, HSBC Bank plc, HSBC UK Bank plc,
HSBC Bank Middle East Limited and HSBC Bank USA, by the location
of the branch responsible for reporting the results or providing
funding.
The expense of the UK bank levy is included in the Europe
geographical region as HSBC regards the levy as a cost of being
headquartered in the UK. From 2021, the UK bank levy was partially
allocated to global businesses, which was previously retained in
Corporate Centre. Comparative periods have not been re-presented.
The results of geographical regions are presented on a reported basis
on page 117 and an adjusted basis on page 119.
Reconciliation of reported and adjusted items – global businesses
Supplementary unaudited analysis of significant items by global business is presented below.
Revenue1
Reported
Significant items
– customer redress programmes
– disposals, acquisitions and investment in new businesses2
– fair value movements on financial instruments3
– restructuring and other related costs4
Adjusted
ECL
Reported
Adjusted
Operating expenses
Reported
Significant items
– customer redress programmes
– disposals, acquisitions and investment in new businesses
– impairment of goodwill and other intangibles
– restructuring and other related costs
Adjusted
Share of profit/(loss) in associates and joint ventures
Reported
Adjusted
Profit/(loss) before tax
Reported
Significant items
– revenue
– operating expenses
Adjusted
Loans and advances to customers (net)
Reported
Adjusted
Customer accounts
Reported
Adjusted
Wealth and
Personal
Banking
Commercial
Banking
2022
Global
Banking and
Markets
Corporate
Centre
$m
$m
$m
$m
22,197
2,170
(10)
2,274
5
(99)
24,367
(1,137)
(1,137)
(15,049)
323
(37)
2
—
358
(14,726)
29
29
6,040
2,493
2,170
323
8,533
16,197
18
2
—
2
14
16,215
(1,858)
(1,858)
(6,893)
251
—
—
(13)
264
(6,642)
1
1
7,447
269
18
251
7,716
423,553
423,553
308,094
308,094
779,310
779,310
458,714
458,714
15,267
92
—
—
(93)
185
15,359
(587)
(587)
(9,579)
254
—
—
—
254
(9,325)
(1,934)
1,338
—
525
665
148
(596)
(10)
(10)
(1,809)
2,036
6
16
9
2,005
227
(2)
(2)
2,695
2,695
5,099
346
92
254
5,445
192,852
192,852
331,844
331,844
(1,058)
3,374
1,338
2,036
2,316
355
355
435
435
Total
$m
51,727
3,618
(8)
2,799
579
248
55,345
(3,592)
(3,592)
(33,330)
2,864
(31)
18
(4)
2,881
(30,466)
2,723
2,723
17,528
6,482
3,618
2,864
24,010
924,854
924,854
1,570,303
1,570,303
1 Net operating income/(expense) before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 Includes losses from classifying businesses as held for sale as part of a broader restructuring of our European business, of which $2.4bn relates to the
planned sale of our retail banking operations in France.
Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.
3
4 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.
HSBC Holdings plc Annual Report and Accounts 2022
109
Financial review
Global businesses
Reconciliation of reported and adjusted items (continued)
Revenue1
Reported
Currency translation
Significant items
– customer redress programmes
– fair value movements on financial instruments2
– restructuring and other related costs3
– currency translation on significant items
Adjusted
ECL
Reported
Currency translation
Adjusted
Operating expenses
Reported
Currency translation
Significant items
– customer redress programmes
– impairment of goodwill and other intangibles
– restructuring and other related costs
– currency translation on significant items
Adjusted
Share of profit in associates and joint ventures
Reported
Currency translation
Adjusted
Profit/(loss) before tax
Reported
Currency translation
Significant items
– revenue
– operating expenses
Adjusted
Loans and advances to customers (net)
Reported
Currency translation
Adjusted
Customer accounts
Reported
Currency translation
Adjusted
Wealth and
Personal
Banking
Commercial
Banking
2021
Global
Banking and
Markets
$m
$m
$m
Corporate
Centre
$m
22,117
(1,152)
(2)
7
—
(14)
5
20,963
288
(75)
213
(16,306)
914
903
39
587
296
(19)
(14,489)
34
—
34
6,133
(313)
901
(2)
903
6,721
488,786
(27,739)
461,047
859,029
(39,710)
819,319
13,431
(885)
(8)
(18)
(1)
3
8
12,538
300
(75)
225
(7,055)
429
72
1
—
81
(10)
(6,554)
1
—
1
6,677
(531)
64
(8)
72
6,210
349,126
(18,443)
330,683
506,688
(26,487)
480,201
14,588
(987)
381
—
19
395
(33)
13,982
337
(24)
313
(10,203)
781
172
—
—
197
(25)
(9,250)
—
—
—
4,722
(230)
553
381
172
5,045
207,162
(8,383)
198,779
344,205
(21,770)
322,435
(584)
(50)
171
—
224
(77)
24
(463)
3
—
3
(1,056)
57
1,188
9
—
1,262
(83)
189
3,011
(113)
2,898
1,374
(106)
1,359
171
1,188
2,627
740
(52)
688
652
(60)
592
Total
$m
49,552
(3,074)
542
(11)
242
307
4
47,020
928
(174)
754
(34,620)
2,181
2,335
49
587
1,836
(137)
(30,104)
3,046
(113)
2,933
18,906
(1,180)
2,877
542
2,335
20,603
1,045,814
(54,617)
991,197
1,710,574
(88,027)
1,622,547
1 Net operating income/(expense) before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2
3 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.
Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.
110
HSBC Holdings plc Annual Report and Accounts 2022
Reconciliation of reported and adjusted items (continued)
Revenue1
Reported
Currency translation
Significant items
– customer redress programmes
– disposals, acquisitions and investment in new businesses
– fair value movements on financial instruments2
– restructuring and other related costs3
– currency translation on significant items
Adjusted
ECL
Reported
Currency translation
Adjusted
Operating expenses
Reported
Currency translation
Significant items
– customer redress programmes
– impairment of goodwill and other intangibles
– past service costs of guaranteed minimum pension benefits equalisation
– restructuring and other related costs4
– settlements and provisions in connection with legal and regulatory
matters
– currency translation on significant items
Adjusted
Share of profit/(loss) in associates and joint ventures
Reported
Currency translation
Significant items
– impairment of goodwill5
– currency translation on significant items
Adjusted
Profit/(loss) before tax
Reported
Currency translation
Significant items
– revenue
– operating expenses
– share of profit in associates and joint ventures
Adjusted
Loans and advances to customers (net)
Reported
Currency translation
Adjusted
Customer accounts
Reported
Currency translation
Adjusted
Wealth and
Personal
Banking
Commercial
Banking
2020
Global
Banking and
Markets
Corporate
Centre
$m
$m
$m
$m
21,999
(532)
14
5
9
—
—
—
21,481
(2,855)
(23)
(2,878)
(15,446)
498
412
(64)
294
—
192
—
(10)
(14,536)
6
—
—
—
—
6
3,704
(57)
426
14
412
—
4,073
469,186
(33,081)
436,105
834,759
(46,716)
788,043
13,294
(423)
18
16
—
1
1
—
12,889
(4,754)
44
(4,710)
(6,900)
230
195
1
45
—
165
—
(16)
(6,475)
(1)
—
—
—
—
(1)
1,639
(149)
213
18
195
—
1,703
343,182
(23,098)
320,084
470,428
(30,539)
439,889
14,994
(581)
283
—
—
2
307
(26)
14,696
(1,209)
(18)
(1,227)
(10,169)
400
874
—
577
—
326
2
(31)
(8,895)
—
—
—
—
—
—
3,616
(199)
1,157
283
874
—
4,574
224,364
(12,854)
211,510
336,983
(26,226)
310,757
Total
$m
50,429
(1,523)
(58)
21
10
(264)
170
5
48,848
(8,817)
2
(8,815)
(34,432)
1,170
2,817
(54)
1,090
17
1,908
12
(156)
(30,445)
1,597
48
462
462
—
2,107
8,777
(303)
3,221
(58)
2,817
462
11,695
1,037,987
(69,137)
968,850
142
13
(373)
—
1
(267)
(138)
31
(218)
1
(1)
—
(1,917)
42
1,336
9
174
17
1,225
10
(99)
(539)
1,592
48
462
462
—
2,102
(182)
102
1,425
(373)
1,336
462
1,345
1,255
(104)
1,151
610
(70)
540
1,642,780
(103,551)
1,539,229
Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.
1 Net operating income/(expense) before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2
3 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.
4
Includes impairment of software intangible assets of $189m (of the total software intangible asset impairment of $1,347m) and impairment of tangible
assets of $197m.
In 2020, The Saudi British Bank (‘SABB’), an associate of HSBC, impaired the goodwill that arose following the merger with Alawwal Bank in 2019.
HSBC’s post-tax share of the goodwill impairment was $462m.
5
HSBC Holdings plc Annual Report and Accounts 2022
111
Financial review
Global businesses
Reconciliation of reported and adjusted risk-weighted assets
Risk-weighted assets
Reported
Adjusted1
Risk-weighted assets
Reported
Currency translation
Adjusted1
Risk-weighted assets
Reported
Currency translation
Adjusted1
Wealth and
Personal
Banking
Commercial
Banking
At 31 Dec 2022
Global
Banking and
Markets
Corporate
Centre
$bn
$bn
$bn
$bn
182.9
182.9
334.8
334.8
233.5
233.5
88.5
88.5
At 31 Dec 2021
178.3
(8.2)
170.1
332.9
(19.6)
313.3
236.2
(9.3)
226.9
At 31 Dec 2020
172.8
(10.2)
162.6
327.7
(24.2)
303.5
265.1
(13.5)
251.6
90.9
(1.6)
89.3
91.9
(2.7)
89.2
Total
$bn
839.7
839.7
838.3
(38.7)
799.6
857.5
(50.6)
806.9
1 Adjusted risk-weighted assets are calculated using reported risk-weighted assets adjusted for the effects of currency translation differences and
significant items.
Supplementary tables for WPB and GBM
WPB adjusted performance by business unit
A breakdown of WPB by business unit is presented below to reflect the basis of how the revenue performance of the business units is
assessed and managed.
WPB – summary (adjusted basis)
2022
Net operating income before change in expected credit losses and other
credit impairment charges2
– net interest income
– net fee income/(expense)
– other income
ECL
Net operating income
Total operating expenses
Operating profit
Share of profit in associates and joint ventures
Profit before tax
2021
Net operating income before change in expected credit losses and other
credit impairment charges2
– net interest income
– net fee income/(expense)
– other income
ECL
Net operating income
Total operating expenses
Operating profit
Share of profit in associates and joint ventures
Profit before tax
Consists of1
Total
WPB
$m
Banking
operations
Insurance
manufacturing
$m
$m
Global
Private
Banking
$m
Asset
management
$m
24,367
18,137
5,030
1,200
(1,137)
23,230
(14,726)
8,504
29
8,533
20,963
13,458
5,649
1,856
213
21,176
(14,489)
6,687
34
6,721
19,342
14,791
3,848
703
(1,114)
18,228
(11,624)
6,604
11
6,615
15,519
10,585
4,236
698
219
15,738
(11,660)
4,078
17
4,095
1,914
2,406
(701)
209
(17)
1,897
(879)
1,018
18
1,036
2,547
2,255
(599)
891
(18)
2,529
(564)
1,965
17
1,982
1,978
946
776
256
(5)
1,973
(1,399)
574
—
574
1,746
620
901
225
13
1,759
(1,491)
268
—
268
1,133
(6)
1,107
32
(1)
1,132
(824)
308
—
308
1,151
(2)
1,111
42
(1)
1,150
(774)
376
—
376
112
HSBC Holdings plc Annual Report and Accounts 2022
WPB – summary (adjusted basis) (continued)
2020
Net operating income before change in expected credit losses and other
credit impairment charges2
– net interest income
– net fee income/(expense)
– other income
ECL
Net operating income
Total operating expenses
Operating profit
Share of profit in associates and joint ventures
Profit before tax
Consists of1
Total
WPB
$m
Banking
operations
$m
Insurance
manufacturing
$m
Global Private
Banking
Asset
management
$m
$m
21,481
14,752
5,306
1,423
(2,878)
18,603
(14,536)
4,067
6
4,073
16,925
11,904
4,027
994
(2,746)
14,179
(12,010)
2,169
6
2,175
1,834
2,189
(505)
150
(63)
1,771
(463)
1,308
—
1,308
1,712
661
813
238
(68)
1,644
(1,359)
285
—
285
1,010
(2)
971
41
(1)
1,009
(704)
305
—
305
1 The results presented for insurance manufacturing operations are shown before elimination of inter-company transactions with HSBC non-insurance
operations. These eliminations are presented within Banking operations.
2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue. This may differ from
the WPB Life insurance manufacturing revenue shown in the managed view of adjusted revenue on page 32, which excludes the impact of Argentina
hyperinflation.
WPB insurance manufacturing adjusted results
The following table shows the results of our insurance manufacturing
operations by income statement line item. It shows the results of
insurance manufacturing operations for WPB and for all global
business segments in aggregate, and separately the insurance
distribution income earned by HSBC bank channels.
These results are prepared in accordance with current IFRSs, which
will change following the adoption of IFRS 17 ‘Insurance Contracts’,
effective from 1 January 2023. Further information about the adoption
of IFRS 17 is provided on page 99.
Adjusted results of insurance manufacturing operations and insurance distribution income earned by HSBC bank channels1,2
Net interest income
Net fee income/(expense)
– fee income
– fee expense
Net income/(expenses) from financial instruments held for trading or managed
on a fair value basis
Net income/(expense) from assets and liabilities of insurance businesses,
including related derivatives, measured at fair value through profit or loss
Gains less losses from financial investments
Net insurance premium income
Other operating income
– of which: PVIF
Total operating income
Net insurance claims and benefits paid and movement in liabilities to
policyholders
Net operating income before change in expected credit losses and other
credit impairment charges3
Change in expected credit losses and other credit impairment charges
Net operating income
Total operating expenses
Operating profit
Share of profit in associates and joint ventures
Profit before tax of insurance manufacturing operations4
Annualised new business premiums of insurance manufacturing operations
Insurance distribution income earned by HSBC bank channels
2022
2021
2020
All global
businesses
WPB
All global
businesses
WPB
$m
2,406
(701)
140
(841)
$m
2,595
(724)
159
(883)
$m
2,255
(599)
100
(699)
$m
2,430
(629)
123
(752)
WPB
$m
2,189
(505)
108
(613)
All global
businesses
$m
2,352
(541)
129
(670)
95
94
(4)
(12)
60
76
(3,411)
(12)
12,413
504
369
11,294
(3,413)
3,867
3,903
1,903
(12)
12,942
453
324
11,935
85
10,145
164
76
15,913
89
10,617
148
69
16,546
12
9,522
329
365
13,510
1,853
12
10,005
342
377
14,100
(9,380)
(9,929)
(13,366)
(13,863)
(11,676)
(12,166)
1,914
(17)
1,897
(879)
1,018
18
1,036
2,295
764
2,006
(18)
1,988
(918)
1,070
18
1,088
2,354
823
2,547
(18)
2,529
(564)
1,965
17
1,982
2,777
726
2,683
(22)
2,661
(590)
2,071
17
2,088
2,830
795
1,834
(63)
1,771
(463)
1,308
—
1,308
2,272
718
1,934
(72)
1,862
(492)
1,370
—
1,370
2,333
781
1 Adjusted results are derived by adjusting for year-on-year effects of foreign currency translation differences, and the effect of significant items that
distort year-on-year comparisons. There are no significant items included within insurance manufacturing, and the impact of foreign currency
translation on all global businesses’ profit before tax is 2021: $53m unfavourable (reported: $2,141m), 2020: $7m unfavourable (reported: $1,377m).
2 The results presented for insurance manufacturing operations are shown before elimination of inter-company transactions with HSBC non-insurance
operations.
3 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
4 The effect on the insurance manufacturing operations of applying hyperinflation accounting in Argentina resulted in a decrease in adjusted revenue in
2022 of $3m (2021: increase of $6m, 2020: increase of $1m) and a decrease in profit before tax in 2022 of $2m (2021: increase of $5m, 2020:
increase of $13m). These effects are recorded within ‘All global businesses’.
HSBC Holdings plc Annual Report and Accounts 2022
113
Financial review
Global businesses
Insurance manufacturing
The following commentary, unless otherwise specified, relates to the
‘All global businesses’ results.
HSBC recognises the present value of long-term in-force insurance
contracts and investment contracts with discretionary participation
features (‘PVIF’) as an asset on the balance sheet. The overall balance
sheet equity, including PVIF, is therefore a measure of the embedded
value in the insurance manufacturing entities, and the movement in
this embedded value in the period drives the overall income
statement result.
Adjusted profit before tax of $1.1bn decreased by $1.0bn or 48%
compared with 2021.
Adjusted net operating income before change in expected credit
losses and other credit impairment changes was $2.0bn or 25%
lower than in 2021. This reflected the following:
•
‘Net expense from assets and liabilities of insurance businesses,
including related derivatives, measured at fair value through profit
or loss’ of $3.4bn in 2022 compared with a net income of $3.9bn
in 2021. This decrease primarily reflected unfavourable equity
market performance impacting our Hong Kong and France
businesses in 2022, compared with favourable market
performances in 2021.
• This unfavourable movement resulted in a corresponding
movement in liabilities to policyholders and PVIF (see ‘Other
operating income’ below), to the extent to which policyholders and
shareholders respectively participate in the investment
performance of the associated assets.
• Net insurance premium income of $12.9bn was $2.3bn higher
than in 2021, primarily reflecting higher sales volumes, particularly
in Hong Kong which had a higher proportion of single premium
products in its product mix, and in Singapore following the
acquisition of AXA Insurance Pte Limited (‘AXA Singapore‘) during
2022.
WPB: Wealth adjusted revenue by geography
• Other operating income of $0.5bn increased by $0.3bn compared
with 2021. This reflected increases in Hong Kong of $0.2bn from
the value of new business, a $0.5bn favourable impact from
sharing lower investment returns with policyholders, a $0.3bn one-
off gain from a pricing update for policyholder funds held on
deposit with us in Hong Kong to reflect the cost of provision of
these services, and a $0.1bn gain on completion of our acquisition
of AXA Singapore in 2022. These were partly offset by a $0.7bn
reduction from PVIF assumption changes primarily in Hong Kong,
reflecting the impact of higher interest rates.
• Net insurance claims and benefits paid and movement in liabilities
to policyholders of $9.9bn were $3.9bn lower, primarily due to a
decline in returns on financial assets supporting contracts where
the policyholder is subject to part or all of the investment risk,
mainly in France and Hong Kong. It also reflected higher sales
volumes in Hong Kong.
Total operating expenses of $0.9bn increased by $0.3bn compared
with 2021, reflecting the incorporation of the results of AXA
Singapore in 2022 and investment in our Pinnacle proposition in
mainland China.
Annualised new business premiums (‘ANP’) is used to assess new
insurance premium generation by the business. It is calculated as
100% of annualised first year regular premiums and 10% of single
premiums, before reinsurance ceded. Lower ANP in the year mainly
reflect a change in product mix in Hong Kong towards single premium
new business, partially offset by higher ANP from business growth in
mainland China and the inclusion of the results of AXA Singapore.
Insurance distribution income from HSBC channels included $503m
(2021: $469m; 2020: $460m) from HSBC manufactured products, for
which a corresponding fee expense is recognised within insurance
manufacturing, and $320m (2021: $326m; 2020: $321m) from
products manufactured by third-party providers. The WPB component
of this distribution income was $461m (2021: $417m; 2020: $413m)
from HSBC manufactured products and $303m (2021: $309m; 2020:
$305m) from third-party products.
The following table shows the adjusted revenue of our Wealth business by region. Our Wealth business comprises investment distribution, life
insurance manufacturing, Global Private Banking and Asset Management.
Wealth adjusted revenue by geography
Europe
Asia
MENA
North America
Latin America
Total
2022
$m
2,456
4,549
198
581
307
8,091
2021
$m
2,152
5,701
165
522
243
8,783
2020
$m
1,666
5,199
148
513
211
7,737
114
HSBC Holdings plc Annual Report and Accounts 2022
WPB: Wealth balances
The following table shows the wealth balances, which include invested assets and wealth deposits. Invested assets comprise customer assets
either managed by our Asset Management business or by external third-party investment managers, as well as self-directed investments by our
customers.
WPB – reported wealth balances1
Global Private Banking invested assets
– managed by Global Asset Management
– external managers, direct securities and other
Retail invested assets
– managed by Global Asset Management
– external managers, direct securities and other
Asset Management third-party distribution
Reported invested assets1
Wealth deposits (Premier, Jade and Global Private Banking)2
Total reported wealth balances
2022
$bn
312
57
255
364
198
166
340
1,016
503
1,519
2021
$bn
351
67
284
434
229
205
334
1,119
551
1,670
1
Invested assets are not reported on the Group’s balance sheet, except where it is deemed that we are acting as principal rather than agent in our role
as investment manager. At 31 December 2022, $31bn of invested assets were classified as held for sale and are not included in the table above.
2 Premier, Jade and Global Private Banking deposits, which include Prestige deposits in Hang Seng Bank, form part of the total WPB customer accounts
balance of $779bn (2021: $859bn) on page 109. At 31 December 2022, $42bn of wealth deposits were classified as held for sale and are not included
in the table above.
Asset Management: funds under management
The following table shows the funds under management of our Asset
Management business. Funds under management represents assets
managed, either actively or passively, on behalf of our customers.
Asset Management – reported funds under management1
Funds under management are not reported on the Group’s balance
sheet, except where it is deemed that we are acting as principal
rather than agent in our role as investment manager.
Opening balance
Net new invested assets
Net market movements
Foreign exchange and others
Closing balance
Asset Management – reported funds under management by geography
Europe
Asia
MENA
North America
Latin America
Closing balance
2022
$bn
630
45
(36)
(44)
595
2022
$bn
327
196
2
60
10
595
2021
$bn
602
27
18
(17)
630
2021
$bn
367
180
5
69
9
630
1 Funds under management are not reported on the Group’s balance sheet, except where it is deemed that we are acting as principal rather than agent
in our role as investment manager.
At 31 December 2022, Asset Management funds under management
amounted to $595bn, a decrease of $35bn or 6%. The decrease
reflected adverse market performance and foreign exchange
translation, which more than offset strong net new invested assets of
$45bn received in 2022. Within ‘foreign exchange and others’ is a
$14bn reduction related to the reclassification to held for sale of our
banking operations in Canada, which we continue to manage but are
no longer considered part of our core funds under management. This
was partly offset by an increase of $9bn due to the acquisition of L&T
Investment Management. Net new invested assets were notably
from additions in passive, private equity and money market products.
Global Private Banking – reported client assets2
Opening balance
Net new invested assets
Increase/(decrease) in deposits
Net market movements
Foreign exchange and others
Closing Balance
Global Private Banking: client assets1
Global Private Banking client assets comprises invested assets and
deposits, which are translated at the rates of exchange applicable for
their respective year-ends, with the effects of currency translation
reported separately.
2022
$bn
423
18
(1)
(53)
(4)
383
2021
$bn
394
19
4
17
(11)
423
HSBC Holdings plc Annual Report and Accounts 2022
115
Financial review
Global businesses
Global Private Banking – reported client assets by geography
Europe
Asia
North America
Closing balance
2022
$bn
153
174
56
383
2021
$bn
174
178
71
423
1 Client assets are translated at the rates of exchange applicable for their respective period-ends, with the effects of currency translation reported
separately.
2 Client assets are not reported on the Group’s balance sheet, except where it is deemed that we are acting as principal rather than agent in our role as
investment manager. Customer deposits included in these client assets are on balance sheet.
Retail invested assets
The following table shows the invested assets of our retail
customers. These comprise customer assets either managed by our
Asset Management business or by external third-party
investment managers as well as self-directed investments by our
customers. Retail invested assets are not reported on the Group’s
balance sheet, except where it is deemed that we are acting as
principal rather than agent in our role as investment manager.
Retail invested assets
Opening balance
Net new invested assets1
Net market movements
Foreign exchange and others
Closing balance
Retail invested assets by geography
Europe
Asia
MENA
North America
Latin America
Closing balance
2022
$bn
434
26
(46)
(50)
364
2022
$bn
54
285
5
12
8
364
2021
$bn
407
26
5
(4)
434
2021
$bn
81
293
4
47
9
434
1
‘Retail net new invested assets’ covers nine markets, comprising Hong Kong including Hang Seng Bank (Hong Kong), mainland China, Malaysia,
Singapore, HSBC Bank UK, UAE, US, Canada and Mexico. The net new invested assets related to all other geographies is reported in ‘exchange and
other’.
WPB invested assets
Net new invested assets represents the net customer inflows from
retail invested assets, Asset Management third-party distribution and
Global Private Banking invested assets. It excludes all
customer deposits. The net new invested assets in the table below is
non-additive from the tables above, as net new invested assets
managed by Asset Management that are generated by retail clients or
Global Private Banking will be recorded in both businesses.
WPB: Invested assets
Opening balance
Net new invested assets
Net market movements
Foreign exchange and others
Closing balance
WPB: Net new invested assets by geography
Europe
Asia
MENA
North America
Latin America
Total
116
HSBC Holdings plc Annual Report and Accounts 2022
2022
$bn
1,119
80
(116)
(67)
1,016
2022
$bn
13
59
—
7
1
80
2021
$bn
1,050
64
33
(28)
1,119
2021
$bn
17
36
—
10
1
64
GBM: Securities Services and Issuer
Services
Assets held in custody
Custody is the safekeeping and servicing of securities and other
financial assets on behalf of clients. Assets held in custody are not
reported on the Group’s balance sheet, except where it is deemed
that we are acting as principal rather than agent in our role as
investment manager. At 31 December 2022, we held $9.1tn of assets
as custodian, a reduction of 15% compared with 31 December 2021.
The balance comprised $8.4tn of assets in Securities Services, which
were recorded at market value, and $0.8tn of assets in Issuer
Services, recorded at book value.
Assets under administration
Our assets under administration business, which includes the
provision of bond and loan administration services, transfer agency
services and the valuation of portfolios of securities and other
financial assets on behalf of clients, complements the custody
business. At 31 December 2022, the value of assets held under
administration by the Group amounted to $4.5tn, which was 9%
lower than at 31 December 2021. The balance comprised $2.6tn of
assets in Securities Services, which were recorded at market value,
and $1.8tn of assets in Issuer Services, recorded at book value.
The decrease was mainly driven by Securities Services balances due
to an adverse impact of currency translation differences in Europe, a
net outflow of assets, mainly in Asia and Europe, and adverse market
movements in Europe and Asia. These decreases were partly offset
by an inflow of assets from new customers in Europe.
The reduction was mainly in Securities Services balances. This was
driven by an adverse impact of currency translation differences in
Europe and Asia, and adverse market movements, notably impacting
Asia and the US. In addition, there was a net outflow of assets in Asia
and Europe.
Analysis of reported results by geographical regions
HSBC reported profit/(loss) before tax and balance sheet data
Net interest income
Net fee income
Net income from financial instruments held for trading or
managed on a fair value basis
Net income from assets and liabilities of insurance businesses,
including related derivatives, measured at fair value through profit
and loss
Changes in fair value of other financial instruments mandatorily
measured at fair value through profit or loss
Other income/(expense)1
Net operating income before change in
expected credit losses and other credit
impairment charges2
Change in expected credit losses and other credit
impairment charges
Net operating income
Total operating expenses excluding impairment of goodwill and
other intangible assets
Impairment of goodwill and other intangible assets
Operating profit/(loss)
Share of profit/(loss) in associates and joint ventures
Profit/(loss) before tax
Share of HSBC’s profit before tax
Cost efficiency ratio
Balance sheet data
Loans and advances to customers (net)
Total assets
Customer accounts
Risk-weighted assets3
Europe
Asia
MENA
2022
North
America
Latin
America Intra-HSBC
$m
7,185
3,554
$m
16,157
4,695
$m
1,665
830
$m
3,395
1,824
$m
2,754
547
$m
1,454
1
Total
$m
32,610
11,451
3,242
5,329
578
587
756
(23)
10,469
(1,760)
(1,683)
1,639
3,046
4
4,297
(138)
—
2
—
48
1
(3,394)
(8)
630
20
(317)
(1,431)
(7,153)
226
365
16,906
28,799
2,937
6,428
3,808
(7,151)
51,727
(857)
(2,089)
8
(93)
(561)
—
(3,592)
16,049
26,710
2,945
6,335
3,247
(7,151)
48,135
(16,370)
(15,343)
(1,582)
(4,639)
(2,401)
7,152
(33,183)
(52)
11,315
2,409
13,724
(54)
(375)
(40)
(415)
%
(2.4)
97.1
$m
343,670
%
78.3
53.5
$m
475,278
1,345,971 1,316,876
784,236
409,320
601,473
251,195
(5)
1,358
342
1,700
%
9.7
54.0
$m
26,475
70,755
43,933
60,946
(30)
1,666
—
1,666
%
9.5
72.6
$m
55,790
341,125
109,093
106,546
(5)
841
12
853
%
4.9
63.2
$m
23,641
51,708
31,568
38,904
(1)
—
—
—
(147)
14,805
2,723
17,528
%
100.0
64.4
$m
924,854
(159,905) 2,966,530
— 1,570,303
839,720
—
$m
HSBC Holdings plc Annual Report and Accounts 2022
117
Financial review
Geographical regions
HSBC reported profit/(loss) before tax and balance sheet data (continued)
Net interest income
Net fee income
Net income from financial instruments held for trading or
managed on a fair value basis
Net income from assets and liabilities of insurance businesses,
including related derivatives, measured at fair value through profit
and loss
Changes in fair value of other financial instruments mandatorily
measured at fair value through profit or loss
Other income/(expense)1
Net operating income before change in expected credit losses
and other credit impairment charges2
Change in expected credit losses and other credit
impairment charges
Net operating income
Total operating expenses excluding impairment of goodwill and
other intangible assets
Impairment of goodwill and other intangible assets
Operating profit/(loss)
Share of profit/(loss) in associates and joint ventures
Profit/(loss) before tax
Share of HSBC’s profit before tax
Cost efficiency ratio
Balance sheet data
Loans and advances to customers (net)
Total assets
Customer accounts
Risk-weighted assets3
Net interest income
Net fee income
Net income from financial instruments held for trading or
managed on a fair value basis
Net income/(expense) from assets and liabilities of insurance
businesses, including related derivatives, measured at fair value
through profit and loss
Changes in fair value of other financial instruments mandatorily
measured at fair value through profit or loss
Other income/(expense)1
Net operating income before loan impairment (charges)/
recoveries and other credit risk provisions2
Change in expected credit losses and other credit
impairment (charges)/recoveries
Net operating income
Total operating expenses excluding impairment of goodwill and
other intangible assets
Impairment of goodwill and other intangible assets
Operating profit/(loss)
Share of profit in associates and joint ventures
Profit/(loss) before tax
Share of HSBC’s profit before tax
Cost efficiency ratio
Balance sheet data
Loans and advances to customers (net)
Total assets
Customer accounts
Risk-weighted assets3
Europe
$m
Asia
$m
MENA
$m
2021
North
America
$m
Latin
America
$m
Intra-HSBC
items
$m
6,454
3,882
12,596
5,871
1,299
774
2,845
2,056
2,195
514
1,100
—
Total
$m
26,489
13,097
2,602
3,643
431
426
476
166
7,744
1,670
2,340
1,973
3,523
(3)
1,316
—
(3)
59
—
45
(2)
4,053
54
673
40
(212)
(1,263)
798
(7,988)
(2,629)
20,104
25,763
2,560
6,054
3,058
(7,987)
49,552
1,601
(840)
132
238
(203)
—
928
21,705
24,923
2,692
6,292
2,855
(7,987)
50,480
(18,099)
(15,136)
(1,536)
(4,905)
(2,198)
7,987
(33,887)
(95)
3,511
268
3,779
%
20.0
90.5
$m
(24)
9,763
2,486
12,249
%
64.8
58.8
$m
397,090
492,525
1,354,483 1,261,707
792,098
396,206
667,769
261,115
(8)
1,148
275
1,423
%
7.5
60.3
$m
26,375
70,974
42,629
60,223
(13)
1,374
—
1,374
%
7.3
81.2
$m
108,717
362,150
178,565
110,412
2020
(593)
64
17
81
%
0.4
91.3
$m
21,107
46,602
29,513
35,915
—
—
—
—
(733)
15,860
3,046
18,906
%
100.0
69.9
$m
$m
— 1,045,814
(137,977) 2,957,939
— 1,710,574
838,263
—
5,695
3,499
14,318
5,418
1,465
695
2,836
1,795
1,960
467
1,304
—
27,578
11,874
3,266
4,273
402
997
593
51
9,582
327
1,699
1,747
3,885
17
1,197
—
3
63
—
55
—
2,081
2
745
40
(95)
(1,354)
455
(6,936)
(1,141)
18,419
26,922
2,628
6,375
3,020
(6,935)
50,429
(3,751)
(2,284)
(758)
(900)
(1,124)
—
(8,817)
14,668
24,638
1,870
5,475
1,896
(6,935)
41,612
(17,860)
(13,584)
(1,521)
(5,081)
(1,933)
6,935
(33,044)
(1,014)
(4,206)
1
(4,205)
%
(47.9)
102.5
$m
(78)
10,976
1,856
12,832
%
146.2
50.7
$m
408,495
473,165
1,416,111 1,206,404
762,406
384,228
629,647
284,322
(65)
284
(265)
19
%
0.2
60.4
$m
28,700
68,860
41,221
60,181
(226)
168
—
168
%
1.9
83.2
$m
107,969
373,167
182,028
117,755
(5)
(42)
5
(37)
%
(0.4)
64.2
$m
19,658
49,703
27,478
35,240
—
—
—
—
(1,388)
7,180
1,597
8,777
%
100.0
68.3
$m
$m
— 1,037,987
(130,081) 2,984,164
— 1,642,780
857,520
—
1
‘Other income/(expense)’ in this context comprises where applicable net income/expense from other financial instruments designated at fair value,
gains less losses from financial investments, dividend income, net insurance premium income and other operating income less net insurance claims
and benefits paid and movement in liabilities to policyholders.
2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
3 Risk-weighted assets are non-additive across geographical regions due to market risk diversification effects within the Group.
118
HSBC Holdings plc Annual Report and Accounts 2022
Reconciliation of reported and adjusted items – geographical regions
Reconciliation of reported and adjusted items
Revenue1
Reported2
Significant items2
– customer redress programmes
– disposals, acquisitions and investment in new businesses3
– fair value movements on financial instruments4
– restructuring and other related costs2,5
Adjusted2
ECL
Reported
Adjusted
Operating expenses
Reported2
Significant items2
– customer redress programmes
– disposals, acquisitions and investment in new businesses
– impairment of goodwill and other intangibles
– restructuring and other related costs2
Adjusted2
Share of profit/(loss) in associates and joint ventures
Reported
Adjusted
Profit/(loss) before tax
Reported
Significant items
– revenue2
– operating expenses2
Adjusted
Loans and advances to customers (net)
Reported
Adjusted
Customer accounts
Reported
Adjusted
2022
Europe
$m
Asia
$m
MENA
$m
North
America
Latin
America
$m
$m
16,906
3,065
(8)
2,799
562
(288)
19,971
28,799
(223)
—
—
22
(245)
28,576
2,937
9
—
—
(3)
12
2,946
6,428
(108)
—
—
(3)
(105)
6,320
3,808
15
—
—
1
14
3,823
Total
$m
51,727
3,618
(8)
2,799
579
248
55,345
(857)
(857)
(2,089)
(2,089)
8
8
(93)
(93)
(561)
(561)
(3,592)
(3,592)
(16,424)
2,119
(31)
18
(4)
2,136
(14,305)
(15,395)
833
—
—
—
833
(14,562)
(1,587)
73
—
—
—
73
(1,514)
(4,669)
544
—
—
—
544
(4,125)
(2,406)
155
—
—
—
155
(2,251)
(33,330)
2,864
(31)
18
(4)
2,881
(30,466)
(40)
(40)
2,409
2,409
342
342
—
—
12
12
2,723
2,723
(415)
5,184
3,065
2,119
4,769
13,724
610
(223)
833
14,334
1,700
82
9
73
1,782
1,666
436
(108)
544
2,102
853
170
15
155
1,023
17,528
6,482
3,618
2,864
24,010
343,670 475,278
343,670 475,278
26,475
26,475
55,790
55,790
23,641
23,641
924,854
924,854
601,473 784,236
601,473 784,236
43,933 109,093
43,933 109,093
31,568 1,570,303
31,568 1,570,303
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 Amounts are non-additive across geographical regions due to inter-company transactions within the Group.
3 Includes losses from classifying businesses as held for sale as part of a broader restructuring of our European business, of which $2.4bn relates to the
planned sale of our retail banking operations in France.
Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.
4
5 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.
HSBC Holdings plc Annual Report and Accounts 2022
119
Financial review
Geographical regions
Reconciliation of reported and adjusted items (continued)
Revenue1
Reported
Significant items
– customer redress programmes
– disposals, acquisitions and investment in new businesses
– fair value movements on financial instruments2
– restructuring and other related costs3
Adjusted
ECL
Reported
Adjusted
Operating expenses
Reported
Significant items
– customer redress programmes
– restructuring and other related costs
Adjusted
Share of profit/(loss) in associates and joint ventures
Reported
Adjusted
Profit before tax
Reported
Significant items
– revenue
– operating expenses
Adjusted
Loans and advances to customers (net)
Reported
Adjusted
Customer accounts
Reported
Adjusted
2022
Mainland
China
$m
Hong
Kong
$m
US
$m
Mexico
$m
16,155
163
—
—
39
124
16,318
4,246
(73)
—
—
(1)
(72)
4,173
4,107
(99)
—
—
(1)
(98)
4,008
2,749
19
—
—
1
18
2,768
UK
$m
17,353
215
(8)
60
571
(408)
17,568
(712)
(712)
(1,680)
(1,680)
(328)
(328)
(20)
(20)
(507)
(507)
(13,224)
1,710
(31)
1,741
(11,514)
(8,275)
393
—
393
(7,882)
(2,906)
70
—
70
(2,836)
(3,438)
423
—
423
(3,015)
(1,642)
115
—
115
(1,527)
(41)
(41)
3,376
1,925
215
1,710
5,301
5
5
2,386
2,386
6,205
556
163
393
6,761
3,398
(3)
(73)
70
3,395
—
—
649
324
(99)
423
973
12
12
612
134
19
115
746
286,032
286,032
295,873
295,873
50,481
50,481
54,159
54,159
20,446
20,446
493,028
493,028
542,543
542,543
56,948
56,948
100,404
100,404
25,531
25,531
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.
3 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.
120
HSBC Holdings plc Annual Report and Accounts 2022
Reconciliation of reported and adjusted items (continued)
Revenue1
Reported2
Currency translation2
Significant items2
– customer redress programmes
– fair value movements on financial instruments3
– restructuring and other related costs2,4
– currency translation on significant items2
Adjusted2
ECL
Reported
Currency translation
Adjusted
Operating expenses
Reported 2
Currency translation2
Significant items2
– customer redress programmes
– impairment of goodwill and other intangibles
– restructuring and other related costs2
– currency translation on significant items2
Adjusted2
Share of profit in associates and joint ventures
Reported
Currency translation
Adjusted
Profit before tax
Reported
Currency translation
Significant items
– revenue2
– operating expenses2
Adjusted
Loans and advances to customers (net)
Reported
Currency translation
Adjusted
Customer accounts
Reported
Currency translation
Adjusted
2021
Europe
$m
Asia
$m
MENA
$m
North
America
Latin
America
$m
$m
20,104
(2,096)
138
(11)
226
(90)
13
18,146
1,601
(177)
1,424
(18,194)
1,645
1,234
49
—
1,318
(133)
(15,315)
25,763
(769)
(154)
—
11
(175)
10
24,840
(840)
19
(821)
(15,160)
490
492
—
—
509
(17)
(14,178)
268
(23)
245
2,486
(90)
2,396
3,779
(651)
1,372
138
1,234
4,500
12,249
(350)
338
(154)
492
12,237
2,560
(224)
(1)
—
—
—
(1)
2,335
132
(1)
131
(1,544)
109
51
—
—
56
(5)
(1,384)
275
—
275
1,423
(116)
50
(1)
51
1,357
6,054
(70)
10
—
5
5
—
5,994
238
(1)
237
(4,918)
43
429
—
—
432
(3)
(4,446)
—
—
—
1,374
(28)
439
10
429
1,785
3,058
(148)
5
—
—
5
—
2,915
(203)
(14)
(217)
(2,791)
127
673
—
587
83
3
(1,991)
17
—
17
81
(35)
678
5
673
724
Total
$m
49,552
(3,074)
542
(11)
242
307
4
47,020
928
(174)
754
(34,620)
2,181
2,335
49
587
1,836
(137)
(30,104)
3,046
(113)
2,933
18,906
(1,180)
2,877
542
2,335
20,603
397,090 492,525
(11,301)
358,391 481,224
(38,699)
26,375 108,717
(3,572)
(1,395)
24,980 105,145
21,107 1,045,814
(54,617)
21,457 991,197
350
667,769 792,098
(13,859)
601,469 778,239
(66,300)
42,629 178,565
(3,686)
(3,826)
38,943 174,739
29,513 1,710,574
(88,027)
29,157 1,622,547
(356)
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 Amounts are non-additive across geographical regions due to inter-company transactions within the Group.
3
Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.
4 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.
HSBC Holdings plc Annual Report and Accounts 2022
121
Financial review
Geographical regions
Reconciliation of reported and adjusted items (continued)
Revenue1
Reported
Currency translation
Significant items
– customer redress programmes
– fair value movements on financial instruments2
– restructuring and other related costs3
– currency translation on significant items
Adjusted
ECL
Reported
Currency translation
Adjusted
Operating expenses
Reported
Currency translation
Significant items
– customer redress programmes
– restructuring and other related costs
– currency translation on significant items
Adjusted
Share of profit in associates and joint ventures
Reported
Currency translation
Adjusted
Profit before tax
Reported
Currency translation
Significant items
– revenue
– operating expenses
Adjusted
Loans and advances to customers (net)
Reported
Currency translation
Adjusted
Customer accounts
Reported
Currency translation
Adjusted
2021
Mainland
China
$m
Hong
Kong
$m
US
$m
Mexico
$m
14,463
(103)
60
—
7
54
(1)
14,420
(608)
3
(605)
(7,955)
53
226
—
227
(1)
(7,676)
16
—
16
5,916
(47)
286
60
226
6,155
3,734
(159)
(39)
—
—
(41)
2
3,536
(89)
9
(80)
(2,773)
121
30
—
32
(2)
(2,622)
2,461
(89)
2,372
3,333
(118)
(9)
(39)
30
3,206
4,006
(1)
14
—
5
9
—
4,019
205
—
205
(3,683)
—
355
—
355
—
(3,328)
—
—
—
528
(1)
369
14
355
896
2,341
19
15
—
—
15
—
2,375
(224)
(7)
(231)
(1,565)
(20)
66
—
59
7
(1,519)
17
—
17
569
(8)
81
15
66
642
UK
$m
16,415
(1,664)
7
(11)
220
(227)
25
14,758
1,645
(182)
1,463
(14,808)
1,292
1,079
49
1,144
(114)
(12,437)
267
(23)
244
3,519
(577)
1,086
7
1,079
4,028
306,464 311,947
111
272,781 312,058
(33,683)
54,239
(4,228)
50,011
52,678
—
52,678
18,043
924
18,967
535,797 549,429
193
476,908 549,622
(58,889)
59,266 111,921
—
(4,620)
54,646 111,921
23,583
1,208
24,791
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2
3 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.
Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.
122
HSBC Holdings plc Annual Report and Accounts 2022
Reconciliation of reported and adjusted items (continued)
Revenue1
Reported2
Currency translation2
Significant items2
– customer redress programmes
– disposals, acquisitions and investment in new businesses
– fair value movements on financial investments3
– restructuring and other related costs2,4
– currency translation on significant items2
Adjusted2
ECL
Reported
Currency translation
Adjusted
Operating expenses
Reported2
Currency translation2
Significant items2
– customer redress programmes
– impairment of goodwill and other intangibles
– past service costs of guaranteed minimum pension benefits equalisation
– restructuring and other related costs2,5
– settlements and provisions in connection with legal and regulatory matters
– currency translation on significant items2
Adjusted2
Share of profit/(loss) in associates and joint ventures
Reported
Currency translation
Significant items
– impairment of goodwill6
– currency translation on significant items
Adjusted
Profit/(loss) before tax
Reported
Currency translation
Significant items
– revenue2
– operating expenses2
– share of profit in associates and joint ventures
Adjusted
Loans and advances to customers (net)
Reported
Currency translation
Adjusted
Customer accounts
Reported
Currency translation
Adjusted
2020
Europe
$m
Asia
$m
MENA
$m
North
America
Latin
America
$m
$m
18,419
(819)
(234)
21
—
(254)
(9)
8
17,366
26,922
(412)
(34)
—
—
(5)
(32)
3
26,476
(3,751)
45
(3,706)
(2,284)
2
(2,282)
(18,874)
756
2,074
(54)
803
17
1,425
12
(129)
(16,044)
1
(11)
—
—
—
(10)
(4,205)
(29)
1,840
(234)
2,074
—
(2,394)
(13,662)
250
164
—
—
—
171
—
(7)
(13,248)
1,856
59
—
—
—
1,915
12,832
(101)
130
(34)
164
—
12,861
2,628
(252)
—
—
—
—
—
—
2,376
(758)
20
(738)
(1,586)
146
75
—
64
—
19
—
(8)
(1,365)
(265)
—
462
462
—
197
19
(86)
537
—
75
462
470
6,375
49
41
—
10
(2)
35
(2)
6,465
(900)
(18)
(918)
(5,307)
(28)
600
—
223
—
378
—
(1)
(4,735)
—
—
—
—
—
—
168
3
641
41
600
—
812
3,020
(195)
—
—
—
(3)
—
3
2,825
(1,124)
(47)
(1,171)
(1,938)
152
73
—
—
—
91
—
(18)
(1,713)
5
—
—
—
—
5
(37)
(90)
73
—
73
—
(54)
Total
$m
50,429
(1,523)
(58)
21
10
(264)
170
5
48,848
(8,817)
2
(8,815)
(34,432)
1,170
2,817
(54)
1,090
17
1,908
12
(156)
(30,445)
1,597
48
462
462
—
2,107
8,777
(303)
3,221
(58)
2,817
462
11,695
408,495 473,165
(14,753)
360,196 458,412
(48,299)
28,700 107,969
(2,814)
(2,974)
25,886 104,995
19,658 1,037,987
(69,137)
19,361 968,850
(297)
629,647 762,406
(19,820)
555,299 742,586
(74,348)
41,221 182,028
(4,466)
(3,505)
36,755 178,523
27,478 1,642,780
(1,412)
(103,551)
26,066 1,539,229
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 Amounts are non-additive across geographical regions due to inter-company transactions within the Group.
Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.
3
4 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.
5
Includes impairment of software intangible assets of $189m (of total software intangible asset impairment of $1,347m) and impairment of tangible
assets of $197m.
6 In 2020, The Saudi British Bank (’SABB’), an associate of HSBC, impaired the goodwill that arose following the merger with Alawwal bank in
2019. HSBC’s post-tax share of the goodwill impairment was $462m.
HSBC Holdings plc Annual Report and Accounts 2022
123
Financial review
Geographical regions
Reconciliation of reported and adjusted items (continued)
Revenue1
Reported
Currency translation
Significant items
– customer redress programmes
– disposals, acquisitions and investment in new businesses
– fair value movements on financial instruments2
– restructuring and other related costs3
– currency translation on significant items
Adjusted
ECL
Reported
Currency translation
Adjusted
Operating expenses
Reported
Currency translation
Significant items
– customer redress programmes
– impairment of goodwill and other intangibles
– past service costs of guaranteed minimum pension benefits equalisation
– restructuring and other related costs
– settlements and provisions in connection with legal and regulatory matters
– currency translation on significant items
Adjusted
Share of profit/(loss) in associates and joint ventures
Reported
Currency translation
Adjusted
Profit/(loss) before tax
Reported
Currency translation
Significant items
– revenue
– operating expenses
Adjusted
Loans and advances to customers (net)
Reported
Currency translation
Adjusted
Customer accounts
Reported
Currency translation
Adjusted
Hong
Kong
$m
2020
Mainland
China
$m
US
$m
Mexico
$m
UK
$m
13,886
(540)
(187)
21
—
(256)
48
—
13,159
(3,256)
30
(3,226)
(14,855)
438
1,275
(54)
650
17
693
12
(43)
(13,142)
1
(10)
(9)
(4,224)
(82)
1,088
(187)
1,275
(3,218)
16,345
(145)
14
—
—
—
15
(1)
16,214
(824)
9
(815)
(7,312)
62
98
—
—
—
100
—
(2)
(7,152)
(2)
—
(2)
8,207
(74)
112
14
98
8,245
3,088
90
(5)
—
—
(1)
(4)
—
3,173
(114)
(10)
(124)
(2,211)
(49)
18
—
—
—
19
—
(1)
(2,242)
1,849
58
1,907
2,612
89
13
(5)
18
2,714
4,590
(1)
40
—
10
(2)
33
(1)
4,629
(622)
—
(622)
(4,194)
—
556
—
223
—
333
—
—
(3,638)
—
—
—
(226)
(1)
596
40
556
369
314,530
(37,030)
277,500
302,454
(1,635)
300,819
46,113
(2,417)
43,696
58,082
—
58,082
504,275
(59,369)
444,906
531,489
(2,873)
528,616
56,826
(2,978)
53,848
117,485
—
117,485
2,234
141
(12)
—
—
(1)
(12)
1
2,363
(1,050)
(77)
(1,127)
(1,376)
(89)
44
—
—
—
42
—
2
(1,421)
5
—
5
(187)
(25)
32
(12)
44
(180)
17,296
391
17,687
22,220
503
22,723
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2
3 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.
Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.
124
HSBC Holdings plc Annual Report and Accounts 2022
Analysis by country
Profit/(loss) before tax by country/territory within global businesses
Europe
– UK1
– of which: HSBC UK Bank plc (ring-fenced bank)
– of which: HSBC Bank plc (non-ring-fenced bank)
– of which: Holdings and other
– France2
– Germany
– Switzerland
– other3
Asia
– Hong Kong
– Australia
– India
– Indonesia
– mainland China
– Malaysia
– Singapore
– Taiwan
– other
Middle East and North Africa
– Egypt
– UAE
– Saudi Arabia4
– other
North America
– US
– Canada
– other
Latin America
– Mexico
– other
Year ended 31 Dec 2022
Wealth and
Personal
Banking
Commercial
Banking
2022
Global
Banking and
Markets
Corporate
Centre
$m
(95)
1,853
2,112
386
(645)
(2,016)
17
25
26
4,995
4,521
147
45
4
(109)
110
244
36
(3)
313
101
128
30
54
541
209
243
89
286
269
17
6,040
$m
2,652
2,094
2,662
315
(883)
210
8
17
323
2,981
1,309
180
304
71
303
89
255
43
427
290
76
107
—
107
1,169
557
548
64
355
273
82
7,447
$m
(77)
(534)
143
141
(818)
81
133
13
230
3,529
955
157
622
100
526
219
351
137
462
861
194
320
94
253
461
270
140
51
325
180
145
5,099
$m
(2,895)
(37)
(430)
(474)
867
(268)
(147)
(30)
(2,413)
2,219
(580)
(37)
306
(9)
2,678
(35)
(78)
(17)
(9)
236
(5)
(86)
345
(18)
(505)
(387)
(89)
(29)
(113)
(110)
(3)
(1,058)
Total
$m
(415)
3,376
4,487
368
(1,479)
(1,993)
11
25
(1,834)
13,724
6,205
447
1,277
166
3,398
383
772
199
877
1,700
366
469
469
396
1,666
649
842
175
853
612
241
17,528
1 UK includes results from the ultimate holding company, HSBC Holdings plc, and the separately incorporated group of service companies (‘ServCo
2
Group’).
Includes the impact of goodwill impairment of $425m as a result of the reclassification of our retail banking operations in France to held for sale. As
per Group accounting policy, HSBC’s cash-generating units are based on geographical regions, sub-divided by global businesses.
3 Corporate Centre includes inter-company debt eliminations of $1,850m.
4 Includes the results of HSBC Saudi Arabia and our share of the profits of our associate, The Saudi British Bank.
HSBC Holdings plc Annual Report and Accounts 2022
125
Financial review
Geographical regions
Profit/(loss) before tax by country/territory within global businesses (continued)
Europe
– UK1
– of which: HSBC UK Bank plc (ring-fenced bank)
– of which: HSBC Bank plc (non-ring-fenced bank)
– of which: Holdings and other
– France
– Germany
– Switzerland
– other
Asia
– Hong Kong
– Australia
– India
– Indonesia
– mainland China
– Malaysia
– Singapore
– Taiwan
– other
Middle East and North Africa
– Egypt
– UAE
– Saudi Arabia2
– other
North America
– US
– Canada
– other
Latin America
– Mexico
– other3
Year ended 31 Dec 2021
Wealth and
Personal
Banking
Commercial
Banking
2021
Global
Banking
and Markets
Corporate
Centre
$m
1,817
1,511
2,047
176
(712)
236
17
46
7
4,366
4,076
146
20
14
(95)
37
145
14
9
194
79
91
17
7
60
(131)
141
50
(304)
305
(609)
6,133
$m
2,893
2,475
2,929
259
(713)
163
82
10
163
2,364
1,303
132
265
12
288
(23)
107
16
264
235
42
3
—
190
1,023
472
544
7
162
88
74
6,677
$m
(299)
(487)
127
220
(834)
(97)
155
—
130
3,193
920
131
593
111
586
145
231
106
370
805
163
342
65
235
697
524
145
28
326
222
104
4,722
$m
(632)
20
(318)
(17)
355
(133)
67
(12)
(574)
2,326
(383)
(26)
232
(8)
2,554
(20)
(13)
(5)
(5)
189
(2)
(61)
274
(22)
(406)
(337)
(62)
(7)
(103)
(46)
(57)
1,374
Total
$m
3,779
3,519
4,785
638
(1,904)
169
321
44
(274)
12,249
5,916
383
1,110
129
3,333
139
470
131
638
1,423
282
375
356
410
1,374
528
768
78
81
569
(488)
18,906
1 UK includes results from the ultimate holding company, HSBC Holdings plc, and the separately incorporated group of service companies (‘ServCo
Group’).
2 Includes the results of HSBC Saudi Arabia and our share of the profits of our associate, The Saudi British Bank.
3
Includes the impact of goodwill impairment of $587m. As per Group accounting policy, HSBC’s cash-generating units are based on geographical
regions, sub-divided by global businesses.
126
HSBC Holdings plc Annual Report and Accounts 2022
Profit/(loss) before tax by country/territory within global businesses (continued)
Europe
– UK1
– of which: HSBC UK Bank plc (ring-fenced bank)
– of which: HSBC Bank plc (non-ring fenced bank)
– of which: Holdings and other
– France
– Germany
– Switzerland
– other
Asia
– Hong Kong
– Australia
– India
– Indonesia
– mainland China
– Malaysia
– Singapore
– Taiwan
– other
Middle East and North Africa
– Egypt
– UAE
– Saudi Arabia2
– other
North America
– US
– Canada
– other
Latin America
– Mexico
– other
Year ended 31 Dec 2020
Wealth and
Personal
Banking
Commercial
Banking
2020
Global
Banking
and Markets
Corporate
Centre
$m
(680)
(357)
113
109
(579)
(340)
17
(2)
2
5,031
4,927
108
16
(6)
(34)
8
45
9
(42)
(15)
68
(21)
21
(83)
(449)
(547)
52
46
(183)
(115)
(68)
3,704
$m
(529)
(543)
167
36
(746)
(168)
16
(4)
170
1,944
1,787
76
187
(14)
295
33
(644)
18
206
(120)
46
(210)
—
44
366
139
225
2
(22)
(106)
84
1,639
$m
(1,809)
(1,769)
90
(1,030)
(829)
(347)
197
—
110
4,002
1,674
138
593
147
506
141
239
104
460
478
185
102
26
165
712
573
100
39
233
59
174
3,616
$m
(1,187)
(1,555)
(124)
(454)
(977)
(310)
(15)
(10)
703
1,855
(181)
(7)
228
(13)
1,845
(55)
(12)
(2)
52
(324)
(1)
(39)
(264)
(20)
(461)
(391)
(67)
(3)
(65)
(25)
(40)
(182)
Total
$m
(4,205)
(4,224)
246
(1,339)
(3,131)
(1,165)
215
(16)
985
12,832
8,207
315
1,024
114
2,612
127
(372)
129
676
19
298
(168)
(217)
106
168
(226)
310
84
(37)
(187)
150
8,777
1 UK includes results from the ultimate holding company, HSBC Holdings plc, and the separately incorporated group of service companies (‘ServCo
Group’).
2 Includes the results of HSBC Saudi Arabia and our share of the profits of our associate, The Saudi British Bank.
HSBC Holdings plc Annual Report and Accounts 2022
127
Financial review
Reconciliation of alternative performance measures
Reconciliation of alternative performance measures
Contents
128
128
129
130
130
Use of alternative performance measures
Return on average ordinary shareholders’ equity and return on
average tangible equity
Net asset value and tangible net asset value per ordinary share
Post-tax return and average total shareholders’ equity on average
total assets
Expected credit losses and other credit impairment charges as %
of average gross loans and advances to customers
Use of alternative performance
measures
Our reported results are prepared in accordance with IFRSs
as detailed in our financial statements starting on page 324.
As described on page 98, we use a combination of reported and
alternative performance measures, including those derived from our
reported results that eliminate factors that distort year-on-year
comparisons. These are considered alternative performance
measures (non-GAAP financial measures).
The following information details the adjustments made to the
reported results and the calculation of other alternative performance
measures. All alternative performance measures are reconciled to the
closest reported performance measure.
Return on average ordinary
shareholders’ equity and return on
average tangible equity
Return on average ordinary shareholders’ equity (‘RoE’) is computed
by taking profit attributable to the ordinary shareholders of the parent
company (‘reported results’), divided by average ordinary
shareholders’ equity (‘reported equity’) for the period. The adjustment
to reported results and reported equity excludes amounts attributable
to non-controlling interests and other equity instruments.
Return on average tangible equity (‘RoTE’) is computed by adjusting
reported results for the movements in the present value of in-force
long-term insurance business (‘PVIF’) and for impairment of goodwill
and other intangible assets (net of tax), divided by average reported
equity adjusted for goodwill, intangibles and PVIF for the period.
Return on average tangible equity excluding significant items is
annualised profit attributable to ordinary shareholders, excluding
changes in PVIF and significant items (net of tax), divided by average
tangible shareholders’ equity excluding fair value of own debt, debit
valuation adjustment (‘DVA’) and other adjustments for the period.
Since 1 January 2021, the UK bank levy has no longer been excluded
from the calculation of this measure. Comparative data have not been
re-presented.
We provide RoTE ratios in addition to RoE as a way of assessing our
performance, which is closely aligned to our capital position.
Return on average ordinary shareholders’ equity and return on average tangible equity
Profit
Profit attributable to the ordinary shareholders of the parent company
Impairment of goodwill and other intangible assets (net of tax)
Decrease/(increase) in PVIF (net of tax)
Profit attributable to the ordinary shareholders, excluding goodwill, other
intangible assets impairment and PVIF
Significant items (net of tax) and other adjustments1,2
Profit attributable to the ordinary shareholders, excluding goodwill impairment, PVIF and significant items1
Equity
Average total shareholders’ equity
Effect of average preference shares and other equity instruments
Average ordinary shareholders’ equity
Effect of goodwill, PVIF and other intangibles (net of deferred tax)
Average tangible equity
Fair value of own debt, DVA and other adjustments
Average tangible equity excluding fair value of own debt, DVA and other adjustments
Ratio
Return on average ordinary shareholders’ equity
Return on average tangible equity
Return on average tangible equity excluding significant items1
2022
$m
2021
$m
14,822
531
(264)
15,089
2,561
17,650
191,998
(21,202)
170,796
(17,935)
152,861
(1,125)
151,736
%
8.7
9.9
11.6
12,607
608
(58)
13,157
2,086
15,243
199,295
(22,814)
176,481
(17,705)
158,776
1,278
160,054
%
7.1
8.3
9.5
2020
$m
3,898
1,036
(253)
4,681
2,402
7,083
189,719
(22,326)
167,393
(17,292)
150,101
422
150,523
%
2.3
3.1
4.7
1 Since 1 January 2021, the UK bank levy has no longer been excluded from the calculation of this measure. Comparative data have not been
represented.
2 Other adjustments includes entries relating to the timing of payments on additional tier 1 coupons.
128
HSBC Holdings plc Annual Report and Accounts 2022
The following table details the adjustments made to reported results by global business:
Return on average tangible equity by global business
Profit before tax
Tax expense
Profit after tax
Less attributable to: preference shareholders, other equity holders, non-
controlling interests
Profit attributable to ordinary shareholders of the parent company
Increase in PVIF (net of tax)
Significant items (net of tax)
Other adjustments
Profit attributable to ordinary shareholders, excluding PVIF, significant
items
Average tangible shareholders’ equity excluding fair value of own debt, DVA and
other adjustments
Return on average tangible equity excluding significant items (%)
Profit before tax
Tax expense
Profit after tax
Less attributable to: preference shareholders, other equity holders, non-
controlling interests
Profit attributable to ordinary shareholders of the parent company
Increase in PVIF (net of tax)
Significant items (net of tax)
Other adjustments
Profit attributable to ordinary shareholders, excluding PVIF, significant items
Average tangible shareholders’ equity excluding fair value of own debt, DVA and
other adjustments
Return on average tangible equity excluding significant items (%)
Net asset value and tangible net asset
value per ordinary share
Net asset value per ordinary share is total shareholders‘ equity less
non-cumulative preference shares and capital securities (‘total
ordinary shareholders’ equity’), divided by the number of ordinary
shares in issue excluding shares that the company has purchased and
are held in treasury.
Net asset value and tangible net asset value per ordinary share
Total shareholders’ equity
Preference shares and other equity instruments
Total ordinary shareholders’ equity
Goodwill, PVIF and intangible assets (net of deferred tax)
Tangible ordinary shareholders’ equity
Basic number of $0.50 ordinary shares outstanding
Value per share
Net asset value per ordinary share
Tangible net asset value per ordinary share
Year ended 31 Dec 2022
Wealth and
Personal
Banking
Commercial
Banking
Global
Banking and
Markets
Corporate
Centre
$m
6,040
(1,218)
4,822
(696)
4,126
(251)
1,960
6
$m
7,447
(1,737)
5,710
(493)
5,217
36
197
(15)
$m
5,099
(823)
4,276
(603)
3,673
—
300
(24)
$m
(1,058)
2,920
1,862
(56)
1,806
(49)
581
87
Total
$m
17,528
(858)
16,670
(1,848)
14,822
(264)
3,038
54
5,841
5,435
3,949
2,425
17,650
31,519
38,373
36,944
44,900
151,736
18.5
14.2
10.7
5.4
11.6
Year ended 31 Dec 2021
6,133
(1,540)
4,593
(735)
3,858
(65)
850
3
4,646
6,677
(1,783)
4,894
(665)
4,229
4
51
(4)
4,280
4,722
(1,020)
3,702
(618)
3,084
—
517
(3)
3,598
1,374
130
1,504
(68)
1,436
3
1,269
11
2,719
18,906
(4,213)
14,693
(2,086)
12,607
(58)
2,687
7
15,243
30,587
39,487
41,816
48,164
160,054
15.2
10.8
8.6
5.6
9.5
Tangible net asset value per ordinary share is total ordinary
shareholders’ equity excluding goodwill, PVIF and other intangible
assets (net of deferred tax) (‘tangible ordinary shareholders’ equity’),
divided by the number of basic ordinary shares in issue excluding
shares that the company has purchased and are held in treasury.
2022
$m
187,484
(19,746)
167,738
(18,383)
149,355
19,739
$
2021
$m
198,250
(22,414)
175,836
(17,643)
158,193
20,073
$
2020
$m
196,443
(22,414)
174,029
(17,606)
156,423
20,184
$
8.50
7.57
8.76
7.88
8.62
7.75
HSBC Holdings plc Annual Report and Accounts 2022
129
Financial review
Reconciliation of alternative performance measures
Post-tax return and average total shareholders’ equity on average total assets
Post-tax return on average total assets is profit after tax divided by average total assets for the period. Average total shareholders’ equity to
average total assets is average total shareholders’ equity divided by average total assets for the period.
Post-tax return and average total shareholders’ equity on average total assets
Profit after tax
Average total shareholders’ equity
Average total assets
Ratio
Post-tax return on average total assets
Average total shareholders’ equity to average total assets
2022
$m
16,670
191,998
2020
$m
6,099
189,719
3,030,574 3,012,437 2,936,939
2021
$m
14,693
199,295
%
0.6
6.34
%
0.5
6.62
%
0.2
6.46
Expected credit losses and other credit impairment charges as % of average
gross loans and advances to customers
Expected credit losses and other credit impairment charges (‘ECL’) as % of average gross loans and advances to customers is the annualised
adjusted ECL divided by adjusted average gross loans and advances to customers for the period. The adjusted numbers are derived by adjusting
reported ECL and loans and advances to customers for the effects of foreign currency translation differences.
Expected credit losses and other credit impairment charges as % of average gross loans and advances to customers
Expected credit losses and other credit impairment charges (‘ECL’)
Currency translation
Adjusted ECL
Average gross loans and advances to customers
Currency translation
Average gross loans and advances to customers – at most recent balance sheet foreign exchange rates
Average gross loans and advances to customers, including held for sale
Currency translation
Average gross loans and advances to customers, including held for sale – at most recent balance sheet foreign
exchange rates
(3,592)
2022
$m
(3,592)
2021
$m
928
(174)
754
2020
$m
(8,817)
2
(8,815)
1,015,445 1,057,412 1,047,114
(63,174)
(34,883)
(13,325)
1,002,120
994,238 1,012,231
1,036,974 1,058,947 1,047,114
(34,883)
(12,846)
(63,012)
1,024,128
995,935 1,012,231
Ratio
Expected credit losses and other credit impairment charges as % of average gross loans and advances to customers
Expected credit losses and other credit impairment charges as % of average gross loans and advances to customers,
including held for sale
%
0.36
0.35
%
(0.08)
(0.08)
%
0.87
0.87
130
HSBC Holdings plc Annual Report and Accounts 2022
Risk
review
Our risk review outlines our approach to
risk management, how we identify and
monitor top and emerging risks, and
the actions we take to mitigate them. In
addition, it explains our material banking
risks, including how we manage capital.
132 Our approach to risk
132 Our risk appetite
132 Risk management
135 Key developments in 2022
135 Top and emerging risks
135 Externally driven
140
Internally driven
142 Areas of special interest
142 Risks related to Covid-19
142 Our material banking risks
145 Credit risk
202 Treasury risk
218 Market risk
221 Climate risk
230 Resilience risk
231 Regulatory compliance risk
231 Financial crime risk
232 Model risk
233
Insurance manufacturing operations risk
Identifying suspicious activities
through our award-winning AI tool
We are using the latest artificial intelligence technology to help
identify suspicious activities to help prevent financial crime. Our
dynamic risk assessment solution brings data together on the
Cloud, and uses machine learning to analyse and identify criminal
activity by making use of relevant data, with the ability to identify
patterns that humans are unlikely to spot.
The tool, which we first developed in November 2021 and is active
in several markets including the UK, enables suspicious activity to
be identified twice as fast than the previous process and reduces
case volumes by 60%.
The solution was recognised at the 2022 Banking Tech Awards,
winning ‘Best Use of Cloud’ and ‘Best Use of AI’. We plan to roll
it out to other markets throughout 2023.
HSBC Holdings plc Annual Report and Accounts 2022
131
Risk review
Our approach to risk
Our risk appetite
We recognise the importance of a strong culture, which refers to our
shared attitudes, beliefs, values and standards that shape behaviours
including those related to risk awareness, risk taking and risk
management. All our people are responsible for the management of
risk, with the ultimate accountability residing with the Board.
We seek to build our business for the long term by balancing social,
environmental and economic considerations in the decisions we
make. Our strategic priorities are underpinned by our endeavour to
operate in a sustainable way. This helps us to carry out our social
responsibility and manage the risk profile of the business. We are
committed to managing and mitigating climate-related risks, both
physical and transition risks, and continue to incorporate consideration
of these into how we manage and oversee risks internally and with
our customers.
The following principles guide the Group’s overarching appetite for
risk and determine how our businesses and risks are managed.
Financial position
• We aim to maintain a strong capital position, defined by regulatory
and internal capital ratios.
• We carry out liquidity and funding management for each operating
entity, on a stand-alone basis.
Operating model
• We seek to generate returns in line with our risk appetite and
strong risk management capability.
• We aim to deliver sustainable and diversified earnings and
consistent returns for shareholders.
Business practice
• We have no appetite for deliberately or knowingly causing
detriment to consumers, or incurring a breach of the letter or spirit
of regulatory requirements.
• We have no appetite for inappropriate market conduct by any
member of staff or by any Group business.
• We are committed to managing the climate risks that have an
impact on our financial position, and delivering on our net zero
ambition.
• We consider and, where appropriate, mitigate reputational risk that
may arise from our business activities and decisions.
• We monitor non-financial risk exposure against risk appetite,
including exposure related to inadequate or failed internal
processes, people and systems, or events that impact our
customers or can lead to sub-optimal returns to shareholders,
censure, or reputational damage.
Enterprise-wide application
Our risk appetite encapsulates the consideration of financial and non-
financial risks. We define financial risk as the risk of a financial loss as
a result of business activities. We actively take these types of risks to
maximise shareholder value and profits. Non-financial risk is the risk
to achieving our strategy or objectives as the result of failed internal
processes, people and systems, or from external events.
Our risk appetite is expressed in both quantitative and qualitative
terms and applied at the global business level, at the regional level
and to material operating entities. Every three years, the Group Risk
and Compliance function commissions an external independent firm
to review the Group’s approach to risk appetite and to help ensure
that it remains in line with market best practice and regulatory
expectations. This review was last carried out in 2021 and confirmed
the Group’s risk appetite statement (‘RAS’) remains aligned to best
practices, regulatory expectations and strategic goals. Our risk
appetite continues to evolve and expand its scope as part of our
regular review process.
132
HSBC Holdings plc Annual Report and Accounts 2022
The Board reviews and approves the Group’s risk appetite regularly to
make sure it remains fit for purpose. The Group’s risk appetite is
considered, developed and enhanced through:
• an alignment with our strategy, purpose, values and customer
needs;
• trends highlighted in other Group risk reports;
• communication with risk stewards on the developing risk
landscape;
• strength of our capital, liquidity and balance sheet;
• compliance with applicable laws and regulations;
• effectiveness of the applicable control environment to mitigate
risk, informed by risk ratings from risk control assessments;
• functionality, capacity and resilience of available systems to
manage risk; and
• the level of available staff with the required competencies to
manage risks.
We formally articulate our risk appetite through our RAS. Setting out
our risk appetite ensures that we agree a suitable level of risk for our
strategy. In this way, risk appetite informs our financial planning
process and helps senior management to allocate capital to business
activities, services and products.
The RAS is applied to the development of business line strategies,
strategic and business planning and remuneration. At a Group level,
performance against the RAS is reported to the Group Risk
Management Meeting alongside key risk indicators to support
targeted insight and discussion on breaches of risk appetite and any
associated mitigating actions. This reporting allows risks to be
promptly identified and mitigated, and informs risk-adjusted
remuneration to drive a strong risk culture.
Each global business, region and material operating entity is required
to have its own RAS, which is monitored to help ensure it remains
aligned with the Group’s RAS. Each RAS and business activity is
guided and underpinned by qualitative principles and/or quantitative
metrics.
Risk management
We recognise that the primary role of risk management is to protect
our customers, business, colleagues, shareholders and the
communities that we serve, while ensuring we are able to support
our strategy and provide sustainable growth. This is supported
through our three lines of defence model described on page 134.
The implementation of our business strategy remains a key focus. As
we implement change initiatives, we actively manage the execution
risks. We also perform periodic risk assessments, including against
strategies, to help ensure retention of key personnel for our continued
safe operation.
We aim to use a comprehensive risk management approach across
the organisation and across all risk types, underpinned by our culture
and values. This is outlined in our risk management framework,
including the key principles and practices that we employ in managing
material risks, both financial and non-financial. The framework fosters
continual monitoring, promotes risk awareness and encourages a
sound operational and strategic decision-making and escalation
process. It also supports a consistent approach to identifying,
assessing, managing and reporting the risks we accept and incur in
our activities, with clear accountabilities. We actively review and
enhance our risk management framework and our approach to
managing risk, through our activities with regard to: people and
capabilities; governance; reporting and management information;
credit risk management models; and data.
Group Risk and Compliance is independent from the global
businesses, including our sales and trading functions, to provide
challenge, oversight and appropriate balance in risk/return decisions.
Our risk management framework
The following diagram and descriptions summarise key aspects of the risk management framework, including governance, structure, risk
management tools and our culture, which together help align employee behaviour with risk appetite.
Key components of our risk management framework
HSBC Values and risk culture
Non-executive risk governance
Risk governance
Executive risk governance
Roles and
responsibilities
Three lines of defence model
Processes and tools
Risk appetite
Enterprise-wide risk management tools
Active risk management: identification/assessment,
monitoring, management and reporting
Policies and procedures
Internal controls
Control activities
Systems and infrastructure
The Board approves the Group’s risk appetite, plans and performance
targets. It sets the ‘tone from the top’ and is advised by the Group Risk
Committee (see page 255).
Our executive risk governance structure is responsible for the
enterprise-wide management of all risks, including key policies and
frameworks for the management of risk within the Group (see pages
134 and 142).
Our ‘three lines of defence’ model defines roles and responsibilities for
risk management. An independent Group Risk and Compliance
function helps ensure the necessary balance in risk/return decisions
(see page 134).
The Group has processes in place to identify/assess, monitor, manage
and report risks to help ensure we remain within our risk appetite.
Policies and procedures define the minimum requirements for the
controls required to manage our risks.
Operational and resilience risk management defines minimum
standards and processes for managing operational risks and internal
controls.
The Group has systems and/or processes that support the
identification, capture and exchange of information to support risk
management activities.
Risk governance
The Board has ultimate responsibility for the effective management of
risk and approves our risk appetite.
The Group Chief Risk and Compliance Officer, supported by the
Group Risk Management Meeting, holds executive accountability for
the ongoing monitoring, assessment and management of the risk
environment and the effectiveness of the risk management
framework.
The Group Chief Risk and Compliance Officer is also responsible for
the oversight of reputational risk, with the support of the Group
Reputational Risk Committee. The Group Reputational Risk
Committee considers matters arising from customers, transactions
and third parties that either present a serious potential reputational
risk to the Group or merit a Group-led decision to ensure a consistent
risk management approach across the regions, global businesses and
global functions. Further details can be found under the ‘Reputational
risk’ section of www.hsbc.com/our-approach/risk-and-responsibility.
Day-to-day responsibility for risk management is delegated to senior
managers with individual accountability for decision making. All our
people have a role to play in risk management. These roles are
defined using the three lines of defence model, which takes into
account our business and functional structures as described in the
following commentary, ‘Our responsibilities’.
We use a defined executive risk governance structure to help ensure
there is appropriate oversight and accountability of risk, which
facilitates reporting and escalation to the Group Risk Management
Meeting. This structure is summarised in the following table.
HSBC Holdings plc Annual Report and Accounts 2022
133
Risk review Risk review
Governance structure for the management of risk and compliance
Authority
Membership
Responsibilities include:
Group Risk Management
Meeting
Group Risk and
Compliance Executive
Committee
Global business/regional
risk management
meetings
Group Chief Risk and Compliance
Officer
Group Chief Legal Officer
Group Chief Executive
Group Chief Financial Officer
Group Head of Financial Crime and
Group Money Laundering Reporting
Officer
Group Head of Compliance
All other Group Executive Committee
members
Group Chief Risk and Compliance
Officer
Chief risk officers of HSBC’s
global businesses and regions
Heads of Global Risk and Compliance
sub-functions
Global business/regional chief
risk officer
Global business/regional chief
executive officer
Global business/regional chief financial
officer
Global business/regional heads
of global functions
• Supporting the Group Chief Risk and Compliance Officer in exercising Board-
delegated risk management authority
• Overseeing the implementation of risk appetite and the risk management
framework
• Forward-looking assessment of the risk environment, analysing possible risk
impacts and taking appropriate action
• Monitoring all categories of risk and determining appropriate mitigating action
• Promoting a supportive Group culture in relation to risk management and
conduct
• Supporting the Group Chief Risk and Compliance Officer in providing strategic
direction for the Group Risk and Compliance function, setting priorities and
providing oversight
• Overseeing a consistent approach to accountability for, and mitigation of, risk
and compliance across the Group
• Supporting the Group Chief Risk and Compliance Officer in exercising Board-
delegated risk management authority
• Forward-looking assessment of the risk environment
• Implementation of risk appetite and the risk management framework
• Monitoring all categories of risk and overseeing appropriate mitigating actions
• Embedding a supportive culture in relation to risk management and controls
The Board committees with responsibility for oversight of risk-related matters are set out on page 258.
Treasury risks are the responsibility of the Group Executive Committee and the Group Risk Committee. Global Treasury actively manages these
risks, supported by the Holdings Asset and Liability Management Committee (‘ALCO’) and local ALCOs, overseen by Treasury Risk
Management and the Group Risk Management Meeting. Further details on treasury risk management are set out on page 202.
Our responsibilities
All our people are responsible for identifying and managing risk within
the scope of their roles. Roles are defined using the three lines of
defence model, which takes into account our business and functional
structures as described below.
Three lines of defence
To create a robust control environment to manage risks, we use an
activity-based three lines of defence model. This model delineates
management accountabilities and responsibilities for risk
management and the control environment.
The model underpins our approach to risk management by clarifying
responsibility and encouraging collaboration, as well as enabling
efficient coordination of risk and control activities. The three lines of
defence are summarised below:
• The first line of defence owns the risks and is responsible
for identifying, recording, reporting and managing them in line with
risk appetite, and ensuring that the right controls and assessments
are in place to mitigate them.
• The second line of defence challenges the first line of defence on
effective risk management, and provides advice and guidance in
relation to the risk.
• The third line of defence is our Global Internal Audit function,
which provides independent assurance as to whether our risk
management approach and processes are designed and operating
effectively.
Group Risk and Compliance function
Our Group Risk and Compliance function is responsible for the
Group’s risk management framework. This responsibility includes
establishing global policy, monitoring risk profiles, and identifying and
managing forward-looking risk. Group Risk and Compliance is made
up of sub-functions covering all risks to our business. Forming part of
the second line of defence, the Group Risk and Compliance function
is independent from the global businesses, including sales and trading
134
HSBC Holdings plc Annual Report and Accounts 2022
functions, to provide challenge, appropriate oversight and balance in
risk/return decisions.
Responsibility for minimising both financial and non-financial risk lies
with our people. They are required to manage the risks of the
business and operational activities for which they are responsible. We
maintain adequate oversight of our risks through our various specialist
risk stewards and the collective accountability held by our chief risk
officers.
We have continued to strengthen the control environment and our
approach to the management of non-financial risk, as set out in our
risk management framework. The management of non-financial risk
focuses on governance and risk appetite, and provides a single view
of the non-financial risks that matter the most as well as the
associated controls. It incorporates a risk management system
designed to enable the active management of non-financial risk. Our
ongoing focus is on simplifying our approach to non-financial risk
management, while driving more effective oversight and better end-
to-end identification and management of non-financial risks. This is
overseen by the Operational and Resilience Risk function, headed by
the Group Head of Operational and Resilience Risk.
Stress testing and recovery planning
We operate a wide-ranging stress testing programme that is a key
part of our risk management and capital and liquidity planning. Stress
testing provides management with key insights into the impact of
severely adverse events on the Group, and provides confidence to
regulators on the Group’s financial stability.
Our stress testing programme assesses our capital and liquidity
strength through a rigorous examination of our resilience to external
shocks. As well as undertaking regulatory-driven stress tests, we
conduct our own internal stress tests in order to understand the
nature and level of all material risks, quantify the impact of such risks
and develop plausible business-as-usual mitigating actions.
Internal stress tests
Our internal capital assessment uses a range of stress scenarios that
explore risks identified by management. They include potential
adverse macroeconomic, geopolitical and operational risk events, as
well as other potential events that are specific to HSBC.
The selection of stress scenarios is based upon the output of our
identified top and emerging risks and our risk appetite. Stress testing
analysis helps management understand the nature and extent of
vulnerabilities to which the Group is exposed. Using this information,
management decides whether risks can or should be mitigated
through management actions or, if they were to crystallise, be
absorbed through capital and liquidity. This in turn informs decisions
about preferred capital and liquidity levels and allocations.
In addition to the Group-wide stress testing scenarios, each major
subsidiary conducts regular macroeconomic and event-driven scenario
analysis specific to its region. They also participate, as required, in the
regulatory stress testing programmes of the jurisdictions in which
they operate, such as stress tests required by the Bank of England
(‘BoE’) in the UK, the Federal Reserve Board (‘FRB’) in the US, and
the Hong Kong Monetary Authority (‘HKMA’) in Hong Kong. Global
functions and businesses also perform bespoke stress testing to
inform their assessment of risks to potential scenarios.
We also conduct reverse stress tests each year at Group level and,
where required, at subsidiary entity level to understand potential
extreme conditions that would make our business model non-viable.
Reverse stress testing identifies potential stresses and vulnerabilities
we might face, and helps inform early warning triggers, management
actions and contingency plans designed to mitigate risks.
Recovery and resolution plans
Recovery and resolution plans form part of the integral framework
safeguarding the Group’s financial stability. The Group recovery plan,
together with stress testing, help us understand the likely outcomes
of adverse business or economic conditions and in the identification
of appropriate risk mitigating actions. The Group is committed to
further developing its recovery and resolution capabilities in line with
the BoE’s Resolvability Assessment Framework requirements.
Key developments in 2022
We actively managed the risks related to macroeconomic
uncertainties including inflation, fiscal and monetary policy, the
Russia-Ukraine war, broader geopolitical uncertainties and continued
risks resulting from the Covid-19 pandemic, as well as other key risks
described in this section. In addition, we sought to enhance our risk
management in the following areas:
Top and emerging risks
We use a top and emerging risks process to provide a forward-looking
view of issues with the potential to threaten the execution of our
strategy or operations over the medium to long term.
We proactively assess the internal and external risk environment, as
well as review the themes identified across our regions and global
businesses, for any risks that may require global escalation. We
update our top and emerging risks as necessary.
Our current top and emerging risks are as follows.
Externally driven
Geopolitical and macroeconomic risks
The Russia-Ukraine war has had far-reaching geopolitical and
economic implications. HSBC is monitoring the impacts of the war
and continues to respond to the further economic sanctions and trade
restrictions that have been imposed on Russia in response. In
particular, significant sanctions and trade restrictions imposed against
Russia have been put in place by the UK, the US and the EU, as well
as other countries. Such sanctions and restrictions have specifically
targeted certain Russian government officials, politically exposed
• We continued to improve our risk governance decision making,
particularly with regard to the governance of treasury risk, to help
ensure senior executives have appropriate oversight and visibility
of macroeconomic trends around inflation and interest rates.
• We adapted our interest rate risk management strategy as market
and official interest rates increased in reaction to inflationary
pressures. This included the Board approving in September a new
interest rate risk in the banking book strategy, a managed
reduction in the duration risk of our hold-to-collect-and-sell asset
portfolio and an increase in net interest income stabilisation.
• We began a process of enhancement of our country credit risk
management framework to strengthen our control of risk tolerance
and appetite at a country level.
• We continued to develop our approach to emerging risk
identification and management, including the use of forward-
looking indicators to support our analysis.
• We enhanced our enterprise risk reporting processes to place a
greater focus on our emerging risks, including by capturing the
materiality, oversight and individual monitoring of these risks.
• We sought to further strengthen our third-party risk policy and
processes to improve control and oversight of our material third
parties to maintain our operational resilience, and to meet new and
evolving regulatory requirements.
• We made progress with our comprehensive regulatory reporting
programme to strengthen our global processes, improve
consistency and enhance controls.
• We continued to embed the governance and oversight around
model adjustments and related processes for IFRS 9 models and
Sarbanes-Oxley controls.
• We commenced a programme to enhance our framework for
managing the risks associated with machine learning and artificial
intelligence (‘AI’).
• Through our climate risk programme, we continued to embed
climate considerations throughout the organisation, including
updating the scope of our programme to cover all risk types,
expanding the scope of climate-related training, developing new
climate risk metrics to monitor and manage exposures, and
developing our internal climate scenario exercise.
• We sought to improve the effectiveness of our financial crime
controls, deploying advanced analytics capabilities into new
markets. We refreshed our financial crime policies to help ensure
they remain up to date and address changing and emerging risks.
We continue to monitor regulatory changes.
persons, business people, Russian oil imports, energy products,
financial institutions and other major Russian companies. In addition,
there have been put in place more generally applicable investment,
export, and import bans and restrictions. In response to such
sanctions and trade restrictions, as well as asset flight, Russia has
implemented certain countermeasures.
Further sanctions, trade restrictions and Russian countermeasures
may adversely impact the Group, its customers and the markets in
which the Group operates by creating regulatory, reputational and
market risks. Our business in Russia principally serves multinational
corporate clients headquartered in other countries, is not accepting
new business or customers and is consequently on a declining trend.
Following a strategic review, HSBC Europe BV (a wholly-owned
subsidiary of HSBC Bank plc) has entered into an agreement to sell its
wholly-owned subsidiary HSBC Bank (RR) (Limited Liability Company),
subject to regulatory and governmental approvals.
Global commodity markets have been significantly impacted by the
Russia-Ukraine war and localised Covid-19 outbreaks, leading to
continued supply chain disruptions. This has resulted in product
shortages appearing across several regions, and increased prices for
both energy and non-energy commodities, such as food. We do not
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135
Risk review Risk review
expect these to ease significantly in the near term. In turn, this has
had a significant impact on global inflation. Relatively mild weather,
until recently, and diversification of fuel sources have nevertheless
helped regions most dependent on Russian supply to substantially
reduce risks of rationing over the winter months.
China’s policy measures issued at the end of 2022 have increased
liquidity and the supply of credit to the mainland China commercial
real estate sector. Recovery in the underlying domestic residential
demand and improved customer sentiment will be necessary to
support the ongoing health of the sector. We will continue to monitor
the sector closely, notably the risk of further idiosyncratic real estate
defaults and the potential associated impact on wider market,
investor and consumer sentiment. Given that parts of the global
economy are in, or close to, recession, the demand for Chinese
exports may also diminish.
Rising global inflation has prompted central banks to tighten monetary
policy. Since the beginning of 2022, the US Federal Reserve Board
(‘FRB’) has delivered a cumulative 450 basis point (‘bps’) increase in
the Federal Funds rate. The European Central Bank lagged the FRB
initially, but its benchmark rate has subsequently been increased by
300bps since July 2022. As of mid-February 2023, interest-rate
futures suggested market uncertainty as to whether the FRB would
begin to ease monetary policy over the 12-month horizon. Should
monetary policy rates move materially higher than current
expectations, a realignment of market expectations could cause
turbulence in financial asset prices.
Financial markets have also shown reduced appetite for expansionary
fiscal policies in the context of high debt ratios. Following the fiscal
statement of 23 September 2022 by the UK government, there was a
fall in the value of sterling and a sharp rise in the yields of UK
government securities, known as gilts. Following this, the Bank of
England reversed its plan to begin selling its gilt holdings from
September 2022, and the UK government reversed most of the
previously announced fiscal measures. We continue to monitor our
risk profile closely in the context of uncertainty over global
macroeconomic policies.
Higher inflation and interest rate expectations around the world – and
the resulting economic uncertainty – have had an impact on expected
credit losses and other credit impairment charges (‘ECL’). The
combined pressure of higher inflation and interest rates may impact
the ability of our customers to repay debt. Our Central scenario,
which has the highest probability weighting in our IFRS 9 ‘Financial
Instruments’ calculations of ECL, assumes low growth and a higher
inflation environment across many of our key markets. However, due
to the rapidly changing economic conditions, the potential for forecast
dispersion and volatility remain high, impacting the degree of accuracy
and certainty of our Central scenario forecast. The level of volatility
varies by market, depending on exposure to commodity price
increases, supply chain constraints, the monetary policy response to
inflation and the public health policy response to the Covid-19
pandemic. As a result, our Central scenario for impairment has not
been assigned the same likelihood of occurrence across our key
markets. There is also 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 further details of our Central and other scenarios, see
‘Measurement uncertainty and sensitivity analysis of ECL estimates’
on page 153.
Global tensions over trade, technology and ideology are manifesting
themselves in divergent regulatory standards and compliance
regimes, presenting long-term strategic challenges for multinational
businesses.
The US-China relationship remains complex. To date, the UK, the US,
the EU and other countries have imposed various sanctions and trade
restrictions on Chinese persons and companies. Although sanctions
and trade restrictions are difficult to predict, increases in diplomatic
tensions between China and the US and other countries could result
in sanctions that could negatively impact the Group, its customers
and the markets in which the Group operates. There is a continued
risk of additional sanctions and trade restrictions being imposed by
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HSBC Holdings plc Annual Report and Accounts 2022
the US and other governments in relation to human rights,
technology, and other issues with China, and this could create a more
complex operating environment for the Group and its customers.
China has in turn announced a number of its own sanctions and trade
restrictions that target, or provide authority to target, foreign
individuals and companies.
These and any future measures and countermeasures that may be
taken by the US, China and other countries may affect the Group, its
customers and the markets in which the Group operates.
Negotiations between the UK and the EU over the operation of the
Northern Ireland Protocol are continuing. While there are signs that
differences may be diminishing, failure to reach agreement could
have implications for the future operation of the EU-UK Trade and
Cooperation Agreement.
In June 2022, the UK government published proposed legislation that
seeks to amend the Protocol in a number of respects. In response,
the EU launched infringement procedures against the UK, and is
evaluating the UK response, received in September 2022. If the
proposed legislation were to pass, and infringement procedures
progressed, it could further complicate the terms of trade between
the UK and the EU and potentially prevent progress in other areas
such as financial services. Over the medium to long term, the UK’s
withdrawal from the EU may impact markets and increase economic
risk, particularly in the UK, which could adversely impact our
profitability and prospects for growth in this market. We are
monitoring the situation closely, including the potential impacts on our
customers.
In August 2022, the US Inflation Reduction Act introduced a minimum
tax of 15% with effect from 1 January 2023. It is possible that the
minimum tax could result in an additional US tax liability over our
regular US federal corporate tax liability in a given year, based on the
differences between US book and taxable income (including as a
result of temporary differences). Given its recent pronouncement, it is
unclear at this time what, if any, impact the US Inflation Reduction
Act will have on HSBC’s US tax rate and US financial results. HSBC
will continue to evaluate its impact as further information becomes
available. In addition, potential changes to tax legislation and tax rates
in the countries and territories in which we operate could increase our
effective tax rate in the future.
As the geopolitical landscape evolves, compliance by multinational
corporations with their legal or regulatory obligations in one
jurisdiction may be seen as supporting the law or policy objectives of
that jurisdiction over another, creating additional compliance,
reputational and political risks for the Group. We maintain dialogue
with our regulators in various jurisdictions on the impact of legal and
regulatory obligations on our business and customers.
The financial impact on the Group of geopolitical risks in Asia is
heightened due to the region’s relatively high contribution to the
Group’s profitability, particularly in Hong Kong.
While it is the Group's policy to comply with all applicable laws and
regulations of all jurisdictions in which it operates, geopolitical risks
and tensions, and potential ambiguities in the Group’s compliance
obligations, will continue to present challenges and risks for the
Group and could have a material adverse impact on the Group‘s
business, financial condition, results of operations, prospects and
strategy, as well as on the Group’s customers.
Expanding data privacy, national security and cybersecurity laws in a
number of markets could pose potential challenges to intra-group data
sharing. These developments could increase financial institutions’
compliance obligations in respect of cross-border transfers of
personal information, which may affect our ability to manage financial
crime risks across markets.
Mitigating actions
• We closely monitor geopolitical and economic developments in
key markets and sectors and undertake scenario analysis where
appropriate. This helps us to take portfolio actions where
necessary, including through enhanced monitoring, amending our
risk appetite and/or reducing limits and exposures.
• We stress test portfolios of particular concern to identify
sensitivity to loss under a range of scenarios, with management
actions being taken to rebalance exposures and manage risk
appetite where necessary.
• We regularly review key portfolios to help ensure that individual
customer or portfolio risks are understood and that our ability to
manage the level of facilities offered through any downturn is
appropriate.
• We continue to manage sanctions and trade restrictions through
the use of, and enhancements to, our existing controls.
• We continue to monitor the UK’s relationship with the EU, and
assess the potential impact on our people, operations and
portfolios.
• We have taken steps, where necessary, to enhance physical
security in geographical areas deemed to be at high risk from
terrorism and military conflicts.
Technology and cybersecurity risk
Together with other organisations, we operate in an extensive and
complex technology landscape, which needs to remain resilient in
order to support customers, our organisation and financial markets
globally. Risks arise where technology is not understood, maintained,
or developed appropriately. We also continue to operate in an
increasingly hostile cyber threat environment globally. These threats
include potential unauthorised access to customer accounts, attacks
on our systems or those of our third-party suppliers, and require
ongoing investment in business and technical controls to defend
against.
Mitigating actions
• We continue to invest in transforming how software solutions are
developed, delivered and maintained to improve system resilience.
We continue to build security into our software development
lifecycle and improve our testing processes and tools.
• We continue to upgrade many of our IT systems, simplify our
service provision and replace older IT infrastructure and
applications. These enhancements supported global
improvements in service availability during 2022 for both our
customers and colleagues.
• We continually evaluate threat levels for the most prevalent cyber-
attack types and their potential outcomes. To further protect HSBC
and our customers and help ensure the safe expansion of our
global businesses, we continue to strengthen our controls to
reduce the likelihood and impact of advanced malware, data
leakage, exposure through third parties and security vulnerabilities.
• We continue to enhance our cybersecurity capabilities, including
Cloud security, identity and access management, metrics and data
analytics, and third-party security reviews. An important part of our
defence strategy is ensuring our colleagues remain aware of
cybersecurity issues and know how to report incidents.
• We report and review cyber risk and control effectiveness at
executive and non-executive Board level. We also report it across
our global businesses, functions and regions to help ensure there
is appropriate visibility and governance of the risk and its mitigating
actions.
• We participate globally in industry bodies and working groups to
collaborate on tactics employed by cyber-crime groups and to
work together preventing, detecting and defending against cyber-
attacks on financial organisations globally.
Evolving regulatory environment risk
We aim to keep abreast of the emerging regulatory compliance and
conduct agenda, which currently includes, but is not limited to: ESG
matters; ensuring good customer outcomes; addressing customer
vulnerabilities due to cost of living pressures; regulatory compliance;
regulatory reporting; employee compliance, including the use of e-
communication channels; and the proposed reforms to the UK
financial services sector, known as the Edinburgh Reforms. We
monitor regulatory developments closely and engage with regulators,
as appropriate, to help ensure new regulatory requirements are
implemented effectively and in a timely way. The competitive
landscape in which the Group operates may be impacted by future
regulatory changes and government intervention.
Mitigating actions
• We monitor for regulatory developments to understand the
evolving regulatory landscape and seek to respond with changes in
a timely manner.
• We engage with governments and regulators, responding to
consultations with a view to help shaping regulations that can be
implemented effectively. We hold regular meetings with relevant
authorities to discuss strategic contingency plans, including those
arising from geopolitical issues.
• Our simplified conduct approach aligns to our purpose and values,
in particular the value ‘we take responsibility’.
Financial crime risk
Financial institutions remain under considerable regulatory scrutiny
regarding their ability to detect and prevent financial crime. These
evolving challenges include managing conflicting laws and approaches
to legal and regulatory regimes, and implementing an unprecedented
volume and diverse set of sanctions, notably as a result of the Russia-
Ukraine war.
Amid rising inflation and increasing cost of living pressures, we face
increasing regulatory expectations with respect to managing internal
and external fraud, and protecting vulnerable customers.
The digitisation of financial services continues to have an impact on
the payments ecosystem, with an increasing number of new market
entrants and payment mechanisms, not all of which are subject to the
same level of regulatory scrutiny or regulations as banks.
Developments around digital assets and currencies have continued at
pace, with an increasing regulatory and enforcement focus on the
financial crimes linked to these types of assets.
Expectations with respect to the intersection of ESG issues and
financial crime, as our organisation, customers and suppliers transition
to net zero, continue to increase. These are particularly focused on
potential ‘greenwashing’, human rights issues and environmental
crimes. In addition, climate change itself could heighten risks linked to
vulnerable migrant populations in countries where financial crime is
already more prevalent.
We also continue to face increasing challenges presented by national
data privacy requirements, which may affect our ability to manage
financial crime risks across markets.
Mitigating actions
• We continue to manage sanctions and trade restrictions through
the use of, and enhancements to, our existing controls.
• We continue to develop our fraud controls and invest in
capabilities to fight financial crime through the application of
advanced analytics and artificial intelligence.
• We are looking at the impact of a rapidly changing payments
ecosystem, as well as risks associated with direct and indirect
exposure to digital assets and currencies, in an effort to maintain
appropriate financial crime controls.
• We are assessing our existing policies and control framework so
that developments relating to ESG are considered and the risks
mitigated.
• We engage with regulators, policymakers and relevant
international bodies, seeking to address data privacy challenges
through international standards, guidance and legislation.
Ibor transition risk
Interbank offered rates (‘Ibors’) have previously been used extensively
to set interest rates on different types of financial transactions and for
valuation purposes, risk measurement and performance
benchmarking.
Following the UK’s Financial Conduct Authority (‘FCA’) announcement
in July 2017 that it would no longer continue to persuade or require
panel banks to submit rates for the London interbank offered rate
(‘Libor’) after 2021, we have been actively working to transition legacy
HSBC Holdings plc Annual Report and Accounts 2022
137
Risk review Risk review
contracts from Ibors to products linked to near risk-free replacement
rates (‘RFRs’) or alternative reference rates.
methodologies, and the transition of large volumes of Ibor
contracts may lead to operational issues;
The publication of sterling, Swiss franc, euro and Japanese yen Libor
interest rate benchmarks, as well as Euro Overnight Index Average
(‘Eonia’), ceased from the end of 2021. Our Ibor transition programme
– which is tasked with the development of RFR products and the
transition of legacy Ibor products – has continued to support the
transition of a limited number of remaining contracts in sterling and
Japanese yen Libor, which were published using a ‘synthetic’ interest
rate methodology during 2022. The remaining ‘tough legacy’ sterling
contracts have required protracted client discussions where contracts
are complex or restructuring of facilities is required. The publication of
‘synthetic’ Japanese yen Libor ceased after 31 December 2022. In
addition the FCA announced, in September and November 2022, that
one month and six-month ‘synthetic’ sterling Libor rates will cease to
be published from 31 March 2023, and three-month ‘synthetic’
sterling Libor will cease to be published after 31 March 2024. We
have or are prepared to transition or remediate the remaining few
contracts relying on ‘synthetic’ sterling settings, outstanding as at
31 December 2022, in advance of those cessation dates.
For the cessation of the publication of US dollar Libor from 30 June
2023, we have implemented the majority of required processes,
technology and RFR product capabilities throughout the Group in
preparation for upcoming market events. We will continue to
transition outstanding legacy contracts through the first half of 2023.
We have completed the transition of the majority of our uncommitted
lending facilities, and continue to make steady progress with the
transition of the outstanding legacy committed lending facilities.
Transition of our derivatives portfolio is progressing well with most
clients reliant on industry mechanisms to transition to RFRs. For the
limited number of bilateral derivatives trades where an alternative
transition path is required, client engagement is continuing. For
certain products and contracts, including bonds and syndicated loans,
we remain reliant on the continued support of agents and third
parties, but we continue to progress those contracts requiring
transition. We continue to monitor contracts that may be potentially
more challenging to transition, and may need to rely upon legislative
solutions. Additionally, following the FCA’s consultation in November
2022 proposing that US dollar Libor is to be published using a
‘synthetic’ methodology for a defined period, we will continue to work
with our clients to support them through the transition of their
products if transition is not completed by 30 June 2023.
For the Group’s own debt securities issuances, we continue to have
instruments in US dollars, sterling, Japanese yen and Singapore
dollars where the terms provide for an Ibor benchmark to be used to
reset the coupon rate if HSBC chooses not to redeem them on their
call dates. We remain mindful of the various factors that have an
impact on the Ibor remediation strategy for our regulatory capital and
MREL instruments, including – but not limited to – timescales for
cessation of relevant Ibor rates, constraints relating to the governing
law of outstanding instruments, the potential relevance of legislative
solutions and industry best practice guidance. We remain committed
to seeking to remediate or mitigate relevant risks relating to Ibor-
demise, as appropriate, on our outstanding regulatory capital and
MREL instruments before the relevant calculation dates, which may
occur post-cessation of the relevant Ibor rate or rates.
For US dollar Libor and other demising Ibors, we continue to be
exposed to, and actively monitor, risks including:
• regulatory compliance and conduct risks, as the transition of
legacy contracts to RFRs or alternative rates, or sales of products
referencing RFRs, may not deliver fair client outcomes;
• resilience and operational risks, as changes to manual and
automated processes, made in support of new RFR
• legal risk, as issues arising from the use of legislative solutions and
from legacy contracts that the Group is unable to transition may
result in unintended or unfavourable outcomes for clients and
market participants, which could potentially increase the risk of
disputes;
• model risk, as there is a risk that changes to our models to replace
Ibor-related data adversely affect the accuracy of model outputs;
and
• market risk, because as a result of differences in Libor and RFR
interest rates, we are exposed to basis risk resulting from the
asymmetric adoption of rates across assets, liabilities and
products. Additionally the current stage of the Term Secured
Overnight Financing Rate (‘SOFR’) market presents challenges for
certain hedge accounting strategies.
While the level of risk is diminishing in line with our process
implementation and continued transition of contracts, we will monitor
these risks through the remainder of the transition of legacy
contracts. Throughout 2023, we plan to continue to engage with our
clients and investors to complete an orderly transition of contracts
that reference the remaining demising Ibors.
Mitigating actions
• Our global Ibor transition programme, which is overseen by the
Group Chief Risk and Compliance Officer, will continue to deliver
IT and operational processes to meet its objectives.
• We carry out extensive training, communication and client
engagement to facilitate appropriate selection of new rates and
products.
• We have dedicated teams in place to support the transition.
• We have actively transitioned legacy contracts and ceased
entering into new contracts based on demised or demising Ibors,
other than those allowed under regulatory exemptions, and
implemented associated monitoring and controls.
• We assess, monitor and dynamically manage risks arising from
Ibor transition, and implement specific mitigating controls when
required.
• We continue to actively engage with regulatory and industry
bodies to mitigate risks relating to ‘tough legacy’ contracts.
Financial instruments impacted by Ibor reform
(Audited)
Interest Rate Benchmark Reform Phase 2, the amendments to IFRSs
issued in August 2020, represents the second phase of the IASB’s
project on the effects of interest rate benchmark reform. The
amendments address issues affecting financial statements when
changes are made to contractual cash flows and hedging
relationships.
Under these amendments, changes made to a financial instrument
measured at other than fair value through profit or loss that are
economically equivalent and required by interest rate benchmark
reform, do not result in the derecognition or a change in the carrying
amount of the financial instrument. Instead they require the effective
interest rate to be updated to reflect the change in the interest rate
benchmark. In addition, hedge accounting will not be discontinued
solely because of the replacement of the interest rate benchmark if
the hedge meets other hedge accounting criteria.
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HSBC Holdings plc Annual Report and Accounts 2022
At 31 Dec 2022
Non-derivative financial assets
Loans and advances to customers
Other financial assets
Total non-derivative financial assets2
Non-derivative financial liabilities
Financial liabilities designated at fair value
Debt securities in issue
Other financial liabilities
Total non-derivative financial liabilities
Derivative notional contract amount
Foreign exchange
Interest rate
Total derivative notional contract amount
At 31 Dec 2021
Non-derivative financial assets
Loans and advances to customers
Other financial assets
Total non-derivative financial assets2
Non-derivative financial liabilities
Financial liabilities designated at fair value
Debt securities in issue
Other financial liabilities
Total non-derivative financial liabilities
Derivative notional contract amount
Foreign exchange
Interest rate
Total derivative notional contract amount
Financial instruments yet to transition to alternative
benchmarks, by main benchmark
USD Libor
$m
GBP Libor
$m
JPY Libor
$m
Others1
$m
49,632
4,716
54,348
17,224
5,352
2,988
25,564
140,223
2,208,189
2,348,412
262
42
304
1,804
—
—
1,804
—
68
68
—
—
—
7,912
1,562
9,474
1,179
—
—
1,179
—
—
176
176
—
—
—
7,337
186,952
194,289
Financial instruments yet to transition to alternative
benchmarks, by main benchmark
USD Libor
$m
GBP Libor
$m
JPY Libor
$m
70,932
5,131
76,063
18,307
1,098
19,405
20,219
5,255
2,998
28,472
4,019
—
78
4,097
370
—
370
1,399
—
—
1,399
Others1
$m
8,259
2
8,261
1
—
—
1
137,188
2,318,613
2,455,801
5,157
284,898
290,055
31,470
72,229
103,699
9,652
133,667
143,319
1 Comprises financial instruments referencing other significant benchmark rates yet to transition to alternative benchmarks (euro Libor, Swiss franc
Libor, Eonia, SOR, THBFIX, MIFOR and Sibor). Announcements were made by regulators during 2022 on the cessation of the Canadian dollar offered
rate (‘CDOR’) and Mexican Interbank equilibrium interest rate (‘TIIE’), which will eventually transition to the Canadian overnight repo rate average
(‘CORRA’) and a new Mexican overnight fall-back rate, respectively. Therefore, CDOR and TIIE are also included in Others during the current period.
2 Gross carrying amount excluding allowances for expected credit losses.
The amounts in the above table relate to HSBC’s main operating
entities where HSBC has material exposures impacted by Ibor reform,
including in the UK, Hong Kong, France, the US, Mexico, Canada,
Singapore, the UAE, Bermuda, Australia, Qatar, Germany, Thailand,
India and Japan. The amounts provide an indication of the extent of
the Group’s exposure to the Ibor benchmarks that are due to be
replaced. Amounts are in respect of financial instruments that:
• contractually reference an interest rate benchmark that is planned
to transition to an alternative benchmark;
• have a contractual maturity date beyond the date by which the
reference interest rate benchmark is expected to cease; and
• are recognised on HSBC’s consolidated balance sheet.
Environmental, social and governance
(’ESG’) risk
We are subject to financial and non-financial risks associated with
ESG-related matters. Our current areas of focus include climate risk,
nature-related risks and human rights risks. These can impact us both
directly and indirectly through our business activities and
relationships. For details of how we govern ESG, see page 86.
Our assessment of climate risks covers three distinct time periods,
comprising: short term, which is up to 2025; medium term, which is
between 2026 and 2035; and long term, which is between 2036 and
2050. Focus on climate-related risk continued to increase over 2022,
owing to the pace and volume of policy and regulatory changes
globally, particularly on climate risk management, stress testing and
scenario analysis and disclosures. If we fail to meet evolving
regulatory expectations or requirements on climate risk management,
this could have regulatory compliance and reputational impacts.
We could face direct impacts, owing to the increase in frequency and
severity of weather events and chronic shifts in weather patterns,
which could affect our ability to conduct our day-to-day operations.
Our customers may find that their business models fail to align to a
net zero economy or face disruption to their operations or
deterioration to their assets as a result of extreme weather.
We face increased reputational, legal and regulatory risk as we make
progress towards our net zero ambition, with stakeholders likely to
place greater focus on our actions such as the development of
climate-related policies, our disclosures and financing and investment
decisions relating to our ambition.
We will face additional risks if we are perceived to mislead
stakeholders in respect of our climate strategy, the climate impact of
a product or service, or the commitments of our customers. Climate
risk may also impact on model risk, as the uncertain impacts of
climate change and data and methodology limitations present
challenges to creating reliable and accurate model outputs.
We also face reporting risk in relation to our climate disclosures, as
any data, methodologies and standards we have used may evolve
over time in line with market practice, regulation or owing to
developments in climate science. While emissions reporting has
improved over time, data remains of limited quality and consistency.
The use of inconsistent or incomplete data and models could result in
sub-optimal decision making. Any changes could result in revisions to
our internal frameworks and reported data, and could mean that
HSBC Holdings plc Annual Report and Accounts 2022
139
Risk review
Risk review
reported figures are not reconcilable or comparable year on year. We
may also have to re-evaluate our progress towards our climate-related
targets in future and this could result in reputational, legal and
regulatory risks.
There is increasing evidence that a number of nature-related risks
beyond climate change, which include risks that can be represented
more broadly by impact and dependence on nature, can and will have
significant economic impact. These risks arise when the provision of
natural services – such as water availability, air quality and soil quality
– is compromised by overpopulation, urban development, natural
habitat and ecosystem loss, ecosystem degradation arising from
economic activity and other environmental stresses beyond climate
change. They can show themselves in various ways, including
through macroeconomic, market, credit, reputational, legal and
regulatory risks, for both HSBC and our customers. We continue to
engage with investors, regulators and customers on nature-related
risks to evolve our approach and understand best practice risk
mitigation.
Regulation and disclosure requirements in relation to human rights,
and to modern slavery in particular, are increasing. Businesses are
expected to be transparent about their efforts to identify and respond
to the risk of negative human rights impacts arising from their
business activities and relationships.
Mitigating actions
Digitalisation and technological advances
risk
Developments in technology and changes to regulations are enabling
new entrants to the industry, particularly with respect to payments.
This challenges us to continue innovating and taking advantage of
new digital capabilities so that we improve how we serve our
customers, drive efficiency and adapt our products to attract and
retain customers. As a result, we may need to increase our
investment in our business to adapt or develop products and services
to respond to our customers’ evolving needs. We also need to ensure
that new digital capabilities do not weaken our resilience or wider risk
management capabilities.
New technologies such as blockchain and quantum computing offer
both business opportunities and potential risks for HSBC. As with all
use of technologies, we aim to maximise their potential while seeking
to ensure a robust control environment is in place to help manage the
inherent risks, such as the impact on encryption algorithms.
Mitigating actions:
• We continue to monitor this emerging risk, as well as the
advances in technology, and changes in customer behaviours to
understand how these may impact our business.
• We assess new technologies to help develop appropriate controls
• We aim to deepen our understanding of the drivers of climate risk.
and maintain resilience.
• We closely monitor and assess financial crime risk and the impact
on payment transparency and architecture.
Internally driven
Risks associated with workforce capability,
capacity and environmental factors with
potential impact on growth
Our global businesses and functions in all of our markets are exposed
to risks associated with workforce capacity challenges, including
challenges to retain, develop and attract high-performing employees
in key labour markets, and compliance with employment laws and
regulations. Changed working arrangements, and the residual impact
of local Covid-19-related restrictions and health concerns during the
pandemic, have also affected employee mental health and well-being.
Mitigating actions
• We seek to promote a diverse and inclusive workforce and provide
health and well-being support. We continue to build our speak-up
culture through active campaigns.
• We monitor hiring activities and levels of employee attrition, with
each business and function putting in place plans to help ensure
they have effective workforce forecasting to meet business
demands.
• We monitor people risks that could arise due to organisational
restructuring, helping to ensure we manage redundancies
sensitively and support impacted employees. We encourage our
people leaders to focus on talent retention at all levels, with an
empathetic mindset and approach, while ensuring the whole
proposition of working at HSBC is well understood.
• Our Future Skills curriculum helps provides skills that will help to
enable employees and HSBC to be successful in the future.
• We develop succession plans for key management roles, with
oversight from the Group Executive Committee.
A dedicated Climate Risk Oversight Forum is responsible for
shaping and overseeing our approach and providing support in
managing climate risk. For further details of the Group’s ESG
governance structure, see page 86.
• Our climate risk programme continues to support the development
of our climate risk management capabilities across four key pillars:
governance and risk appetite, risk management, stress testing and
scenario analysis, and disclosures. We also aim to enhance our
approach to greenwashing risk management.
• In December 2022, we published our updated policy covering the
broader energy system including upstream oil and gas, oil and gas
power generation, coal, hydrogen, renewables and hydropower,
nuclear, biomass and energy from waste. We also expanded our
thermal coal phase-out policy, in which we committed to not
provide new finance or advisory services for the specific purposes
of the conversion of existing coal-to-gas fired power plants, or new
metallurgical coal mines (see page 65).
• Climate stress tests and scenarios are being used to further
improve our understanding of our risk exposures for use in risk
management and business decision making.
• In 2022, we reviewed our salient human rights issues following
the methodology set out in the UNGPs. These are the human
rights at risk of the most severe potential negative impact through
our business activities and relationships. This review built on an
earlier review that had identified modern slavery and discrimination
as priority human rights issues. For further details, see page 87 of
the ESG review.
• In 2021, we joined several industry working groups dedicated to
helping us assess and manage nature-related risks, such as the
Taskforce on Nature-related Financial Disclosures (‘TNFD’). In 2022
our asset management business published its biodiversity policy to
publicly explain how our analysts address nature-related issues.
• We continue to engage with our customers, investors and
regulators proactively on the management of ESG risks. We also
engage with initiatives, including the Climate Financial Risk Forum,
Equator Principles, Task Force on Climate-related Financial
Disclosures and CDP (formerly the Carbon Disclosure Project) to
help drive best practice for climate risk management.
For further details of our approach to climate risk management, see
‘Climate risk’ on page 221.
For further details of ESG risk management, see ‘Financial crime risk‘
on page 231 and ‘Regulatory compliance risk environment including
conduct’ on page 225.
Our ESG review can be found on page 44.
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HSBC Holdings plc Annual Report and Accounts 2022
Risks arising from the receipt of services
from third parties
We use third parties to provide a range of goods and services. Risks
arising from the use of third-party providers and their supply chain
may be harder to identify. It is critical that we ensure we have
appropriate risk management policies, processes and practices over
the selection, governance and oversight of third parties and their
supply chain, particularly for key activities that could affect our
operational resilience. Any deficiency in the management of risks
associated with our third parties could affect our ability to support our
customers and meet regulatory expectations.
Mitigating actions
• We continue to monitor the effectiveness of the controls operated
by our third-party providers and request third-party control reports,
where required. We have made further enhancements to our
framework to help ensure risks associated with these
arrangements are understood and managed effectively by our
global businesses, global functions and regions.
• We continue to enhance the effective management of our intra-
Group arrangements using the same control standards as we have
for external third-party arrangements.
• We are implementing the changes required by new regulations as
set by our regulators.
Model risk
Model risk arises whenever business decision making includes
reliance on models. We use models in both financial and non-financial
contexts, as well as in a range of business applications such as
customer selection, product pricing, financial crime transaction
monitoring, creditworthiness evaluation and financial reporting.
Assessing model performance is a continuous undertaking. Models
can need redevelopment as market conditions change. Significant
increases in global inflation and interest rates have impacted the
reliability and accuracy of both credit and market risk models.
We continued to prioritise the redevelopment of internal ratings-based
(‘IRB’) and internal model methods (‘IMM’) models, in relation to
counterparty credit, as part of the IRB repair and Basel III programmes
with a key focus on enhancing the quality of data used as model
inputs. A number of these models have been submitted to the UK’s
Prudential Regulation Authority (‘PRA’) and other key regulators for
feedback, and approval is in progress. Some IMM and internal model
approach (‘IMA’) models have been approved for use, and feedback
has been received for some IRB models. Climate risk modelling is a
key focus for the Group as HSBC’s commitment to ESG has become
a key part of the Group’s strategy.
Model risk remains a key area of focus given the regulatory scrutiny in
this area, with local regulatory exams taking place in many
jurisdictions and further developments in policy expected from many
regulators, including the PRA.
Mitigating actions
• Model Risk Management works closely with businesses to ensure
that IRB/IMM/IMA models in development meet risk
management, pricing and capital management needs. Global
Internal Audit provides assurance over the risk management
framework for models.
• Additional assurance work is performed by the model risk
governance teams, which act as second lines of defence. The
teams test whether controls implemented by model users comply
with model risk policy and if model risk standards are adequate.
• Models using advanced machine learning techniques are validated
and monitored to help ensure that risks that are determined by the
algorithms have adequate oversight and review. A framework to
manage the range of risks that are generated by these advanced
techniques, and to recognise the multidisciplinary nature of these
risks, is being developed.
Data risk
We use multiple systems and growing quantities of data to support
our customers. Risk arises if data is incorrect, unavailable, misused, or
unprotected. Along with other banks and financial institutions, we
need to meet external regulatory obligations and laws that cover data,
such as the Basel Committee on Banking Supervision’s 239
guidelines and the General Data Protection Regulation (‘GDPR’).
Mitigating actions
• Through our global data management framework, we monitor the
quality, availability and security of data that supports our
customers and internal processes. We work towards resolving any
identified data issues in a timely manner.
• We have made improvements to our data policies. We are
implementing an updated control framework (which includes
trusted sources, data flows and data quality) in order to enhance
the end-to-end management of data risk.
• We have established a global data management utility, and
continue to simplify and unify data management activities across
the Group.
• We seek to protect customer data through our data privacy
framework, which establishes practices, design principles and
guidelines that enable us to demonstrate compliance with data
privacy laws and regulations.
• We continue to modernise our data and analytics infrastructure
through investments in Cloud technology, data visualisation,
machine learning and artificial intelligence.
• We continue to educate our employees on data risk and data
management. We have delivered regular mandatory training
globally on how to protect and manage data appropriately.
Change execution risk
We have continued investment in strategic change to support the
delivery of our strategic priorities and regulatory commitments. This
requires change to be executed safely and efficiently.
• We have continued to embed the enhanced monitoring, review
Mitigating actions
and challenge of expected credit loss model performance through
our Model Risk Management function as part of a broader
quarterly process to determine loss levels. The Model Risk
Management team aims to provide effective review and challenge
of any future redevelopment of these models.
• Model Risk Governance committees at the Group, business and
functional levels continue to provide oversight of model risk.
• In 2022, we added change execution risk to our risk taxonomy and
control library, so that it could be defined, assessed, managed,
reported and overseen in the same way as our other material risks.
• The Transformation Oversight Executive Committee oversees the
prioritisation, strategic alignment and management of execution
risk for all change portfolios and initiatives.
HSBC Holdings plc Annual Report and Accounts 2022
141
Risk review Risk review
Areas of special interest
During 2022, a number of areas were identified and considered as
part of our top and emerging risks because of the effect they may
have on the Group. While considered under the themes captured
under top and emerging risks, in this section we have placed a
particular focus on the Covid-19 pandemic.
Risks related to Covid-19
The impact from the Covid-19 pandemic remains a continuing risk to
our customers and organisation. However, the appetite for public
health restrictions has reduced following the successful roll-out of
vaccine programmes, and as societies have adapted. Countries
continue to differ in their approach, although China has recently
reversed restrictions on activity and mobility.
In most countries, high vaccination rates and acquired population
immunity have minimised the public health risks and the need for
restrictions. However, in mainland China and Hong Kong, adherence
Our material banking risks
to public health restrictions had adverse economic implications
throughout much of 2022. Government-imposed restrictions on
activity in major Chinese cities, and restrictions on travel, adversely
affected global tourism and supply chains.
While the recovery in China resulting from the relaxation of Covid-19
related restrictions on movement, international travel and tourism in
China that commenced in December 2022, raises the prospect of
global growth, it could also lead to renewed inflationary pressures as
demand for commodities and other goods rises. However, there are
still short-term risks, as any surge in Covid-19 infections in China may
dampen confidence and activity, and lead to the emergence of new
vaccine-resistant variants of the virus.
We continue to monitor the situation closely, and given the continuing
uncertainties related to the post-pandemic landscape, additional
mitigating actions may be required.
The material risk types associated with our banking and insurance manufacturing operations are described in the following tables:
Description of risks – banking operations
Risks
Arising from
Measurement, monitoring and management of risk
Credit risk (see page 145)
Credit risk is the risk of
financial loss if a customer or
counterparty fails to meet an
obligation under a contract.
Credit risk arises principally from
direct lending, trade finance and
leasing business, but also from
other products such as guarantees
and derivatives.
Credit risk is:
• measured as the amount that could be lost if a customer or counterparty fails
to make repayments;
• monitored using various internal risk management measures and within limits
approved by individuals within a framework of delegated authorities; and
• managed through a robust risk control framework, which outlines clear
and consistent policies, principles and guidance for risk managers.
Treasury risk (see page 202)
Treasury risk is the risk of
having insufficient capital,
liquidity or funding resources to
meet financial obligations and
satisfy regulatory
requirements, including the risk
of adverse impact on earnings
or capital due to structural and
transactional foreign exchange
exposures and changes in
market interest rates, together
with pension and insurance
risk.
Market risk (see page 218)
Market risk is the risk of an
adverse financial impact on
trading activities arising from
changes in market parameters
such as interest rates, foreign
exchange rates, asset prices,
volatilities, correlations and
credit spreads.
Treasury risk arises from changes
to the respective resources and risk
profiles driven by customer
behaviour, management decisions
or the external environment.
Treasury risk is:
• measured through risk appetite and more granular limits, set to provide an
early warning of increasing risk, minimum ratios of relevant regulatory
metrics, and metrics to monitor the key risk drivers impacting treasury
resources;
• monitored and projected against appetites and by using operating plans based
on strategic objectives together with stress and scenario testing; and
• managed through control of resources in conjunction with risk profiles,
strategic objectives and cash flows.
Exposure to market risk is
separated into two portfolios:
trading portfolios and non-trading
portfolios.
Market risk for non-trading
portfolios is discussed in the
Treasury risk section on page 214.
Market risk exposures arising from
our insurance operations are
discussed on page 237.
Market risk is:
• measured using sensitivities, value at risk and stress testing, giving a detailed
picture of potential gains and losses for a range of market movements and
scenarios, as well as tail risks over specified time horizons;
• monitored using value at risk, stress testing and other measures; and
• managed using risk limits approved by the Group Risk Management Meeting
and the risk management meetings in various global businesses.
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Description of risks – banking operations (continued)
Risks
Arising from
Measurement, monitoring and management of risk
Climate risk is:
• measured using a variety of risk appetite metrics and key management
indicators, which assess the impact of climate risk across the risk taxonomy;
• monitored using stress testing; and
• managed through adherence to risk appetite thresholds and via specific
policies.
Climate risk (see page 221)
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.
Climate risk can materialise
through:
• physical risk, which arises from
the increased frequency and
severity of weather events;
• transition risk, which arises from
the process of moving to a low-
carbon economy; and
• greenwashing risk, which arises
from the act of knowingly or
unknowingly misleading
stakeholders regarding our
strategy relating to climate, the
climate impact/benefits of a
product or service, or the climate
commitments or performance of
our customers.
Resilience risk arises from failures
or inadequacies in processes,
people, systems or external events.
Resilience risk (see page 230)
Resilience risk is the risk of
sustained and significant
business disruption from
execution, delivery, physical
security or safety events,
causing the inability to provide
critical services to our
customers, affiliates, and
counterparties.
Regulatory compliance risk (see page 231)
Regulatory compliance risk is
the risk associated with
breaching our duty to clients
and other counterparties,
inappropriate market conduct
and breaching related financial
services regulatory standards.
Regulatory compliance risk arises
from the failure to observe relevant
laws, codes, rules and regulations
and can manifest itself in poor
market or customer outcomes and
lead to fines, penalties and
reputational damage to our
business.
Financial crime risk (see page 231)
Financial crime risk is the risk
that HSBC’s products and
services will be exploited for
criminal activity. This includes
fraud, bribery and corruption,
tax evasion, sanctions and
export control violations,
money laundering, terrorist
financing and proliferation
financing.
Model risk (see page 232)
Model risk is the risk of
inappropriate or incorrect
business decisions arising from
the use of models that have
been inadequately designed,
implemented or used, or from
models that do not perform in
line with expectations and
predictions.
Financial crime risk arises from day-
to-day banking operations involving
customers, third parties and
employees.
Model risk arises in both financial
and non-financial contexts
whenever business decision
making includes reliance on
models.
Resilience risk is:
• measured using a range of metrics with defined maximum acceptable impact
tolerances, and against our agreed risk appetite;
• monitored through oversight of enterprise processes, risks, controls and
strategic change programmes; and
• managed by continual monitoring and thematic reviews.
Regulatory compliance risk is:
• measured by reference to risk appetite, identified metrics, incident
assessments, regulatory feedback and the judgement and assessment of our
regulatory compliance teams;
• monitored against the first line of defence risk and control assessments, the
results of the monitoring and control assurance activities of the second line of
defence functions, and the results of internal and external audits and
regulatory inspections; and
• managed by establishing and communicating appropriate policies and
procedures, training employees in them and monitoring activity to help ensure
their observance. Proactive risk control and/or remediation work is undertaken
where required.
Financial crime risk is:
• measured by reference to risk appetite, identified metrics, incident
assessments, regulatory feedback and the judgement of, and assessment by,
our compliance teams;
• monitored against the first line of defence risk and control assessments, the
results of the monitoring and control assurance activities of the second line of
defence functions, and the results of internal and external audits and
regulatory inspections; and
• managed by establishing and communicating appropriate policies and
procedures, training employees in them and monitoring activity to help ensure
their observance. Proactive risk control and/or remediation work is undertaken
where required.
Model risk is:
• measured by reference to model performance tracking and the output of
detailed technical reviews, with key metrics including model review statuses
and findings;
• monitored against model risk appetite statements, insight from the
independent review function, feedback from internal and external audits, and
regulatory reviews; and
• managed by creating and communicating appropriate policies, procedures and
guidance, training colleagues in their application, and supervising their
adoption to ensure operational effectiveness.
HSBC Holdings plc Annual Report and Accounts 2022
143
Risk review
Risk review
Our insurance manufacturing subsidiaries are regulated separately
from our banking operations. Risks in our insurance entities are
managed using methodologies and processes that are subject to
Group oversight. Our insurance operations are also subject to many of
the same risks as our banking operations, and these are covered by
the Group’s risk management processes. However, there are specific
risks inherent to the insurance operations as noted below.
Description of risks – insurance manufacturing operations
Risks
Arising from
Measurement, monitoring and management of risk
Financial risk (see page 237)
For insurance entities, financial risk
includes the risk of not being able
to effectively match liabilities
arising under insurance contracts
with appropriate investments and
that the expected sharing of
financial performance with
policyholders under certain
contracts is not possible.
Exposure to financial risk
arises from:
• market risk affecting the fair
values of financial assets or
their future cash flows;
• credit risk; and
• liquidity risk of entities
being unable to
make payments to
policyholders as they
fall due.
Financial risk is:
• measured for credit risk, in terms of economic capital and the amount that could
be lost if a counterparty fails to make repayments; for market risk, in terms of
economic capital, internal metrics and fluctuations in key financial variables; and
for liquidity risk, in terms of internal metrics including stressed operational cash
flow projections;
• monitored through a framework of approved limits and delegated authorities;
and
• managed through a robust risk control framework, which outlines clear and
consistent policies, principles and guidance. This includes using product design,
asset liability matching and bonus rates.
Insurance risk (see page 238)
Insurance risk is the risk that, over
time, the cost of insurance policies
written, including claims and
benefits, may exceed the total
amount of premiums and
investment income received.
The cost of claims and
benefits can be influenced
by many factors, including
mortality and morbidity
experience, as well as lapse
and surrender rates.
Insurance risk is:
• measured in terms of life insurance liabilities and economic capital allocated to
insurance underwriting risk;
• monitored through a framework of approved limits and delegated authorities;
and
• managed through a robust risk control framework, which outlines clear and
consistent policies, principles and guidance. This includes using product design,
underwriting, reinsurance and claims-handling procedures.
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Credit risk
Contents
145
145
147
148
151
Overview
Credit risk management
Credit risk in 2022
Summary of credit risk
Stage 2 decomposition as at December 2022
Credit exposure
152
153 Measurement uncertainty and sensitivity analysis of ECL
162
Reconciliation of changes in gross carrying/nominal amount and
allowances for loans and advances to banks and customers
including loan commitments and financial guarantees
Credit quality
165
170 Wholesale lending
187
Personal lending
196
201
Supplementary information
HSBC Holdings
Overview
Credit risk is the risk of financial loss if a customer or counterparty
fails to meet an obligation under a contract. Credit risk arises
principally from direct lending, trade finance and leasing business, but
also from other products such as guarantees and derivatives.
Credit risk management
Key developments in 2022
There were no material changes to the policies and practices for the
management of credit risk in 2022. We continued to apply the
requirements of IFRS 9 ‘Financial Instruments’ within the Credit Risk
sub-function. For certain retail portfolios, we enhanced the significant
increase in credit risk (‘SICR’) approach in relation to capturing relative
movements in probability of default (‘PD’) since origination.
For our retail portfolios, we adopted the EBA ‘Guidelines on the
application of definition of default’ during 2022 and, for our wholesale
portfolios, these guidelines were adopted during 2021. Adoption of
these guidelines did not have a material impact on our portfolios and
comparative disclosures have not been restated.
We actively managed the risks related to macroeconomic
uncertainties, including inflation, fiscal and monetary policy, the
Russia-Ukraine war, broader geopolitical uncertainties, and the
continued risks resulting from the Covid-19 pandemic.
For further details, see ‘Top and emerging risks’ on page 135.
Governance and structure
We have established Group-wide credit risk management and related
IFRS 9 processes. We continue to assess the impact of economic
developments in key markets on specific customers, customer
segments or portfolios. As credit conditions change, we take
mitigating actions, including the revision of risk appetites or limits and
tenors, as appropriate. In addition, we continue to evaluate the terms
under which we provide credit facilities within the context of
individual customer requirements, the quality of the relationship, local
regulatory requirements, market practices and our local market
position.
Credit Risk sub-function
(Audited)
Credit approval authorities are delegated by the Board to the Group
Chief Executive together with the authority to sub-delegate them. The
Credit Risk sub-function in Group Risk and Compliance is responsible
for the key policies and processes for managing credit risk, which
include formulating Group credit policies and risk rating frameworks,
guiding the Group’s appetite for credit risk exposures, undertaking
independent reviews and objective assessment of credit risk, and
monitoring performance and management of portfolios.
The principal objectives of our credit risk management are:
• to maintain across HSBC a strong culture of responsible lending,
and robust risk policies and control frameworks;
• to both partner and challenge our businesses in defining,
implementing and continually re-evaluating our risk appetite under
actual and scenario conditions; and
• to ensure there is independent, expert scrutiny of credit risks, their
costs and their mitigation.
Key risk management processes
IFRS 9 ‘Financial Instruments’ process
The IFRS 9 process comprises three main areas: modelling and data;
implementation; and governance.
Modelling, data and forward economic guidance
We have established IFRS 9 modelling and data processes in various
geographies, which are subject to internal model risk governance
including independent review of significant model developments.
We have a centralised process for generating unbiased and
independent global economic scenarios. Scenarios are subject to a
process of review and challenge by a dedicated team, as well as
regional groupings. Each quarter, the scenarios and probability
weights are reviewed and checked for consistency with the economic
conjuncture and current economic and financial risks. These are
subject to final review and approval by senior management in a
Forward Economic Guidance Global Business Impairment Committee.
Implementation
A centralised impairment engine performs the expected credit losses
calculation using data, which is subject to a number of validation
checks and enhancements, from a variety of client, finance and risk
systems. Where possible, these checks and processes are performed
in a globally consistent and centralised manner.
Governance
Regional management review forums are established in key sites and
regions in order to review and approve the impairment results.
Regional management review forums have representatives from
Credit Risk and Finance. The key site and regional approvals are
reported up to the relevant global business impairment committee for
final approval of the Group’s ECL for the period. Required members of
the committee are the Wholesale Global Chief Corporate Credit
Officer and Chief Risk Officer for Wealth and Personal Banking Risk,
as well as the relevant global business Chief Financial Officer and the
Global Financial Controller.
Concentration of exposure
(Audited)
Concentrations of credit risk arise when a number of counterparties or
exposures have comparable economic characteristics, or such
counterparties are engaged in similar activities or operate in the same
geographical areas or industry sectors so that their collective ability to
meet contractual obligations is uniformly affected by changes in
economic, political or other conditions. We use a number of controls
and measures to minimise undue concentration of exposure in our
portfolios across industries, countries and global businesses. These
include portfolio and counterparty limits, approval and review controls,
and stress testing.
Credit quality of financial instruments
(Audited)
Our risk rating system facilitates the internal ratings-based approach
under the Basel framework adopted by the Group to support the
calculation of our minimum credit regulatory capital requirement. The
five credit quality classifications encompass a range of granular
internal credit rating grades assigned to wholesale and retail
HSBC Holdings plc Annual Report and Accounts 2022
145
Risk review Risk review
customers, and the external ratings attributed by external agencies to
debt securities.
For debt securities and certain other financial instruments, external
ratings have been aligned to the five quality classifications based upon
the mapping of related customer risk rating (‘CRR’) to external credit
rating.
Wholesale lending
The CRR 10-grade scale summarises a more granular underlying 23-
grade scale of obligor probability of default (‘PD’). All corporate
customers are rated using the 10- or 23-grade scale, depending on
the degree of sophistication of the Basel approach adopted for the
exposure.
Credit quality classification
Each CRR band is associated with an external rating grade by
reference to long-run default rates for that grade, represented by the
average of issuer-weighted historical default rates. This mapping
between internal and external ratings is indicative and may vary over
time.
Retail lending
Retail lending credit quality is based on a 12-month point-in-time
probability-weighted PD.
Sovereign debt
securities
and bills
Other debt
securities
and bills
Wholesale lending
and derivatives
Retail lending
External credit
rating
External credit
rating
Internal credit
rating
12-month
Basel
probability of
default %
Internal credit
rating
12 month
probability-
weighted PD %
BBB and above
BBB- to BB
BB- to B and
unrated
B- to C
Default
A- and above
BBB+ to BBB-
BB+ to B and
unrated
B- to C
Default
CRR 1 to CRR 2
CRR 3
0–0.169
0.170–0.740
Band 1 and 2
Band 3
0.000–0.500
0.501–1.500
CRR 4 to CRR 5
0.741–4.914
Band 4 and 5
1.501–20.000
CRR 6 to CRR 8
CRR 9 to CRR 10
4.915–99.999
100
Band 6
Band 7
20.001–99.999
100
Quality classification1,2
Strong
Good
Satisfactory
Sub-standard
Credit impaired
1 Customer risk rating (‘CRR’).
2 12-month point-in-time probability-weighted probability of default (‘PD’).
Quality classification definitions
• ‘Strong’ exposures demonstrate a strong capacity to meet financial commitments, with negligible or low probability of default and/or low levels of
expected loss.
• ‘Good’ exposures require closer monitoring and demonstrate a good capacity to meet financial commitments, with low default risk.
• ‘Satisfactory’ exposures require closer monitoring and demonstrate an average-to-fair capacity to meet financial commitments, with moderate default
risk.
• ‘Sub-standard’ exposures require varying degrees of special attention and default risk is of greater concern.
• ‘Credit-impaired’ exposures have been assessed as described on Note 1.2(i) on the financial statements.
Forborne loans and advances
(Audited)
Forbearance measures consist of concessions towards an obligor that
is experiencing or about to experience difficulties in meeting its
financial commitments.
We continue to class loans as forborne when we modify the
contractual payment terms due to having significant concerns about
the borrowers’ ability to meet contractual payments when they were
due.
In 2022, we expanded our definition of forborne to capture non-
payment-related concessions, such as covenant waivers. For our
wholesale portfolio, we began identifying non-payment-related
concessions in 2021 when our internal policies were changed. For our
retail portfolios, we began identifying them during 2022.
The comparative disclosures have been presented under the prior
definition of forborne for the wholesale and retail portfolios.
For details of our policy on forbearance, see Note 1.2(i) in the financial
statements.
Credit quality of forborne loans
For wholesale lending, where payment-related forbearance measures
result in a diminished financial obligation, or if there are other
indicators of impairment, the loan will be classified as credit impaired
if it is not already so classified. All facilities with a customer, including
loans that have not been modified, are considered credit impaired
following the identification of a payment-related forborne loan. For
retail lending, where a material payment-related concession has been
granted, the loan will be classified as credit impaired. In isolation, non-
payment forbearance measures may not result in the loan being
classified as credit impaired unless combined with other indicators of
credit impairment. These are classed as performing forborne loans for
both wholesale and retail lending.
Wholesale and retail lending forborne loans are classified as credit
impaired until there is sufficient evidence to demonstrate a significant
reduction in the risk of non-payment of future cash flows, observed
over a minimum one-year period, and there are no other indicators of
impairment. Any forborne loans not considered credit impaired will
remain forborne for a minimum of two years from the date that credit
impairment no longer applies. For wholesale and retail lending, any
forbearance measures granted on a loan already classed as forborne
results in the customer being classed as credit impaired.
Forborne loans and recognition of expected credit losses
(Audited)
Forborne loans expected credit loss assessments reflect the higher
rates of losses typically experienced with these types of loans such
that they are in stage 2 and stage 3. The higher rates are more
pronounced in unsecured retail lending requiring further
segmentation. For wholesale lending, forborne loans are typically
assessed individually. Credit risk ratings are intrinsic to the
impairment assessments. The individual impairment assessment
takes into account the higher risk of the future non-payment inherent
in forborne loans.
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Impairment assessment
(Audited)
For details of our impairment policies on loans and advances and
financial investments, see Note 1.2(i) on the financial statements.
Write-off of loans and advances
(Audited)
For details of our policy on the write-off of loans and advances, see
Note 1.2(i) on the financial statements.
Unsecured personal facilities, including credit cards, are generally
written off at between 150 and 210 days past due. The standard
period runs until the end of the month in which the account becomes
180 days contractually delinquent. However, in exceptional
circumstances to achieve a fair customer outcome, and in line with
regulatory expectations, they may be extended further.
For secured facilities, write-off should occur upon repossession of
collateral, receipt of proceeds via settlement, or determination that
recovery of the collateral will not be pursued.
Any secured assets maintained on the balance sheet beyond
60 months of consecutive delinquency-driven default require
additional monitoring and review to assess the prospect of recovery.
There are exceptions in a few countries and territories where local
regulation or legislation constrains earlier write-off, or where the
realisation of collateral for secured real estate lending takes more
time. Write-off, either partially or in full, may be earlier when there is
no reasonable expectation of further recovery, for example, in the
event of a bankruptcy or equivalent legal proceedings. Collection
procedures may continue after write-off.
Credit risk in 2022
At 31 December 2022, gross loans and advances to customers and
banks of $1,041bn decreased by $99.1bn, compared with
31 December 2021. This included adverse foreign exchange
movements of $59.2bn and an $81.2bn decrease due to a
reclassification of businesses to assets held for sale, including our
banking business in Canada and our retail banking operations in
France.
Excluding foreign exchange movements, the underlying decrease of
$39.9bn was driven by a $36.1bn decrease in personal loans and
advances to customers and by a $29.9bn decrease in wholesale loans
and advances to customers. These were partly offset by a $25.9bn
increase in loans and advances to banks.
The underlying decrease in personal loans and advances to customers
was driven by the $50.1bn reclassification of businesses to assets
held for sale, and by a decrease in other personal lending, mainly in
Hong Kong (down $1.5bn). This was offset by mortgage growth of
$15.4bn, mainly in the UK (up $8.9bn), Hong Kong (up $3.4bn) and
Australia (up $1.6bn).
The underlying increase in loans and advances to banks was driven by
growth in the UK (up $10.6bn), Hong Kong (up $7.9bn) and Egypt (up
$1.9bn), driven mainly by higher central bank placements.
At 31 December 2022, the allowance for ECL of $12.6bn increased by
$0.5bn compared with 31 December 2021, including favourable
foreign exchange movements of $0.6bn and the effect of
reclassifications to assets held for sale of $0.4bn. The $12.6bn
allowance comprised $12.1bn in respect of assets held at amortised
cost, $0.4bn in respect of loan commitments and financial
guarantees, and $0.1bn in respect of debt instruments measured at
fair value through other comprehensive income (‘FVOCI’).
Excluding foreign exchange movements, the allowance for ECL in
relation to loans and advances to customers increased by $0.6bn from
31 December 2021. This was attributable to:
• a $0.7bn increase in wholesale loans and advances to customers,
of which $0.7bn was driven by stage 3; and
• a $0.1bn decrease in personal loans and advances to customers,
of which $0.4bn was driven by stage 3, partly offset by an increase
of $0.3bn in stages 1 and 2.
Stage 3 balances at 31 December 2022 increased by $1.9bn from
31 December 2021. This was driven by a $3.2bn increase in
wholesale loans and advances to customers, mainly in corporate real
estate portfolios in Hong Kong. This was partly offset by a decrease
of $1.3bn in personal loans and advances to customers.
At 31 December 2022, for certain retail lending portfolios, we
introduced enhancements in the significant increase in credit risk
(‘SICR’) approach in relation to capturing relative movements in
probability of default (‘PD’). The enhanced approach captured relative
movements in PD since origination, which resulted in a significant
migration to stage 2 from loans to customers gross carrying amounts
in stage 1.
The volume of stage 1 customer accounts with lower absolute levels
of credit risk who have exhibited some amount of relative increase in
PD since origination have migrated into stage 2, and accounts
originated with higher absolute levels of credit risk with no or
insignificant increases in PD since origination have been transferred to
stage 1, with no material overall change in risk.
The impact on ECL is immaterial due to the offsetting ECL impacts of
stage migrations and due to the low loan-to-value (‘LTV‘) profiles. This
is particularly applicable to UK customers.
The enhancement of the SICR approach constitutes an improvement
towards more responsive models that better reflect the SICR since
origination. This includes consideration of the current cost of living
pressures, as markets adjust to the higher interest-rate environment.
In wholesale lending, China’s commercial real estate sector continued
to deteriorate in 2022, resulting in further stage 2 allowances on
downgrades and new and additional stage 3 charges.
The ECL charge for 2022 was $3.6bn, inclusive of recoveries. This
was driven by higher ECL charges relating to increasing inflationary
pressures, rising interest rates, China commercial real estate
exposures and economic uncertainty, partly offset by a release in
Covid-19-related allowances at the beginning of the year.
The ECL charge comprised: $2.4bn in respect of wholesale lending, of
which $1.7bn were in stage 3 and purchased or originated credit
impaired (‘POCI‘); $1.1bn in respect of personal lending, of which
$0.5bn were in stage 3; and $0.1bn in respect of debt instruments
measured at FVOCI.
Income statement movements are analysed further on page 101.
While credit risk arises across most of our balance sheet, ECL have
typically been recognised on loans and advances to customers and
banks, in addition to securitisation exposures and other structured
products. As a result, our disclosures focus primarily on these two
areas. For further details of:
• maximum exposure to credit risk, see page 153;
• measurement uncertainty and sensitivity analysis of ECL
estimates, see page 153;
• reconciliation of changes in gross carrying/nominal amount and
allowances for loans and advances to banks and customers
including loan commitments and financial guarantees, see
page 162;
• credit quality, see page 165;
• total wholesale lending for loans and advances to banks and
customers by stage distribution, see page 171;
• wholesale lending collateral, see page 180;
• total personal lending for loans and advances to customers at
amortised cost by stage distribution, see page 188; and
• personal lending collateral, see page 193.
HSBC Holdings plc Annual Report and Accounts 2022
147
Risk review Risk review
Summary of credit risk
The following disclosure 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.
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied
(Audited)
31 Dec 2022
At 31 Dec 2021
Loans and advances to customers at amortised cost
– personal
– corporate and commercial
– non-bank financial institutions
Loans and advances to banks at amortised cost
Other financial assets measured at amortised cost
– cash and balances at central banks
– items in the course of collection from other banks
– Hong Kong Government certificates of indebtedness
– reverse repurchase agreements – non-trading
– financial investments
– assets held for sale2
– prepayments, accrued income and other assets3
Total gross carrying amount on-balance sheet
Loans and other credit-related commitments
– personal
– corporate and commercial
– financial
Financial guarantees
– personal
– corporate and commercial
– financial
Total nominal amount off-balance sheet4
Gross carrying/
nominal amount
$m
936,307
415,012
454,356
66,939
104,951
1,014,498
327,005
7,297
43,787
253,754
168,827
102,556
111,272
2,055,756
618,788
244,006
269,187
105,595
18,783
1,135
13,587
4,061
637,571
2,693,327
Allowance for
ECL1
$m
(11,453)
(2,872)
(8,324)
(257)
(69)
(553)
(3)
—
—
—
(80)
(415)
(55)
(12,075)
(386)
(27)
(340)
(19)
(52)
—
(50)
(2)
(438)
(12,513)
Gross carrying/
nominal amount
Allowance for
ECL1
$m
(11,417)
(3,103)
(8,204)
(110)
(17)
(193)
(4)
—
—
—
(62)
(43)
(84)
(11,627)
(379)
(39)
(325)
(15)
(62)
—
(58)
(4)
(441)
(12,068)
$m
1,057,231
478,337
513,539
65,355
83,153
880,351
403,022
4,136
42,578
241,648
97,364
2,859
88,744
2,020,735
627,637
239,685
283,625
104,327
27,795
1,130
22,355
4,310
655,432
2,676,167
Debt instruments measured at fair value through other comprehensive income
(‘FVOCI’)
Memorandum
allowance for
ECL5
$m
Fair value
$m
Memorandum
allowance for
ECL5
$m
Fair value
$m
266,303
(145)
347,203
(96)
1 The total ECL is recognised in the loss allowance for the financial asset unless the total ECL exceeds the gross carrying amount of the financial asset,
in which case the ECL is recognised as a provision.
2 For further details on gross carrying amounts and allowances for ECL related to assets held for sale, see ‘Assets held for sale’ on page 151.
3
Includes only those financial instruments that are subject to the impairment requirements of IFRS 9. ‘Prepayments, accrued income and other assets’
as presented within the consolidated balance sheet on page 326 comprises both financial and non-financial assets, including cash collateral and
settlement accounts.
4 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.
5 Debt instruments measured at FVOCI continue to be measured at fair value with the allowance for ECL as a memorandum item. Change in ECL is
recognised in ‘Change in expected credit losses and other credit impairment charges’ in the income statement.
The following table provides an overview of the Group’s credit risk by
stage and industry, and the associated ECL coverage. The financial
assets recorded in each stage have the following characteristics:
• Stage 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.
• Stage 1: These financial assets are unimpaired and without
significant increase in credit risk on which a 12-month allowance
for 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.
• 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.
148
HSBC Holdings plc Annual Report and Accounts 2022
Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at
31 December 2022
(Audited)
Gross carrying/nominal amount1
Allowance for ECL
ECL coverage %
Stage
1
Stage
2
$m
$m
Stage
3 POCI2
$m
$m
Total
$m
Stage
1
Stage
2
Stage
3
POCI
2
$m
$m
$m $m
Total
$m
Stage
1
Stage
2
%
%
Stage
3 POCI2 Total
%
%
%
Loans and
advances to
customers at
amortised cost
– personal
– corporate and
commercial
– non-bank
financial
institutions
Loans and
advances to
banks at
amortised cost
Other financial
assets
measured at
amortised cost
Loan and other
credit-related
commitments
– personal
– corporate and
commercial
– financial
Financial
guarantees
– personal
– corporate and
commercial
777,543 139,130 19,505 129 936,307 (1,095) (3,491) (6,829)
(38) (11,453)
362,781 48,891
3,340 — 415,012
(562) (1,505)
(805) — (2,872)
0.1
0.2
2.5
3.1
35.0
24.1
29.5
—
1.2
0.7
353,010 85,521 15,696 129 454,356
(490) (1,909) (5,887)
(38) (8,324)
0.1
2.2
37.5
29.5
1.8
61,752
4,718
469 — 66,939
(43)
(77)
(137) —
(257)
0.1
1.6
29.2
—
0.4
103,042
1,827
82 — 104,951
(18)
(29)
(22) —
(69)
—
1.6
26.8
—
0.1
996,489 17,166
797
46 1,014,498
(124)
(188)
(234)
(7)
(553)
—
1.1
29.4
15.2
0.1
583,383 34,033
1,372 — 618,788
(141)
(180)
(65) —
(386)
239,521
3,686
799 — 244,006
(26)
(1)
— —
(27)
241,313 27,323
3,024
102,549
551 — 269,187
22 — 105,595
(111)
(4)
(166)
(13)
(63) —
(2) —
(340)
(19)
16,071
2,463
249 — 18,783
1,123
11
1 —
1,135
(6)
—
(13)
(33) —
(52)
—
— —
—
11,547
1,793
247 — 13,587
(5)
(12)
(33) —
(50)
—
—
—
—
—
—
—
—
0.1
0.5
—
0.6
0.4
0.5
—
0.7
0.2
2.0
4.7
—
11.4
9.1
13.3
—
13.4
—
32.6
—
—
—
—
—
—
—
—
25.7
0.1
—
0.1
—
0.3
—
0.4
—
0.5
– financial
At 31 Dec 2022 2,476,528 194,619 22,005 175 2,693,327 (1,384) (3,901) (7,183)
1 —
4,061
3,401
659
(1)
(1)
— —
(2)
(45) (12,513)
1 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.
2 Purchased or originated credit-impaired (‘POCI’).
Unless identified at an earlier stage, all financial assets are deemed to
have suffered a significant increase in credit risk when they are 30
days past due (‘DPD’) and are transferred from stage 1 to stage 2.
The following disclosure presents the ageing of stage 2
financial assets by those less than 30 days and greater than 30 DPD
and therefore presents those financial assets classified as stage 2 due
to ageing (30 DPD) and those identified at an earlier stage (less than
30 DPD).
Stage 2 days past due analysis at 31 December 2022
(Audited)
Gross carrying amount
Allowance for ECL
ECL coverage %
Stage 2
Up-to-
date
$m
$m
1 to 29
DPD1,2
$m
30 and
> DPD1,2 Stage 2
$m
$m
Up-to-
date
$m
1 to 29
DPD1,2
$m
30 and
> DPD1,2
$m
Stage
2
Up-to-
date
%
%
1 to 29
DPD1,2
%
30 and >
DPD1,2
%
139,130 134,733
2,411
1,986
(3,491)
(3,019)
48,891 46,402
1,683
806
(1,505)
(1,080)
(234)
(214)
(238)
(211)
2.5
3.1
85,521 84,005
712
804
(1,909)
(1,862)
(20)
(27)
2.2
4,718
4,326
16
376
(77)
(77)
—
1,827
1,817
—
10
(29)
(29)
—
—
—
1.6
1.6
2.2
2.3
2.2
1.8
1.6
9.7
12.7
2.8
—
—
12.0
26.2
3.4
—
—
17,166 16,930
140
96
(188)
(164)
(8)
(16)
1.1
1.0
5.7
16.7
Loans and advances to
customers at amortised
cost
– personal
– corporate and
commercial
– non-bank financial
institutions
Loans and advances to
banks at amortised cost
Other financial assets
measured at amortised
cost
1 Days past due (‘DPD’).
2 The days past due amounts presented above are on a contractual basis and include the benefit of any customer relief payment holidays granted.
HSBC Holdings plc Annual Report and Accounts 2022
149
Risk review
Risk review
Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at
31 December 2021 (continued)
(Audited)
Gross carrying/nominal amount1
Stage
Stage
1
Stage
2
$m
$m
3 POCI2
$m
$m
Allowance for ECL
ECL coverage %
Total
$m
Stage
1
Stage
2
$m
$m
Stage
3 POCI2
$m
$m
Total
$m
Stage
1
Stage
2
%
%
Stage
3 POCI2 Total
%
%
%
Loans and
advances to
customers at
amortised cost
– personal
– corporate and
commercial
– non-bank
financial
institutions
Loans and
advances to
banks at
amortised cost
Other financial
assets
measured at
amortised cost
Loan and other
credit-related
commitments
– personal
– corporate and
commercial
– financial
Financial
guarantees
– personal
– corporate and
commercial
– financial
At 31 Dec 2021
918,936 119,224 18,797
274 1,057,231 (1,367) (3,119) (6,867)
(64) (11,417)
456,956 16,439 4,942 —
478,337
(658) (1,219) (1,226) — (3,103)
0.1
0.1
2.6
7.4
36.5
24.8
23.4
—
1.1
0.6
400,894 98,911 13,460
274
513,539
(665) (1,874) (5,601)
(64) (8,204)
0.2
1.9
41.6
23.4
1.6
61,086 3,874
395 —
65,355
(44)
(26)
(40) —
(110)
0.1
0.7
10.1
—
0.2
81,636 1,517
— —
83,153
(14)
(3)
— —
(17)
—
0.2
—
—
—
875,016 4,988
304
43
880,351
(91)
(54)
(42)
(6)
(193)
—
1.1
13.8
14.0
—
594,473 32,389
775 —
627,637
(165)
(174)
(40) —
(379)
237,770 1,747
168 —
239,685
(37)
(2)
— —
(39)
254,750 28,269
606 —
283,625
(120)
(165)
(40) —
(325)
101,953 2,373
1 —
104,327
(8)
(7)
— —
(15)
24,932 2,638
225 —
27,795
1,114
15
1 —
1,130
(11)
—
(30)
—
(21) —
(62)
— —
—
20,025 2,107
223 —
22,355
(10)
(28)
(20) —
(58)
3,793
516
1 —
4,310
(1)
(2)
2,494,993 160,756 20,101
317 2,676,167 (1,648) (3,380) (6,970)
(1) —
(4)
(70) (12,068)
—
—
—
—
—
—
—
—
0.1
0.5
0.1
0.6
0.3
1.1
—
1.3
0.4
2.1
5.2
—
6.6
—
9.3
—
9.0
—
—
—
—
—
—
—
100.0
34.7
—
22.1
0.1
—
0.1
—
0.2
—
0.3
0.1
0.5
1 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.
2 Purchased or originated credit-impaired (‘POCI’).
Stage 2 days past due analysis at 31 December 2021 (continued)
(Audited)
Gross carrying amount
Allowance for ECL
ECL coverage %
Loans and advances to
customers at amortised cost
– personal
– corporate and commercial
– non-bank financial
institutions
Loans and advances to banks
at amortised cost
Other financial assets
measured at amortised cost
Stage 2
$m
Up-to-
date
$m
1 to 29
DPD1,2
$m
30 and >
DPD1,2
$m
Stage
2
$m
Up-to-
date
$m
1 to 29
DPD1,2
$m
30 and >
DPD1,2
$m
119,224 115,350
2,193
1,681 (3,119)
(2,732)
16,439 14,124
98,911 97,388
1,387
806
928 (1,219)
717 (1,874)
(884)
(1,822)
(194)
(160)
(34)
(193)
(175)
(18)
3,874
3,838
—
36
(26)
(26)
—
1,517
1,517
—
—
(3)
(3)
—
—
—
%
2.6
7.4
1.9
0.7
0.2
Stage
2
Up-to-
date
4,988
4,935
22
31
(54)
(47)
(4)
(3)
1.1
1 to 29
DPD1,2
%
30 and >
DPD1,2
%
8.8
11.5
4.2
—
—
11.5
18.9
2.5
—
—
18.2
9.7
%
2.4
6.3
1.9
0.7
0.2
1.0
1 Days past due (‘DPD’).
2 The days past due amounts presented above are on a contractual basis and include the benefit of any customer relief payment holidays granted.
150
HSBC Holdings plc Annual Report and Accounts 2022
Stage 2 decomposition
The following table presents the stage 2 decomposition of gross
carrying amount and allowances for ECL for loans and advances to
customers. It also sets out the reasons why an exposure is classified
as stage 2 and therefore presented as a significant increase in credit
risk at 31 December 2022.
The quantitative classification shows gross carrying values and
allowances for ECL for which the applicable reporting date probability
Loans and advances to customers1
of default (‘PD’) measure exceeds defined quantitative thresholds for
retail and wholesale exposures, as set out in Note 1.2 ‘Summary of
significant accounting policies’, on page 342.
The qualitative classification primarily accounts for CRR deterioration,
watch-and-worry and retail management judgemental adjustments.
A summary of our current policies and practices for the significant
increase in credit risk is set out in ‘Summary of significant accounting
policies’ on page 342.
Quantitative
Qualitative
30 DPD backstop2
Total stage 2
Personal
$m
41,611
7,233
47
48,891
Quantitative
Qualitative
30 DPD backstop2
Total stage 2
9,907
6,329
203
16,439
Gross carrying amount
Corporate
and
commercial
Non-bank
financial
institutions
$m
66,450
18,555
516
85,521
68,000
30,326
585
98,911
$m
3,679
878
161
4,718
3,041
818
15
3,874
At 31 Dec 2022
Total
Personal
$m
111,740
26,666
724
139,130
$m
(1,301)
(201)
(3)
(1,505)
At 31 Dec 2021
(1,076)
(134)
(9)
(1,219)
80,948
37,473
803
119,224
Allowance for ECL
Corporate
and
commercial
Non-bank
financial
institutions
$m
(1,644)
(262)
(3)
(1,909)
(1,347)
(520)
(7)
(1,874)
$m
(66)
(11)
—
(77)
(19)
(7)
—
(26)
ECL coverage
Total
$m
(3,011)
(474)
(6)
(3,491)
(2,442)
(661)
(16)
(3,119)
Total
%
2.7
1.8
0.8
2.5
3.0
1.8
2.0
2.6
1 Where balances satisfy more than one of the above three criteria for determining a significant increase in credit risk, the corresponding gross exposure
and ECL have been assigned in order of categories presented.
2 Days past due (‘DPD’).
Assets held for sale
(Audited)
During 2022, gross loans and advances and related impairment
allowances were reclassified from ‘loans and advances to customers’
and ‘loans and advances to banks’ to ‘assets held for sale’ in the
balance sheet.
At 31 December 2022, the most material balances held for sale came
from our banking business in Canada and from our retail banking
operations in France.
Disclosures relating to assets held for sale are provided in the
following credit risk tables, primarily where the disclosure is relevant
to the measurement of these financial assets:
Loans and advances to customers and banks measured at amortised cost
(Audited)
• ‘Maximum exposure to credit risk’ (page 153);
• ‘Distribution of financial instruments by credit quality at
31 December’ (page 165);
Although there was a reclassification on the balance sheet, there was
no separate income statement reclassification. As a result, charges
for changes in expected credit losses and other credit impairment
charges shown in the credit risk disclosures include charges relating
to financial assets classified as ‘assets held for sale’.
‘Loans and other credit-related commitments’ and ‘financial
guarantees’, as reported in credit disclosures, also include exposures
and allowances relating to financial assets classified as ‘assets held
for sale’.
As reported
Reported in ‘Assets held for sale’
At 31 December
2022
Total gross loans and
advances
$m
1,041,258
81,221
1,122,479
Allowance for ECL
$m
(11,522)
(392)
(11,914)
2021
Total gross loans and
advances
$m
1,140,384
2,424
1,142,808
Allowance for ECL
$m
(11,434)
(39)
(11,473)
At 31 December 2022, gross loans and advances of our banking
business in Canada were $55.5bn, and the related allowance for ECL
were $0.2bn. Gross loans of our retail banking operations in France
were $25.1bn, and the related allowance for ECL were $0.1bn.
Lending balances held for sale continue to be measured at amortised
cost less allowances for impairment and, therefore, such carrying
amounts may differ from fair value.
These lending balances are part of associated disposal groups that are
measured in their entirety at the lower of carrying amount and fair
value less costs to sell. Any difference between the carrying amount
of these assets and their sales price is part of the overall gain or loss
on the associated disposal group as a whole.
For further details of the carrying amount and the fair value at
31 December 2022 of loans and advances to banks and customers
classified as held for sale, see Note 23 on the financial statements.
HSBC Holdings plc Annual Report and Accounts 2022
151
Risk review
Risk review
Gross loans and allowance for ECL on loans and advances to customers and banks reported in ‘Assets held for sale’
(Audited)
Banking business in
Canada
Retail banking operations
in France
Other1
Total
Loans and advances to customers
at amortised cost
– personal
– corporate and commercial
– non-bank financial institutions
Loans and advances to banks at
amortised cost
At 31 December 2022
Gross
carrying
value
$m
55,431
26,637
27,128
1,666
100
55,531
Allowance
for ECL
$m
(234)
(75)
(154)
(5)
—
(234)
Gross
carrying
value
$m
25,121
22,691
2,379
51
—
25,121
Allowance
for ECL
Gross
carrying
value
Allowance
for ECL
$m
(92)
(88)
(4)
—
—
(92)
$m
412
305
107
—
157
569
$m
(62)
(47)
(15)
—
(4)
(66)
Banking business in Canada
Retail banking operations in
France
Gross
carrying
value
$m
Allowance
for ECL
$m
Gross
carrying
value
$m
Allowance
for ECL
$m
Loans and advances to customers
at amortised cost
– personal
– corporate and commercial
– non-bank financial institutions
Loans and advances to banks at
amortised cost
At 31 December 2021
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Other2
Gross
carrying
value
$m
2,424
2,424
—
—
—
2,424
Allowance
for ECL
$m
(39)
(39)
—
—
—
(39)
Gross
carrying
value
$m
80,964
49,633
29,614
1,717
257
81,221
Total
Gross
carrying
value
$m
2,424
2,424
—
—
—
2,424
Allowance
for ECL
$m
(388)
(210)
(173)
(5)
(4)
(392)
Allowance
for ECL
$m
(39)
(39)
—
—
—
(39)
1 Comprising assets held for sale relating to the planned sale of our branch operations in Greece and of our business in Russia.
2 Comprising assets held for sale relating to our mass market retail banking business in the US.
The table below analyses the amount of ECL (charges)/releases arising from assets held for sale. The charges during the period primarily relate
to our retail banking operations in France.
Changes in expected credit losses and other credit impairment
(Audited)
ECL (charges)/releases arising from:
– assets held for sale
– assets not held for sale
Year ended 31 December
Credit exposure
Maximum exposure to credit risk
(Audited)
This section provides information on balance sheet items and their
offsets as well as loan and other credit-related commitments.
Commentary on consolidated balance sheet movements in 2022
is provided on page 106.
The offset on derivatives remains in line with the movements
in maximum exposure amounts.
2022
$m
(5)
(3,587)
(3,592)
2021
$m
—
928
928
‘Maximum exposure to credit risk’ table
The following table presents our maximum exposure before taking
account of any collateral held or other credit enhancements (unless such
enhancements meet accounting offsetting requirements). The table
excludes financial instruments whose carrying amount best represents
the net exposure to credit risk, and it excludes equity securities as they
are not subject to credit risk. For the financial assets recognised on the
balance sheet, the maximum exposure to credit risk equals their carrying
amount and is net of the allowance for ECL. For financial guarantees and
other guarantees granted, it is the maximum amount that we would have
to pay if the guarantees were called upon. For loan commitments and
other credit-related commitments, it is generally the full amount of the
committed facilities.
The offset in the table relates to amounts where there is a legally
enforceable right of offset in the event of counterparty default and
where, as a result, there is a net exposure for credit risk purposes.
However, as there is no intention to settle these balances on a net basis
under normal circumstances, they do not qualify for net presentation for
accounting purposes. No offset has been applied to off-balance sheet
collateral. In the case of derivatives, the offset column also includes
collateral received in cash and other financial assets.
152
HSBC Holdings plc Annual Report and Accounts 2022
Other credit risk mitigants
While not disclosed as an offset in the following ‘Maximum exposure
to credit risk’ table, other arrangements are in place that reduce our
maximum exposure to credit risk. These include a charge over
collateral on borrowers’ specific assets, such as residential properties,
collateral held in the form of financial instruments that are not held on
the balance sheet and short positions in securities. In addition, for
financial assets held as part of linked insurance/investment contracts
the credit risk is predominantly borne by the policyholder. See page
341 and Note 31 on the financial statements for further details of
collateral in respect of certain loans and advances and derivatives.
Collateral available to mitigate credit risk is disclosed in the ‘Collateral’
section on page 180.
Maximum exposure to credit risk
(Audited)
Loans and advances to customers held at amortised cost
– personal
– corporate and commercial
– non-bank financial institutions
Loans and advances to banks at amortised cost
Other financial assets held at amortised cost
– cash and balances at central banks
– items in the course of collection from other banks
– Hong Kong Government certificates of indebtedness
– reverse repurchase agreements – non-trading
– financial investments
– assets held for sale
– prepayments, accrued income and other assets
Derivatives
Total on-balance sheet exposure to credit risk
Total off-balance sheet
– financial and other guarantees
– loan and other credit-related commitments
At 31 Dec
Maximum
exposure
$m
924,854
412,140
446,032
66,682
104,882
1,029,618
327,002
7,297
43,787
253,754
168,747
115,919
113,112
284,146
2,343,500
934,326
106,861
827,465
3,277,826
2022
Offset
Maximum
exposure
$m
Net
$m
$m
(20,315)
(2,575)
(16,262)
(1,478)
—
904,539 1,045,814
475,234
409,565
505,335
429,770
65,245
65,204
83,136
104,882
882,708
(8,969) 1,020,649
403,018
327,002
—
4,136
7,297
—
42,578
43,787
—
241,648
244,785
(8,969)
97,302
168,747
—
3,411
115,919
—
90,615
113,112
—
196,882
10,649
(273,497)
(302,781) 2,040,719 2,208,540
928,183
934,326
113,088
106,861
815,095
827,465
(302,781) 2,975,045 3,136,723
—
—
—
2021
Offset
Net
$m
$m
(22,838) 1,022,976
470,773
(4,461)
488,511
(16,824)
63,692
(1,553)
—
83,136
870,477
(12,231)
—
403,018
—
4,136
—
42,578
229,417
(12,231)
—
97,302
—
3,411
—
90,615
(188,284)
8,598
(223,353) 1,985,187
928,183
113,088
815,095
(223,353) 2,913,370
—
—
—
Concentration of exposure
We have a number of global businesses with a broad range of
products. We operate in a number of geographical markets with the
majority of our exposures in Asia and Europe.
For an analysis of:
• financial investments, see Note 16 on the financial statements;
• trading assets, see Note 11 on the financial statements;
• derivatives, see page 187 and Note 15 on the financial statements;
and
• loans and advances by industry sector and by the location of the
principal operations of the lending subsidiary (or, in the case of the
operations of The Hongkong and Shanghai Banking Corporation
Limited, HSBC Bank plc, HSBC Bank Middle East Limited and
HSBC Bank USA, by the location of the lending branch), see page
170 for wholesale lending and page 187 for personal lending.
Credit deterioration of financial instruments
(Audited)
A summary of our current policies and practices regarding the
identification, treatment and measurement of stage 1, stage 2,
stage 3 (credit impaired) and POCI financial instruments can be found
in Note 1.2 on the financial statements.
Measurement uncertainty and
sensitivity analysis of ECL estimates
(Audited)
The recognition and measurement of ECL involves the use of
significant judgement and estimation. We form multiple economic
scenarios based on economic forecasts, apply these assumptions to
credit risk models to estimate future credit losses, and probability
weight the results to determine an unbiased ECL estimate.
Management judgemental adjustments are used to address late-
breaking events, data and model limitations, model deficiencies and
expert credit judgements.
Amid a deterioration in the economic and geopolitical environment,
management judgements and estimates continued to be subject to a
high degree of uncertainty in relation to assessing economic
scenarios for impairment allowances in 2022.
Inflation, economic contraction and high interest rates, combined with
an unstable geopolitical environment and the effects of global supply
chain disruption, contributed to elevated levels of uncertainty during
the year.
At 31 December 2022, as a result of this uncertainty, additional stage
1 and 2 impairment allowances were recognised. Management
continued 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.
At 31 December 2022, there was a reduction in management
judgemental adjustments compared with 31 December 2021.
Adjustments related to Covid-19 and for sector-specific risks were
reduced as scenarios and modelled outcomes better reflected the key
risks at 31 December 2022.
HSBC Holdings plc Annual Report and Accounts 2022
153
Risk review
Risk review
Methodology
Four global economic scenarios are used to capture the current
economic environment and to articulate management’s view of the
range of potential outcomes. Scenarios produced to calculate ECL are
aligned to HSBC’s top and emerging risks.
Three of the scenarios are drawn from consensus forecasts and
distributional estimates. The Central scenario is deemed the ‘most
likely’ scenario, and usually attracts the largest probability weighting,
while the outer scenarios represent the tails of the distribution, which
are less likely to occur. The Central scenario is created using the
average of a panel of external forecasters. Consensus Upside and
Downside scenarios are created with reference to distributions for
select markets that capture forecasters’ views of the entire range of
outcomes. In the later years of the scenarios, projections revert to
long-term consensus trend expectations. In the consensus outer
scenarios, reversion to trend expectations is done mechanically with
reference to historically observed quarterly changes in the values of
macroeconomic variables.
The fourth scenario, Downside 2, is designed to represent
management’s view of severe downside risks. It is a globally
consistent narrative-driven scenario that explores more extreme
economic outcomes than those captured by the consensus scenarios.
In this scenario, variables do not, by design, revert to long-term trend
expectations. They may instead explore alternative states of
equilibrium, where economic activity moves permanently away from
past trends. The consensus Downside and the consensus Upside
scenarios are each constructed to be consistent with a 10%
probability. The Downside 2 is constructed with a 5% probability. The
Central scenario is assigned the remaining 75%. This weighting
scheme is deemed appropriate for the unbiased estimation of ECL in
most circumstances. However, management may depart from this
probability-based scenario weighting approach when the economic
outlook is determined to be particularly uncertain and risks are
elevated.
In light of ongoing risks, management deviated from this probability
weighting in the fourth quarter of 2022, and assigned additional
weight to outer scenarios.
Description of economic scenarios
The economic assumptions presented in this section have been
formed by HSBC with reference to external forecasts and estimates,
specifically for the purpose of calculating ECL.
Economic forecasts in the Central scenario remain subject to a high
degree of uncertainty. Upside and Downside scenarios are
constructed so that they encompass the potential crystallisation of a
number of key macro-financial risks.
At the end of 2022, risks to the economic outlook included the
persistence of high inflation and its consequences on monetary
policy. Rapid changes to public policy also increased forecast
uncertainty.
In Asia, the removal of Chinese Covid-19-related public health
restrictions presents a key source of potential upside risk, but with
significant near-term uncertainty relating to a subsequent surge of
infections. This policy change could also have global implications.
In Europe, risks relating to energy pricing and supply security remain
significant. Geopolitical risks also remain significant and include the
possibility of a prolonged and escalating Russia-Ukraine war,
continued differences between the US and other countries with China
over a range of economic and strategic issues, and the evolution of
the UK’s relationship with the EU.
Economic forecasts for our main markets deteriorated in the fourth
quarter as GDP growth slowed. In North America and Europe, high
inflation and rising interest rates have reduced real household
incomes and raised business costs, dampening consumption and
investment and lowering growth expectations. The effects of higher
interest rate expectations and lower growth are evident in asset price
expectations, with house prices forecasts, in particular, significantly
lower.
154
HSBC Holdings plc Annual Report and Accounts 2022
In Asia, forecasts for Hong Kong and mainland China were cut
following weaker than expected third-quarter GDP growth, and due to
China’s adherence to a stringent pandemic-related public health policy
response for the majority of the year. While China made an abrupt
reversal of the policy in December and GDP is expected to recover in
2023, there remains a very high degree of uncertainty to both the
upside and downside, and consensus forecasts have been slow to
adjust. The increased uncertainty over China’s lifting of the
restrictions has been reflected in management’s assessment of
scenario probabilities.
The scenarios used to calculate ECL in the Annual Report and
Accounts 2022 are described below.
The consensus Central scenario
HSBC’s Central scenario reflects a low-growth and higher-inflation
environment across many of our key markets. The scenario features
an initial period of below-trend GDP growth in most of our main
markets as higher inflation and tighter monetary policy causes a
squeeze on business margins and households’ real disposable
income. Growth returns to its long-term expected trend in later years
as central banks bring inflation back to target.
However, three of our markets are forecast to experience increased
GDP growth. In Hong Kong and mainland China, GDP growth is
expected to be stronger in 2023 relative to 2022, following several
quarters of negative GDP growth and the suspension of Covid-19-
related restrictions. In the UAE, high oil prices and the continued
recovery of international travel and tourism are expected to ensure
growth remains above trend in the short term.
Our Central scenario assumes that inflation peaked in most of our key
markets at the end of 2022, but remains high through 2023, before
moderating as energy prices stabilise and supply chain disruptions
abate. Central banks are expected to keep raising interest rates until
the middle of 2023. Inflation is forecast to revert to target in most
markets by early 2024.
Global GDP is expected to grow by 1.6% in 2023 in the Central
scenario, and the average rate of global GDP growth is forecast to be
2.5% over the five-year forecast period. This is below the average
growth rate over the five-year period prior to the onset of the
pandemic.
The key features of our Central scenario are:
• Economic activity in European and North American markets
continues to weaken. Most major economies are forecast to grow
in 2023, but at very low rates. Hong Kong and mainland China are
expected to see a recovery in activity from 2023 as Covid-19-
related restrictions are lifted.
• In most markets, unemployment rises moderately from historical
lows as economic activity slows. Labour markets remain fairly
tight across our key markets.
• Inflation is expected to remain elevated across many of our key
markets, driven by energy and food prices. Inflation is
subsequently expected to converge back towards central banks’
target rates over the next two years of the forecast.
• Policy interest rates in key markets will continue to rise in the near
term but at a slower pace. Interest rates will stay elevated but
start to ease as inflation in each of the markets return to target.
• The West Texas Intermediate oil price is forecast to average $72
per barrel over the projection period.
The Central scenario was first created with forecasts available in
November, and reviewed continually until late December. Probability
weights assigned to the Central scenario vary from 55% to 70% and
reflect relative differences in risk and uncertainty across markets.
The following table describes key macroeconomic variables and the probabilities assigned in the consensus Central scenario.
Central scenario 2023–2027
GDP growth rate
2023: Annual average growth rate
2024: Annual average growth rate
2025: Annual average growth rate
5-year average
Unemployment rate
2023: Annual average rate
2024: Annual average rate
2025: Annual average rate
5-year average
House price growth
2023: Annual average growth rate
2024: Annual average growth rate
2025: Annual average growth rate
5-year average
Inflation rate
2023: Annual average rate
2024: Annual average rate
2025: Annual average rate
5-year average
Probability
UK
%
(0.8)
1.3
1.7
1.1
4.4
4.6
4.3
4.3
0.2
(3.8)
0.7
0.4
6.9
2.5
2.1
3.1
60
US
%
Hong Kong Mainland China
%
%
Canada
%
France
%
UAE
%
Mexico
%
0.2
1.5
2.0
1.5
4.3
4.5
4.2
4.2
(2.5)
(3.2)
(1.0)
(0.7)
4.1
2.5
2.2
2.7
70
2.7
3.0
2.7
2.7
3.7
3.5
3.4
3.4
(10.0)
(3.0)
1.7
(1.0)
2.1
2.1
2.0
2.1
55
4.6
4.8
4.7
4.6
5.2
5.1
5.0
5.0
(0.1)
2.9
3.5
2.9
2.4
2.2
2.2
2.2
55
0.6
1.9
2.0
1.6
6.1
5.9
6.0
5.9
(15.6)
(1.2)
4.0
(1.1)
3.5
2.2
2.1
2.4
70
0.2
1.6
1.5
1.2
7.6
7.5
7.3
7.3
1.8
2.0
3.1
2.8
4.6
2.0
1.8
2.4
60
3.7
3.7
3.1
3.2
2.9
2.8
2.8
2.8
5.9
5.2
4.5
4.4
3.2
2.2
2.1
2.3
70
1.2
2.0
2.3
1.9
3.7
3.7
3.5
3.6
7.9
5.2
4.2
5.1
5.7
4.1
3.7
4.2
70
The graphs compare the respective Central scenario at the year end 2021 with economic expectations at the end of 2022.
GDP growth: Comparison of Central scenarios
UK
25
20
15
10
5
0
‐5
‐10
4Q21 Central 5Y Average: 2.5%
4Q22 Central 5Y Average: 1.1%
US
14
12
10
8
6
4
2
0
‐2
100
90
80
70
60
50
40
30
20
10
0
4Q21 Central 5Y Average: 2.5%
4Q22 Central 5Y Average: 1.5%
2021
2022
2023
2024
2025
2026
2027
2021
2022
2023
2024
2025
2026
2027
4Q21 Central
4Q22 Central
4Q21 Central
4Q22 Central
Note: Real GDP shown as year-on-year percentage change.
Note: Real GDP shown as year-on-year percentage change.
Hong Kong
Mainland China
10
8
6
4
2
0
‐2
‐4
‐6
4Q21 Central 5Y Average: 2.7%
4Q22 Central 5Y Average: 2.7%
100
90
80
70
60
50
40
30
20
10
0
20
18
16
14
12
10
8
6
4
2
0
4Q21 Central 5Y Average: 5.1%
4Q22 Central 5Y Average: 4.6%
2021
2022
2023
2024
2025
2026
2027
2021
2022
2023
2024
2025
2026
2027
4Q21 Central
4Q22 Central
4Q21 Central
4Q22 Central
Note: Real GDP shown as year-on-year percentage change.
Note: Real GDP shown as year-on-year percentage change.
100
90
80
70
60
50
40
30
20
10
0
100
90
80
70
60
50
40
30
20
10
0
HSBC Holdings plc Annual Report and Accounts 2022
155
Risk review Risk review
The consensus Upside scenario
Compared with the Central scenario, the consensus Upside scenario
features stronger economic activity in the near term, before
converging to long-run trend expectations. It also incorporates a faster
fall in the rate of inflation than incorporated in the Central scenario.
The scenario is consistent with a number of key upside risk themes.
These include faster resolution of supply chain issues; a rapid
Consensus Upside scenario ‘best outcome’
conclusion to the Russia-Ukraine war; de-escalation of tensions
between the US and China; relaxation of Covid-19 policies in Asia; and
improved relations between the UK and the EU.
The following table describes key macroeconomic variables and the
probabilities assigned in the consensus Upside scenario.
GDP growth rate
Unemployment rate
House price growth
Inflation rate
Probability
UK
%
4.4 (4Q24)
3.5 (4Q23)
4.2 (1Q23)
0.7 (1Q24)
5
US
Hong Kong Mainland China
Canada
%
3.6 (4Q24)
3.1 (3Q23)
3.6 (1Q23)
1.6 (1Q24)
5
%
9.0 (3Q23)
3.0 (4Q23)
1.4 (4Q24)
(0.1) (4Q23)
20
%
10.3 (2Q23)
4.7 (3Q24)
6.9 (4Q24)
0.8 (4Q23)
20
%
4.3 (3Q24)
5.2 (3Q24)
4.9 (2Q24)
1.0 (1Q24)
5
France
%
3.1 (1Q24)
6.5 (4Q24)
3.7 (1Q23)
0.8 (4Q23)
5
UAE
%
7.8 (4Q23)
2.2 (3Q24)
9.5 (2Q24)
1.5 (3Q24)
5
Mexico
%
4.7 (4Q23)
3.1 (3Q23)
10.3 (4Q23)
3.2 (1Q24)
5
Note: Extreme point in the consensus Upside is ‘best outcome’ in the scenario, for example the highest GDP growth and the lowest unemployment rate,
in the first two years of the scenario. The date on which the extreme is reached is indicated in parenthesis. For inflation, lower inflation is interpreted as
the ‘best’ outcome.
Downside scenarios
Downside scenarios explore the intensification and crystallisation of a
number of key economic and financial risks.
High inflation and a stronger monetary policy response have become
key concerns for global growth. In the Downside scenarios, supply
chain disruptions intensify, exacerbated by an escalation in the spread
of Covid-19, and rising geopolitical tensions drive inflation higher.
There also remains a risk that energy and food prices rise further due
to the Russia-Ukraine war, increasing pressure on household budgets
and firms’ costs.
The possibility of inflation expectations becoming detached from
central bank targets also remains a risk. A wage-price spiral triggered
by higher inflation and pandemic-related labour supply shortages
could put sustained upward pressure on wages, aggravating cost
pressures and increasing the squeeze on household real incomes and
corporate margins. In turn, it raises the risk of a more forceful policy
response from central banks, a steeper trajectory for interest rates
and, ultimately, a deep economic recession.
The risks relating to Covid-19 are centred on the emergence of a new
variant with greater vaccine resistance that necessitates the
imposition of stringent public health policies. In Asia, with the
reopening of China in December, management of Covid-19 remains a
key source of uncertainty, with the rapid spread of the virus posing a
heightened risk of new vaccine-resistant variants emerging.
The geopolitical environment also present risks, including:
• a prolonged Russia-Ukraine war with escalation beyond Ukraine’s
borders;
• the deterioration of the trading relationship between the UK and
the EU over the Northern Ireland Protocol; and
• continued differences between the US and other countries with
China, which could affect sentiment and restrict global economic
activity.
The consensus Downside scenario
In the consensus Downside scenario, economic activity is
considerably weaker compared with the Central scenario. In this
scenario, GDP growth weakens below the Central scenario,
unemployment rates rise and asset prices fall. The scenario features a
temporary supply side shock that keeps inflation higher than the
baseline, before the effects of weaker demand begin to dominate,
leading to a fall in commodity prices and to lower inflation.
The following table describes key macroeconomic variables and the
probabilities assigned in the consensus Downside scenario.
Consensus Downside scenario ‘worst outcome’
GDP growth rate
Unemployment rate
House price growth
Inflation rate (min)
Inflation rate (max)
Probability
UK
%
(3.5) (3Q23)
5.8 (2Q24)
(10.1) (2Q24)
(0.4) (4Q24)
10.8 (1Q23)
25
US
%
(3.7) (4Q23)
5.9 (1Q24)
(7.8) (4Q23)
0.6 (4Q24)
6.2 (1Q23)
20
Hong Kong Mainland China
Canada
%
(2.2) (4Q23)
5.2 (3Q24)
(14.9) (2Q23)
0.3 (4Q24)
3.7 (4Q23)
20
%
(1.2) (4Q23)
5.9 (4Q23)
(1.9) (1Q23)
0.7 (4Q24)
4.0 (4Q23)
20
%
(3.9) (4Q23)
7.6 (3Q23)
(23.8) (2Q23)
0.4 (4Q24)
6.0 (1Q23)
France
%
(1.4) (3Q23)
8.8 (4Q23)
(0.6) (4Q23)
0.3 (4Q24)
7.2 (1Q23)
UAE
%
1.0 (4Q23)
4.1 (3Q23)
(3.0) (4Q23)
1.8 (2Q23)
4.5 (1Q23)
20
Mexico
%
(2.7) (4Q23)
4.4 (1Q23)
2.2 (3Q24)
2.2 (4Q24)
7.9 (1Q23)
20
15
25
Note: Extreme point in the consensus Downside is ‘worst outcome‘ in the scenario, for example lowest GDP growth and the highest unemployment rate,
in the first two years of the scenario. The date on which the extreme is reached is indicated in parenthesis. Due to the nature of the shock to inflation in
the Downside scenarios, both the lowest and the highest point is shown in the tables.
Downside 2 scenario
The Downside 2 scenario features a deep global recession and
reflects management’s view of the tail of the economic distribution. It
incorporates the crystallisation of a number of risks simultaneously,
including further escalation of the Russia-Ukraine war, worsening of
supply chain disruptions and the emergence of a vaccine-resistant
Covid-19 variant that necessitates a stringent public health policy
response globally.
This scenario features an initial supply-side shock that pushes up
inflation and interest rates higher. This impulse is expected to prove
short lived as a large downside demand pressure causes commodity
prices to correct sharply and global price inflation to fall as a severe
and prolonged recession takes hold.
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HSBC Holdings plc Annual Report and Accounts 2022
The following table describes key macroeconomic variables and the probabilities assigned in the Downside 2 scenario.
Downside 2 scenario ‘worst outcome’
GDP growth rate
Unemployment rate
House price growth
Inflation rate (min)
Inflation rate (max)
Probability
UK
%
US
%
(6.9) (3Q23)
8.7 (2Q24)
(22.9) (2Q24)
(2.3) (2Q24)
13.5 (2Q23)
10
(5.0) (4Q23)
9.5 (4Q24)
(21.5) (4Q23)
0.3 (4Q24)
6.3 (1Q23)
5
Hong Kong Mainland China
Canada
%
(9.2) (4Q23)
5.8 (1Q24)
(18.2) (1Q24)
0.6 (4Q24)
4.3 (4Q23)
5
%
%
(6.9) (4Q23)
6.8 (4Q24)
(18.5) (4Q23)
1.0 (4Q24)
4.6 (4Q23)
5
(5.9) (4Q23)
11.6 (2Q24)
(36.3) (4Q23)
1.1 (4Q24)
6.5 (1Q23)
10
France
%
(6.8) (4Q23)
10.3 (4Q24)
(6.4) (2Q24)
(2.5) (2Q24)
10.4 (2Q23)
10
UAE
%
(3.7) (2Q24)
4.6 (2Q24)
(3.6) (4Q23)
1.7 (4Q24)
4.8 (1Q23)
5
Mexico
%
(7.4) (4Q23)
5.6 (2Q24)
0.9 (3Q24)
2.0 (4Q24)
7.9 (1Q23)
5
Note: Extreme point in the Downside 2 is ‘worst outcome‘ in the scenario, for example lowest GDP growth and the highest unemployment rate, in the
first two years of the scenario. The date on which the extreme is reached is indicated in parenthesis. Due to the nature of the shock to inflation in the
Downside scenarios, both the lowest and the highest point is shown in the tables.
Scenario weighting
In reviewing the economic conjuncture, the level of risk and
uncertainty, management has considered both global and country-
specific factors. This has led management to assign scenario
probabilities that are tailored to its view of uncertainty in individual
markets.
Key consideration around uncertainty attached to the Central scenario
projections focused on:
• the progression of the Covid-19 pandemic in Asian countries, and
the announcement of the removal of Covid-19-related measures
and travel restrictions in mainland China and Hong Kong;
• further tightening of monetary policy, and the impact on borrowing
costs in interest-rate sensitive sectors, such as housing;
• the risks to gas supply security in Europe, and the subsequent
impact on inflation and commodity prices and growth; and
• the ongoing risks to global supply chains.
In mainland China and Hong Kong, the announcement of the
relaxation of Covid-19-related measures and travel restrictions has led
to increased uncertainty around the Central scenario projection. It was
management’s view that the easing of the policy could increase risks
to the upside in the form of increased spending and travel. However,
the continuing risks to the downside were also acknowledged, given
the surge in Covid-19 infections and the potential for a new vaccine-
resistant variant. This led management to assign a combined
weighting of 75% to the consensus Upside and Central scenarios in
both markets.
In the UK and US, the surge in price inflation and a squeeze on
household real incomes have led to strong monetary policy responses
from both central banks. Higher interest rates have increased
recession risks and the prospects for outright decline in house prices.
The UK faces additional challenges from the rise in energy prices and
accompanying deterioration in the terms of trade. For Canada and
Mexico, similar risk themes dominate, and the connectivity to the US
has also been a key consideration. For the UK, the consensus Upside
and Central scenarios had a combined weighting of 65%. In each of
the other three markets, the combined weightings of the consensus
Upside and Central scenarios were 75%.
In France, uncertainties around the outlook remain elevated due to
high inflation and Europe’s exposure to the Russia-Ukraine war
through the economic costs incurred from the imposition of
sanctions, trade disruption and energy dependence on Russia. The
consensus Upside and Central scenarios had a combined weighting of
65%.
Management concluded that the outlook for the UAE was the least
uncertain of all our key markets. It is benefiting from higher
commodity prices and the revival in tourism and travel. The
consensus Upside and Central scenarios had a combined weighting of
75%.
The following graphs show the historical and forecasted GDP growth
rate for the various economic scenarios in our four largest markets.
US
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
‐2.0
‐4.0
‐6.0
UK
2021
2022
2023
2024
2025
2026
2027
Central
Upside
Downside
Downside 2
25.0
20.0
15.0
10.0
5.0
0.0
‐5.0
‐10.0
2021
2022
2023
2024
2025
2026
2027
Central
Upside
Downside
Downside 2
Hong Kong
10.0
8.0
6.0
4.0
2.0
0.0
‐2.0
‐4.0
‐6.0
‐8.0
‐10.0
100
90
80
70
60
50
40
30
20
10
0
100
90
80
70
60
50
40
30
20
10
0
100
90
80
70
60
50
40
30
20
10
0
2021
2022
2023
2024
2025
2026
2027
Central
Upside
Downside
Downside 2
HSBC Holdings plc Annual Report and Accounts 2022
157
Risk review Risk review
Mainland China
20.0
15.0
10.0
5.0
0.0
‐5.0
‐10.0
100
90
80
70
60
50
40
30
20
10
0
2021
2022
2023
2024
2025
2026
2027
Central
Upside
Downside
Downside 2
Critical estimates and judgements
The calculation of ECL under IFRS 9 involves significant judgements,
assumptions and estimates. The level of estimation uncertainty and
judgement has remained elevated since 31 December 2021, including
judgements relating to:
• the selection and weighting of economic scenarios, given rapidly
changing economic conditions and a wide dispersion of economic
forecasts. There is judgement in making assumptions about the
effects of inflation and interest rates, global growth, supply chain
disruption; and
• estimating the economic effects of those scenarios on ECL,
particularly as the historical relationship between macroeconomic
variables and defaults might not reflect the dynamics of current
macroeconomic conditions.
How economic scenarios are reflected in
ECL calculations
Models are used to reflect economic scenarios on ECL estimates. As
described above, modelled assumptions and linkages based on
historical information could not alone produce relevant information
under the conditions experienced in 2022, and management
judgemental adjustments were still required to support modelled
outcomes.
We have developed globally consistent methodologies for the
application of forward economic guidance into the calculation of ECL
for wholesale and retail credit risk. These standard approaches are
described below, followed by the management judgemental
adjustments made, including those to reflect the circumstances
experienced in 2022.
For our wholesale portfolios, a global methodology is used for the
estimation of the term structure of probability of default (‘PD’) and
loss given default (‘LGD’). For PDs, we consider the correlation of
forward economic guidance to default rates for a particular industry in
a country. For LGD calculations, we consider the correlation of
forward economic guidance to collateral values and realisation rates
for a particular country and industry. PDs and LGDs are estimated for
the entire term structure of each instrument.
For impaired loans, LGD estimates take into account independent
recovery valuations provided by external consultants where available
or internal forecasts corresponding to anticipated economic conditions
and individual company conditions. In estimating the ECL on impaired
loans that are individually considered not to be significant, we
incorporate the forward economic guidance proportionate to the
probability-weighted outcome and the Central scenario outcome of
the performing population.
For our retail portfolios, the impact of economic scenarios on PD is
modelled at a portfolio level. Historical relationships between
observed default rates and macroeconomic variables are integrated
into IFRS 9 ECL estimates by using economic response models.
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HSBC Holdings plc Annual Report and Accounts 2022
The impact of these scenarios on PD is modelled over a period equal
to the remaining maturity of the underlying asset or assets. The
impact on LGD is modelled for mortgage portfolios by forecasting
future loan-to-value profiles for the remaining maturity of the asset by
using national level forecasts of the house price index and applying
the corresponding LGD expectation.
These models are based largely on historical observations and
correlations with default rates. Management judgemental
adjustments are described below.
Management judgemental adjustments
In the context of IFRS 9, management judgemental adjustments are
typically short-term 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 following 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 judgemental adjustments are considered
for both balances and ECL when determining whether or not a
significant increase in credit risk has occurred and is allocated to a
stage where appropriate. This is in accordance with the internal
adjustments framework.
Management judgemental adjustments are reviewed under the
governance process for IFRS 9 (as detailed in the section ‘Credit risk
management’ on page 145). Review and challenge focuses on the
rationale and quantum of the adjustments with a further review
carried out by the second line of defence where significant. For some
management judgemental adjustments, internal frameworks establish
the conditions under which these adjustments should no longer be
required and as such are considered as part of the governance
process. This internal governance process allows management
judgemental adjustments to be reviewed regularly and, where
possible, to reduce the reliance on these through model recalibration
or redevelopment, as appropriate.
The drivers of management judgemental adjustments continue to
evolve with the economic environment and as new risks emerge.
At 31 December 2022, there was a $0.9bn reduction in management
judgemental adjustments compared with 31 December 2021.
Adjustments related to Covid-19 and for sector-specific risks were
reduced as scenarios and modelled outcomes better reflected the key
risks at 31 December 2022.
Management judgemental adjustments made in estimating the
scenario-weighted reported ECL at 31 December 2022 are set out in
the following table.
Management judgemental adjustments to ECL at 31 December
20221
Retail
$bn
Wholesale
$bn
Total
$bn
Banks, sovereigns,
government entities and
low-risk counterparties
Corporate lending
adjustments
Retail lending inflation-
related adjustments
Other macroeconomic-
related adjustments
Pandemic-related
economic recovery
adjustments
Other retail lending
adjustments
Total
—
0.1
0.1
—
0.2
0.3
.
—
0.5
0.5
—
0.5
0.1
0.1
—
0.2
0.8
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 at the balance sheet date.
There is a particularly high degree of estimation uncertainty in
numbers representing more severe risk scenarios when assigned a
100% weighting.
For wholesale credit risk exposures, the sensitivity analysis excludes
ECL and financial instruments related to defaulted (stage 3) obligors.
It is generally impracticable to separate the effect of macroeconomic
factors in individual assessments of obligors in default. The
measurement of stage 3 ECL is relatively more sensitive to credit
factors specific to the obligor than future economic scenarios, and
loans to defaulted obligors are a small portion of the overall wholesale
lending exposure, even if representing the majority of the allowance
for ECL. Therefore, the sensitivity analysis to macroeconomic
scenarios does not capture the residual estimation risk arising from
wholesale stage 3 exposures. Due to the range and specificity of the
credit factors to which the ECL is sensitive, it is not possible to
provide a meaningful alternative sensitivity analysis for a consistent
set of risks across all defaulted obligors.
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 tables present the 100%
weighted results. These exclude portfolios held by the insurance
business and small portfolios, and as such cannot be directly
compared with personal and wholesale lending presented in other
credit risk tables. In both the wholesale and retail analysis, the
comparative period results for Downside 2 scenarios are also not
directly comparable with the current period, because they reflect
different risks relative to the consensus scenarios for the period end.
The wholesale and retail sensitivity analysis is stated inclusive of
management judgemental adjustments, as appropriate to each
scenario.
Management judgemental adjustments to ECL at 31 December
20211
Retail
$bn
Wholesale
$bn
Banks, sovereigns,
government entities and
low-risk counterparties
Corporate lending
adjustments
Retail lending inflation-
related adjustments
Other macroeconomic-
related adjustments
Pandemic-related
economic recovery
adjustments
Other retail lending
adjustments
Total
(0.1)
1.3
1.2
0.2
0.3
0.5
Total
$bn
(0.1)
1.3
—
—
0.2
0.3
1.7
1 Management judgemental adjustments presented in the table reflect
increases or (decreases) to ECL, respectively.
Management judgemental adjustments at 31 December 2022 were
an increase to ECL of $0.5bn for the wholesale portfolio and an
increase to ECL of $0.3bn for the retail portfolio.
At 31 December 2022, wholesale management judgemental
adjustments were an ECL increase of $0.5bn (31 December 2021:
$1.2bn increase).
• Adjustments to corporate exposures increased ECL by $0.5bn at
31 December 2022 (31 December 2021: $1.3bn increase). These
principally reflected the outcome of management judgements for
high-risk and vulnerable sectors in some of our key markets. This
was supported by credit experts’ input, portfolio risk metrics,
short- to medium-term risks under each scenario, model
performance, quantitative analyses and benchmarks.
Considerations include risk of individual exposures under different
macroeconomic scenarios and sub-sector analyses.
The largest increase in ECL was observed in the real estate sector,
including material adjustments to reflect the uncertainty of the
higher-risk Chinese commercial real estate exposures, booked in
Hong Kong.
At 31 December 2022, retail management judgemental adjustments
were an ECL increase of $0.3bn (31 December 2021: $0.5bn
increase).
• Retail lending inflation-related adjustments increased ECL by
$0.1bn (31 December 2021: $0.0bn). These adjustments
addressed where increasing inflation and interest rates result in
affordability risks that were not fully captured by the modelled
output.
• Other macroeconomic-related adjustments increased ECL by
$0.1bn (31 December 2021: $0.0bn). These adjustments were
primarily in relation to country-specific risks related to future
macroeconomic conditions.
• Other retail lending adjustments increased ECL by $0.2bn
(31 December 2021: $0.3bn increase), reflecting all other data,
model and management judgemental adjustments.
• Pandemic-related economic recovery adjustments were removed
during 2022 as scenarios stabilised.
HSBC Holdings plc Annual Report and Accounts 2022
159
Risk review
Risk review
Wholesale analysis
IFRS 9 ECL sensitivity to future economic conditions1,2,3
By geography at 31 Dec 2022
UK
US
Hong Kong
Mainland China
Canada4
Mexico
UAE
France
By geography at 31 Dec 2021
UK
US
Hong Kong
Mainland China
Canada4
Mexico
UAE
France
Gross carrying
amount2
$m
421,685
190,858
415,875
125,466
83,274
26,096
45,064
173,146
483,273
227,817
434,608
120,627
85,117
23,054
44,767
163,845
Reported ECL
Consensus
Central
scenario ECL
Consensus
Upside
scenario ECL
Consensus
Downside
scenario ECL
Downside 2
scenario ECL
$m
769
277
925
295
126
88
45
110
920
227
767
149
151
118
158
133
$m
624
241
819
242
80
80
41
102
727
204
652
113
98
80
122
121
$m
484
227
592
144
60
67
30
90
590
155
476
36
61
61
73
106
$m
833
337
1,315
415
148
116
55
121
944
317
984
216
150
123
214
162
$m
2,240
801
2,161
1,227
579
313
93
145
1,985
391
1,869
806
1,121
358
711
187
1 ECL sensitivity includes off-balance sheet financial instruments. These are subject to significant measurement uncertainty.
2
Includes low credit-risk financial instruments such as debt instruments at FVOCI, which have high carrying amounts but low ECL under all the above
scenarios.
3 Excludes defaulted obligors. For a detailed breakdown of performing and non-performing wholesale portfolio exposures, see page 170.
4 Classified as held for sale at 31 December 2022.
At 31 December 2021, the most significant level of ECL sensitivity
was observed in the UK, Hong Kong and mainland China.
Real estate was the sector with higher sensitivity to a severe
Downside scenario, namely in Hong Kong and mainland China due to
higher risk of some material exposures.
In the UK, the real estate and services sectors accounted for the
majority of ECL sensitivity due to higher exposure to these sectors in
this market.
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HSBC Holdings plc Annual Report and Accounts 2022
Retail analysis
IFRS 9 ECL sensitivity to future economic conditions1
Gross carrying
amount
Reported ECL
Consensus
Central scenario
ECL
Consensus
Upside scenario
ECL
Consensus
Downside
scenario ECL
Downside 2
scenario ECL
By geography at 31 December
2022
UK
Mortgages
Credit cards
Other
Mexico
Mortgages
Credit cards
Other
Hong Kong
Mortgages
Credit cards
Other
UAE
Mortgages
Credit cards
Other
France3
Mortgages
Other
US
Mortgages
Credit cards
Canada2
Mortgages
Credit cards
Other
$m
147,306
6,518
7,486
6,319
1,616
3,447
100,107
8,003
5,899
2,170
441
718
21,440
1,433
13,489
219
25,163
299
1,399
$m
204
455
368
152
198
438
1
261
85
37
41
17
51
54
7
26
45
10
16
$m
188
434
333
127
162
400
1
227
81
37
37
17
50
53
6
25
44
9
14
$m
183
396
274
102
97
318
—
180
74
36
21
15
50
52
6
23
43
8
13
IFRS 9 ECL sensitivity to future economic conditions1
Gross carrying
amount
Reported ECL
By geography at 31 December
2021
UK
Mortgages
Credit cards
Other
Mexico
Mortgages
Credit cards
Other
Hong Kong
Mortgages
Credit cards
Other
UAE
Mortgages
Credit cards
Other
France
Mortgages
Other
US
Mortgages
Credit cards
Canada
Mortgages
Credit cards
Other
$m
155,084
8,084
7,902
4,972
1,167
2,935
96,697
7,644
5,628
1,982
429
615
23,159
1,602
15,379
446
26,097
279
1,598
$m
191
439
369
123
141
366
—
218
109
45
43
19
63
61
28
80
28
9
19
Consensus
Consensus
Central scenario
Upside scenario
ECL
$m
182
381
298
116
134
360
—
206
101
44
41
18
62
61
27
76
27
9
18
ECL
$m
175
330
254
106
122
350
—
154
88
42
29
13
62
60
26
70
26
9
17
$m
189
442
383
183
233
503
1
417
100
38
68
19
51
55
8
27
46
11
17
$m
399
719
605
270
289
618
1
648
123
38
86
22
52
59
15
36
58
11
36
Consensus
Downside
scenario ECL
Downside 2
scenario ECL
$m
197
456
388
130
150
374
—
231
128
46
54
21
63
61
29
83
29
10
19
$m
231
987
830
164
176
401
—
359
180
57
82
25
64
63
41
118
48
13
27
1 ECL sensitivities exclude portfolios utilising less complex modelling approaches.
2 Classified as ‘assets held for sale’ at 31 December 2022.
3 Includes balances and ECL, which have been reclassified from ‘loans and advances to customers’ to ‘assets held for sale’ in the balance sheet. This
also includes any balances and ECL which continue to be reported as personal lending in ‘loans and advances to customers’ that are in accordance
with the basis of inclusion for retail sensitivity analysis.
HSBC Holdings plc Annual Report and Accounts 2022
161
Risk review
Risk review
At 31 December 2022, the most significant level of ECL sensitivity
was observed in the UK, Mexico and Hong Kong. Mortgages reflected
the lowest level of ECL sensitivity across most markets as collateral
values remained resilient. Hong Kong mortgages had low levels of
reported ECL due to the credit quality of the portfolio. Credit cards
and other unsecured lending are more sensitive to economic
forecasts, and therefore reflected the highest level of ECL sensitivity
during 2022.
Group ECL sensitivity results
The ECL impact of the scenarios and management judgemental
adjustments are highly sensitive to movements in economic
forecasts. Based upon the sensitivity tables presented above, if the
Group ECL balance was estimated solely on the basis of the Central
scenario, Downside scenario or the Downside 2 scenario at
31 December 2022, it would increase/(decrease) as presented in the
below table.
Total Group ECL at 31 December 2022
Reported ECL
Scenarios
100% Consensus Central scenario
100% Consensus Upside scenario
100% Consensus Downside scenario
100% Downside 2 scenario
Total Group ECL at 31 December 2021
Reported ECL
Scenarios
100% Consensus Central scenario
100% Consensus Upside scenario
100% Consensus Downside scenario
100% Downside 2 scenario
Retail1 Wholesale1
$bn
3.1
$bn
3.0
(0.2)
(0.6)
0.4
1.8
(0.5)
(1.1)
0.8
5.5
Retail1
$bn
3.0
Wholesale
$bn
3.1
(0.2)
(0.5)
0.2
2.0
(0.6)
(1.2)
0.6
5.5
1 On the same basis as retail and wholesale sensitivity analysis.
At Group level for both the retail and wholesale portfolios, the
reported ECL in scope of this analysis remained stable since
31 December 2021. The Group total Downside 2 scenario ECL
continues to present the highest level of sensitivity.
The ECL sensitivity for the Central scenario remained flat for the
wholesale and retail portfolios from the previous year. For the
remaining scenarios, the changes in ECL sensitivity from the previous
year were reflective of geographical and sector risks, which increased
or reduced accordingly with macroeconomic conditions.
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 represents the impact of stage
transfers upon the gross carrying/nominal amount and associated
allowance for ECL.
The net remeasurement of ECL arising from stage transfers
represents the increase or decrease due to these transfers, for
example, moving from a 12-month (stage 1) to a lifetime (stage 2)
ECL measurement basis. Net remeasurement excludes the
underlying customer risk rating (‘CRR’)/probability of default (‘PD’)
movements of the financial instruments transferring stage. This is
captured, along with other credit quality movements in the ‘changes
in risk parameters – credit quality’ line item.
Changes in ‘New financial assets originated or purchased’, ‘assets
derecognised (including final repayments)’ and ‘changes to risk
parameters – further lending/repayment’ represent the impact from
volume movements within the Group’s lending portfolio.
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HSBC Holdings plc Annual Report and Accounts 2022
Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including
loan commitments and financial guarantees
(Audited)
Non-credit impaired
Credit impaired
Stage 1
Stage 2
Stage 3
POCI
Total
Gross
carrying/
nominal
amount
$m
1,577,582
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Allowance
for ECL
$m
(1,557)
$m
155,742
$m
(3,326)
$m
19,797
$m
(6,928)
$m
274
$m
(64) 1,753,395
$m
$m
(11,875)
(99,022)
(798)
89,052
1,620
9,970
(822)
(225,616)
470
225,616
(470)
128,246
(1,216)
(128,246)
(2,392)
740
9
(61)
(10,087)
1,769
1,216
1,132
(258)
—
—
—
—
12,479
(2,509)
(1,141)
319
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
739
—
(953)
—
(152)
—
—
—
(366)
483,617
(548)
—
—
—
—
26
(2)
483,643
(550)
(318,659)
148
(37,941)
343
(2,806)
416
(97)
—
(359,503)
(65,778)
226
(6,963)
93
(594)
259
(61)
5
(73,396)
907
583
—
403
—
(1,670)
—
(3,019)
—
—
—
4
—
—
—
(151)
—
—
13
(2,794)
2,794
—
(10)
32
—
10
—
(4,254)
—
(134)
(2,804)
2,804
—
—
—
—
(32)
9
(81,975)
(60,557)
1,435,208
59
64
(1,260)
(8,811)
(13,716)
177,363
972
(1,395)
(938)
21,208
170
161
(3,713)
(2,338)
323
158
(6,949)
(2,483)
—
(3)
—
129
—
(32)
9
(92,184)
1
(20)
(75,211)
(38) 1,633,908
553
363
(11,960)
35
(3,814)
316
(26)
(3,524)
At 1 Jan 2022
Transfers of financial
instruments:
– transfers from stage 1 to
stage 2
– transfers from stage 2 to
stage 1
– transfers to stage 3
– transfers from stage 3
Net remeasurement of ECL
arising from transfer of
stage
New financial assets
originated or purchased
Assets derecognised
(including final repayments)
Changes to risk parameters
– further lending/repayment
Changes to risk parameters
– credit quality
Changes to models used
for ECL calculation
Assets written off
Credit-related modifications
that resulted in
derecognition
Foreign exchange
Others1
At 31 Dec 2022
ECL income statement
change for the period
Recoveries
Others
Total ECL income
statement change for the
period
1 Total includes $82.7bn of gross carrying loans and advances to customers and banks, which were classified to assets held for sale, and a
corresponding allowance for ECL of $426m, reflecting business disposals as disclosed in Note 23 ‘Assets held for sale and liabilities of disposal groups
held for sale’ on page 389.
As above
Other financial assets measured at amortised cost
Non-trading reverse purchase agreement commitments
Performance and other guarantees not considered for IFRS 9
Summary of financial instruments to which the impairment requirements in
IFRS 9 are applied/Summary consolidated income statement
Debt instruments measured at FVOCI
Total allowance for ECL/total income statement ECL change for the period
At 31 Dec 2022
12 months ended
31 Dec 2022
Gross carrying/
nominal amount
Allowance for ECL
ECL charge
$m
1,633,908
1,014,498
44,921
—
2,693,327
266,303
n/a
$m
(11,960)
(553)
—
—
(12,513)
(145)
(12,658)
$m
(3,524)
(41)
—
41
(3,524)
(68)
(3,592)
As shown in the previous table, the allowance for ECL for loans and
advances to customers and banks and relevant loan commitments
and financial guarantees increased $85m during the period from
$11,875m at 31 December 2021 to $11,960m at 31 December 2022.
This increase was primarily driven by:
• $4,254m relating to underlying credit quality changes, including the
credit quality impact of financial instruments transferring between
stages;
HSBC Holdings plc Annual Report and Accounts 2022
163
Risk review
Risk review
• $366m relating to the net remeasurement impact of stage
transfers; and
• $134m of changes to models used for ECL calculation.
These were partly offset by:
• $2,804m of assets written off;
• $940m relating to volume movements, which included the ECL
allowance associated with new originations, assets derecognised
and further lending/repayment; and
• foreign exchange and other movements of $916m.
The ECL charge for the period of $3,814m presented in the previous
table consisted of $4,254m relating to underlying credit quality
changes, including the credit quality impact of financial instruments
transferring between stages, $366m relating to the net
remeasurement impact of stage transfers, and $134m in changes to
models used for ECL calculation. This was partly offset by $940m
relating to underlying net book volume movement.
Summary views of the movement in wholesale and personal lending
are presented on pages 173 and 191.
Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including
loan commitments and financial guarantees
(Audited)
Non-credit impaired
Credit impaired
Stage 1
Stage 2
Stage 3
POCI
Total
Gross
exposure
Allowance
/ provision
for ECL
Gross
exposure
Allowance
/ provision
for ECL
Gross
exposure
Allowance/
provision
for ECL
Gross
exposure
Allowance
/ provision
for ECL
Gross
exposure
Allowance/
provision
for ECL
At 1 Jan 2021
Transfers of financial instruments:
– transfers from stage 1 to
stage 2
– transfers from stage 2 to
stage 1
– transfers to stage 3
– transfers from stage 3
Net remeasurement of ECL arising
from transfer of stage
New financial assets originated or
purchased
Assets derecognised (including
final repayments)
Changes to risk parameters –
further lending/repayment
Changes to risk parameters –
credit quality
Changes to models used for ECL
calculation
Assets written off
Credit-related modifications that
resulted in derecognition
Foreign exchange
Others1
At 31 Dec 2021
ECL income statement change for
the period
Recoveries
Others
Total ECL income statement
change for the period
$m
$m
$m
1,506,451
21,107
(2,331) 223,432
(27,863)
(1,792)
$m
(5,403)
2,601
$m
20,424
6,756
$m
(7,544)
(809)
$m
279
—
(159,633)
527 159,633
(527)
—
—
—
182,432
(2,279) (182,432)
(2,345)
653
24
(64)
(6,478)
1,414
2,279
1,010
(161)
—
8,823
(2,067)
—
(1,034)
225
—
1,225
—
(596)
—
(34)
—
—
—
—
$m
$m
(113) 1,750,586
—
—
—
—
—
—
—
—
—
—
—
—
$m
(15,391)
—
—
—
—
—
595
444,070
(553)
—
—
—
—
124
— 444,194
(553)
(304,158)
174
(31,393)
489
(2,750)
458
(10)
6
(338,311)
1,127
(61,742)
547
(3,634)
498
(1,268)
576
(108)
12
(66,752)
1,633
—
1,111
—
(1,012)
—
(2,354)
—
28
—
(2,227)
—
—
—
(17)
—
—
—
—
—
(25,231)
(2,915)
1,577,582
26
53
(2,918)
(1,882)
(1,557) 155,742
(33)
—
1
—
(2,610)
2,605
—
(125)
45
85
(3,326)
(479)
(151)
19,797
—
157
16
(6,928)
(1,353)
2,487
(654)
—
(7)
—
(4)
—
274
—
7
—
(49)
(2,617)
2,612
—
(125)
—
1
(5)
(28,632)
(4,948)
(64) 1,753,395
229
149
(11,875)
46
526
409
(111)
824
1 Total includes $3.0bn of gross carrying loans and advances to customers, which were classified to assets held for sale, and a corresponding allowance
for ECL of $123m, reflecting our exit of the domestic mass market retail banking in the US.
At 31 Dec 2021
Gross carrying/
nominal amount
Allowance for
ECL
12 months ended 31 Dec
2021
ECL charge
$m
1,753,395
880,351
42,421
—
2,676,167
347,203
n/a
$m
(11,875)
(193)
—
—
(12,068)
(96)
(12,164)
$m
824
(19)
—
75
880
48
928
As above
Other financial assets measured at amortised cost
Non-trading reverse purchase agreement commitments
Performance and other guarantees not considered for IFRS 9
Summary of financial instruments to which the impairment requirements in IFRS 9 are
applied/Summary consolidated income statement
Debt instruments measured at FVOCI
Total allowance for ECL/total income statement ECL change for the period
164
HSBC Holdings plc Annual Report and Accounts 2022
Credit quality
Credit quality of financial instruments
(Audited)
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 PD, whereas stages 1 and 2 are
determined based on relative deterioration of credit quality since initial
recognition for the majority of portfolios. Accordingly, for non-credit-
impaired financial instruments, there is no direct relationship
between the credit quality assessment and stages 1 and 2, although
typically the lower credit quality bands exhibit a higher proportion in
stage 2.
The five credit quality classifications provided below 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 table on
page 146.
Distribution of financial instruments by credit quality at 31 December 2022
(Audited)
Gross carrying/notional amount
Strong
$m
Good Satisfactory
$m
$m
Sub-
standard
$m
Credit
impaired
$m
Allowance
for ECL/
other credit
provisions
$m
Total
$m
Net
$m
492,848
197,560
196,819
333,838
126,659
32,351
45,696
132,847
19,017
28,942
154,135
13,742
29,446
3,196
24,890
1,360
19,634
3,340
15,825
469
936,307
(11,453)
415,012
454,356
66,939
(2,872)
(8,324)
(257)
924,854
412,140
446,032
66,682
93,025
4,890
5,643
1,311
82
104,951
(69)
104,882
325,119
1,296
590
7,280
43,787
170,386
151,385
67,617
91,114
2,350
88,764
12
—
41,659
14,113
17,993
10,911
3,059
7,852
5
—
41,686
3,121
13,972
8,821
2,815
6,006
—
—
—
20
161
2,333
274
175
99
—
327,005
(3)
327,002
—
7,297
—
7,297
—
43,787
—
43,787
3
253,754
47
641
152
25
127
168,827
102,556
111,272
8,424
102,848
—
(80)
(415)
(55)
(17)
(38)
253,754
168,747
102,141
111,217
8,407
102,810
261,247
10,132
5,981
1,949
42
279,351
(145)
279,206
91,330
14,371
23,415
820
133
130,069
—
130,069
6,281
241,905
15,254
809
34,181
—
1,785
7,843
—
110
181
—
—
36
—
8,985
284,146
15,254
—
—
—
8,985
284,146
15,254
2,058,578
347,927
309,681
36,605
20,770
2,773,561
(12,220)
2,761,341
74.2%
12.5%
11.2%
1.3%
0.8%
100%
402,972
132,402
8,281
4,669
74,410
4,571
7,632
1,013
1,372
618,788
249
18,783
(386)
(52)
618,402
18,731
411,253
137,071
78,981
8,645
1,621
637,571
(438)
637,133
76,095
69,667
59,452
3,360
489
209,063
—
209,063
37,943
30,029
17,732
2,137
399
88,240
(110)
88,130
114,038
99,696
77,184
5,497
888
297,303
(110)
297,193
In-scope for IFRS 9 ECL
Loans and advances to
customers held at amortised cost
– personal
– corporate and commercial
– non-bank financial institutions
Loans and advances to banks
held at amortised cost
Cash and balances at central
banks
Items in the course of collection
from other banks
Hong Kong Government
certificates of indebtedness
Reverse repurchase agreements
– non-trading
Financial investments
Assets held for sale
Other assets
– endorsements and
acceptances
– accrued income and other
Debt instruments measured at
fair value through other
comprehensive income1
Out-of-scope for IFRS 9
Trading assets
Other financial assets designated
and otherwise mandatorily
measured at fair value through
profit or loss
Derivatives
Assets held for sale
Total gross carrying amount on
balance sheet
Percentage of total credit quality
Loan and other credit-related
commitments
Financial guarantees
In-scope: Irrevocable loan
commitments and financial
guarantees
Loan and other credit-related
commitments
Performance and other
guarantees
Out-of-scope: Revocable loan
commitments and non-
financial guarantees
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.
HSBC Holdings plc Annual Report and Accounts 2022
165
Risk review
Risk review
Distribution of financial instruments by credit quality at 31 December 2021 (continued)
(Audited)
Gross carrying/notional amount
Strong
$m
Good
Satisfactory
$m
$m
Sub-
standard
$m
Credit
impaired
$m
Allowance
for ECL/other
credit
provisions
$m
Total
$m
Net
$m
544,695
230,326
233,739
388,903
124,819
30,973
52,080
158,938
19,308
30,492
188,858
14,389
29,404
1,920
27,194
290
19,067
1,057,231
(11,417)
1,045,814
4,942
13,730
395
478,337
513,539
65,355
(3,103)
(8,204)
(110)
475,234
505,335
65,245
72,978
4,037
5,020
1,118
—
83,153
(17)
83,136
400,176
1,675
1,171
4,122
42,578
175,576
84,477
560
66,537
1,742
64,795
10
—
46,412
11,442
1,112
10,997
5,240
5,757
4
—
18,881
1,401
936
10,749
4,038
6,711
—
—
—
779
1
110
298
199
99
—
403,022
(4)
403,018
—
4,136
—
4,136
—
42,578
—
42,578
—
43
141
163
26
137
241,648
97,364
2,859
88,744
11,245
77,499
—
(62)
(43)
(84)
(17)
(67)
241,648
97,302
2,816
88,660
11,228
77,432
320,161
12,298
11,677
1,087
46
345,269
(96)
345,173
101,879
16,254
20,283
678
134
139,228
—
139,228
6,438
723
146,748
42,717
4,455
6,691
150
719
—
7
11,766
196,882
—
—
11,766
196,882
1,966,925
378,003
315,007
34,344
19,601
2,713,880
(11,723)
2,702,157
72.5%
13.9%
11.6%
1.3%
0.7%
100%
389,865
136,297
92,558
16,511
4,902
5,166
8,142
991
775
225
627,637
27,795
(379)
(62)
627,258
27,733
406,376
141,199
97,724
9,133
1,000
655,432
(441)
654,991
62,701
65,031
56,446
3,327
332
187,837
—
187,837
31,510
32,193
19,265
2,027
539
85,534
(179)
85,355
94,211
97,224
75,711
5,354
871
273,371
(179)
273,192
In-scope for IFRS 9 ECL
Loans and advances to customers
held at amortised cost
– personal
– corporate and commercial
– non-bank financial institutions
Loans and advances to banks
held at amortised cost
Cash and balances at central
banks
Items in the course of collection
from other banks
Hong Kong Government
certificates of indebtedness
Reverse repurchase agreements
– non-trading
Financial investments
Assets held for sale
Other assets
– endorsements and
acceptances
– accrued income and other
Debt instruments measured at
fair value through other
comprehensive income1
Out-of-scope for IFRS 9
Trading assets
Other financial assets designated
and otherwise mandatorily
measured at fair value through
profit or loss
Derivatives
Total gross carrying amount on
balance sheet
Percentage of total credit quality
Loan and other credit-related
commitments
Financial guarantees
In-scope: Irrevocable loan
commitments and financial
guarantees
Loan and other credit-related
commitments
Performance and other
guarantees
Out-of-scope: Revocable loan
commitments and non-financial
guarantees
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.
166
HSBC Holdings plc Annual Report and Accounts 2022
Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage allocation
(Audited)
Loans and advances to customers at
amortised cost
– stage 1
– stage 2
– stage 3
– POCI
Loans and advances to banks at amortised
cost
– stage 1
– stage 2
– stage 3
– POCI
Other financial assets measured at amortised
cost
– stage 1
– stage 2
– stage 3
– POCI
Loan and other credit-related commitments
– stage 1
– stage 2
– stage 3
– POCI
Financial guarantees
– stage 1
– stage 2
– stage 3
– POCI
At 31 Dec 2022
Debt instruments at FVOCI1
– stage 1
– stage 2
– stage 3
– POCI
At 31 Dec 2022
Gross carrying/notional amount
Strong
Good Satisfactory
Sub-
standard
Credit
impaired
$m
$m
$m
$m
$m
Allowance
for ECL
$m
Total
$m
Net
$m
492,848
197,560
196,819
29,446
19,634
936,307
(11,453)
924,854
458,843
34,005
—
—
170,875
26,685
—
—
142,695
54,124
—
—
93,025
92,696
329
—
—
4,890
4,465
425
—
—
5,643
5,466
177
—
—
5,130
24,316
—
—
1,311
415
896
—
—
—
—
19,505
129
82
—
—
82
—
777,543
139,130
19,505
129
104,951
103,042
1,827
82
—
(1,095)
(3,491)
(6,829)
(38)
(69)
(18)
(29)
(22)
—
776,448
135,639
12,676
91
104,882
103,024
1,798
60
—
856,688
85,984
68,195
2,788
843 1,014,498
(553) 1,013,945
855,523
1,165
—
—
402,972
398,120
4,852
—
—
8,281
8,189
92
—
—
1,853,814
260,941
306
—
—
261,247
80,175
5,809
—
—
132,402
121,581
10,821
—
—
4,669
4,245
424
—
—
425,505
10,000
132
—
—
10,132
60,583
7,612
—
—
74,410
60,990
13,420
—
—
4,571
3,488
1,083
—
—
349,638
5,690
291
—
—
5,981
208
2,580
—
—
7,632
2,692
4,940
—
—
1,013
149
864
—
—
42,190
—
1,949
—
—
1,949
—
—
797
46
1,372
—
—
1,372
—
249
—
—
249
—
996,489
17,166
797
46
618,788
583,383
34,033
1,372
—
18,783
16,071
2,463
249
—
22,180 2,693,327
(124)
(188)
(234)
(7)
(386)
(141)
(180)
(65)
—
(52)
(6)
(13)
(33)
—
996,365
16,978
563
39
618,402
583,242
33,853
1,307
—
18,731
16,065
2,450
216
—
(12,513) 2,680,814
—
—
5
37
42
276,631
2,678
5
37
279,351
(68)
(69)
(1)
(7)
(145)
276,563
2,609
4
30
279,206
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.
HSBC Holdings plc Annual Report and Accounts 2022
167
Risk review
Risk review
Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage allocation
(continued)
(Audited)
Loans and advances to customers at amortised
cost
– stage 1
– stage 2
– stage 3
– POCI
Loans and advances to banks at amortised
cost
– stage 1
– stage 2
– stage 3
– POCI
Other financial assets measured at amortised
cost
– stage 1
– stage 2
– stage 3
– POCI
Loan and other credit-related commitments
– stage 1
– stage 2
– stage 3
– POCI
Financial guarantees
– stage 1
– stage 2
– stage 3
– POCI
At 31 Dec 2021
Debt instruments at FVOCI1
– stage 1
– stage 2
– stage 3
– POCI
At 31 Dec 2021
Gross carrying/notional amount
Strong
$m
Good Satisfactory
$m
$m
Sub-
standard
$m
Credit
impaired
$m
Total
$m
Allowance
for ECL
$m
Net
$m
544,695
230,326
233,739
29,404
19,067 1,057,231
(11,417) 1,045,814
537,642
7,053
—
—
206,645
23,681
—
—
169,809
63,930
—
—
72,978
72,903
75
—
—
4,037
3,935
102
—
—
5,020
4,788
232
—
—
4,840
24,560
—
4
1,118
10
1,108
—
—
—
—
18,797
270
918,936
119,224
18,797
274
(1,367)
(3,119)
(6,867)
(64)
917,569
116,105
11,930
210
—
—
—
—
—
83,153
81,636
1,517
—
—
(17)
(14)
(3)
—
—
83,136
81,622
1,514
—
—
774,026
71,648
33,142
1,188
347
880,351
(193)
880,158
773,427
599
—
—
389,865
387,434
2,431
—
—
16,511
16,351
160
—
—
1,798,075
319,557
604
—
—
320,161
70,508
1,140
—
—
136,297
129,455
6,842
—
—
4,902
4,469
433
—
—
447,210
12,196
102
—
—
12,298
30,997
2,145
—
—
92,558
76,043
16,515
—
—
5,166
3,929
1,237
—
—
369,625
11,354
323
—
—
11,677
84
1,104
—
—
8,142
1,541
6,601
—
—
991
183
808
—
—
40,843
—
1,087
—
—
1,087
—
—
304
43
775
—
—
775
—
225
—
—
225
—
875,016
4,988
304
43
627,637
594,473
32,389
775
—
27,795
24,932
2,638
225
—
20,414 2,676,167
(91)
(54)
(42)
(6)
(379)
(165)
(174)
(40)
—
(62)
(11)
(30)
(21)
—
874,925
4,934
262
37
627,258
594,308
32,215
735
—
27,733
24,921
2,608
204
—
(12,068) 2,664,099
—
—
—
46
46
343,107
2,116
—
46
345,269
(67)
(22)
—
(7)
(96)
343,040
2,094
—
39
345,173
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.
Credit-impaired loans
(Audited)
We determine that a financial instrument is credit impaired and in
stage 3 by considering relevant objective evidence, primarily whether:
• contractual payments of either principal or interest are past due for
more than 90 days;
• there are other indications that the borrower is unlikely to pay,
such as when a concession has been granted to the borrower for
economic or legal reasons relating to the borrower’s financial
condition; and
• the loan is otherwise considered to be in default. If such
unlikeliness to pay is not identified at an earlier stage, it is deemed
to occur when an exposure is 90 days past due, even where
regulatory rules permit default to be defined based on 180 days
past due. Therefore, the definitions of credit impaired and default
are aligned as far as possible so that stage 3 represents all loans
that are considered defaulted or otherwise credit impaired.
168
HSBC Holdings plc Annual Report and Accounts 2022
Forbearance
The following table shows the gross carrying amounts and allowances for ECL of the Group’s holdings of forborne loans and advances to
customers by industry sector and by stages.
A summary of our current policies and practices for forbearance is set out in ‘Credit risk management’ on page 145.
Forborne loans and advances to customers at amortised cost by stage allocation
Gross carrying amount
Personal
– first lien residential mortgages
– second lien residential mortgages
– guaranteed loans in respect of residential property
– other personal lending which is secured
– credit cards
– other personal lending which is unsecured
– motor vehicle finance
Wholesale
– corporate and commercial
– non-bank financial institutions
At 31 Dec 2022
Allowance for ECL
Personal
– first lien residential mortgages
– second lien residential mortgages
– guaranteed loans in respect of residential property
– other personal lending which is secured
– credit cards
– other personal lending which is unsecured
– motor vehicle finance
Wholesale
– corporate and commercial
– non-bank financial institutions
At 31 Dec 2022
Gross carrying amount
Personal
– first lien residential mortgages
– second lien residential mortgages
– guaranteed loans in respect of residential property
– other personal lending which is secured
– credit cards
– other personal lending which is unsecured
– motor vehicle finance
Wholesale
– corporate and commercial
– non-bank financial institutions
At 31 Dec 20211
Allowance for ECL
Personal
– first lien residential mortgages
– second lien residential mortgages
– guaranteed loans in respect of residential property
– other personal lending which is secured
– credit cards
– other personal lending which is unsecured
– motor vehicle finance
Wholesale
– corporate and commercial
– non-bank financial institutions
At 31 Dec 20211
Performing – forborne
Non-performing – forborne
Stage 1
$m
Stage 2
$m
Stage 3
$m
POCI
$m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
366
355
11
366
—
—
—
—
—
—
—
—
(7)
(7)
—
(7)
651
369
—
—
5
93
179
5
4,873
4,859
14
5,524
(124)
(49)
—
—
—
(19)
(54)
(2)
(152)
(151)
(1)
(276)
—
—
—
—
—
—
—
—
559
550
9
559
—
—
—
—
—
—
—
—
(24)
(24)
—
(24)
1,171
738
7
4
13
75
334
—
4,576
4,562
14
5,747
(302)
(118)
(3)
(3)
(2)
(44)
(132)
—
(1,497)
(1,490)
(7)
(1,799)
2,256
1,547
22
23
39
168
456
1
4,505
4,491
14
6,761
(400)
(178)
(6)
(7)
(5)
(53)
(151)
—
(1,282)
(1,274)
(8)
(1,682)
—
—
—
—
—
—
—
—
107
107
—
107
—
—
—
—
—
—
—
—
(25)
(25)
—
(25)
—
—
—
—
—
—
—
—
253
253
—
253
—
—
—
—
—
—
—
—
(52)
(52)
—
(52)
Total –
forborne
Total
$m
1,822
1,107
7
4
18
168
513
5
9,556
9,528
28
11,378
(426)
(167)
(3)
(3)
(2)
(63)
(186)
(2)
(1,674)
(1,666)
(8)
(2,100)
2,256
1,547
22
23
39
168
456
1
5,683
5,649
34
7,939
(400)
(178)
(6)
(7)
(5)
(53)
(151)
—
(1,365)
(1,357)
(8)
(1,765)
1 Forborne exposures and allowances for ECL at 31 December 2021 have not been restated and agreed with the policies and disclosures presented in
the Annual Report and Accounts 2021.
Following the adoption of the EBA ‘Guidelines on the application of definition of default’, retail and wholesale loans are identified as forborne
and classified as either performing or non-performing when we modify the contractual terms due to financial difficulty of the borrower. At
31 December 2022, we reported $5,524m (31 December 2021: $925m) of performing forborne loans. The increase of $4,599m was mainly
driven by the inclusion of non-payment-related concessions in the forbearance assessment since 1 January 2022.
HSBC Holdings plc Annual Report and Accounts 2022
169
Risk review
Risk review
Forborne loans and advances to customers by geographical region
Gross carrying amount
Performing forborne
Non-performing forborne
At 31 Dec 2022
Allowances for ECL
Performing forborne
Non-performing forborne
At 31 Dec 2022
Gross carrying amount
Performing forborne
Non-performing forborne
At 31 Dec 20211
Allowances for ECL
Performing forborne
Non-performing forborne
At 31 Dec 20211
Europe
$m
Asia
$m
MENA
$m
North
America
Latin
America
$m
$m
Total
$m
UK
$m
of which:
3,121
2,636
5,757
276
1,562
1,838
482
1,076
1,558
1,100
368
1,468
545
212
757
5,524
5,854
11,378
1,028
2,126
3,154
Hong
Kong
$m
134
879
1,013
(95)
(566)
(661)
(21)
(525)
(546)
(19)
(536)
(555)
(62)
(83)
(145)
(79)
(114)
(193)
(276)
(1,824)
(2,100)
(64)
(441)
(505)
(17)
(355)
(372)
698
3,421
4,119
5
1,317
1,322
(13)
(615)
(628)
—
(306)
(306)
105
849
954
(9)
(475)
(484)
89
975
1,064
(8)
(138)
(146)
28
452
480
(1)
(200)
(201)
925
7,014
7,939
(31)
(1,734)
(1,765)
640
2,829
3,469
(10)
(459)
(469)
—
528
528
—
(89)
(89)
1 Forborne exposures and allowances for ECL at 31 December 2021 have not been restated and agreed with the policies and disclosures presented in
the Annual Report and Accounts 2021.
Wholesale lending
This section provides further details on the regions, countries,
territories and products comprising wholesale loans and advances to
customers and banks. Product granularity is also provided by stage
with geographical data presented for loans and advances to
customers, banks, other credit commitments, financial guarantees
and similar contracts. Additionally, this section provides a
reconciliation of the opening 1 January 2022 to 31 December 2022
closing gross carrying/nominal amounts and the associated allowance
for ECL.
At 31 December 2022, wholesale lending for loans and advances to
banks and customers of $626.2bn decreased by $35.8bn since
31 December 2021. This included adverse foreign exchange
movements of $31.9bn. Excluding foreign exchange movements, the
total wholesale lending decrease of $3.9bn was driven by a $34.3bn
decline in corporate and commercial balances. This was partly offset
by a $25.9bn increase in loans and advances to banks and a $4.5bn
increase in balances from non-bank financial institutions.
The primary driver of the decline in corporate and commercial
balances was the $23.4bn reclassification of our banking business in
Canada to held for sale, and a decline of $11.3bn in Asia. In Asia, the
decline was driven from a $17.3bn decrease in Hong Kong, partly
offset by growth of $2.4bn in Australia, $1.9b in Japan and $1.7bn in
India.
Growth in loans and advances to banks was mainly driven by a
$13.0bn increase in Asia, a $10.1bn increase in Europe, and a $2.6bn
increase in MENA. In Asia, the increase can be largely attributed to
$7.9bn in Hong Kong and $1.5bn in Malaysia. In Europe, the growth
was mainly from the UK with an increase of $10.6bn.
The increase in balances from non-bank financial institutions was
driven from an increase of $3.7bn in Asia and $2.0bn in Europe. This
growth was partly offset by a decline of $1.3bn in North America, of
which $1.4bn was due to the reclassification of our banking business
in Canada to held for sale, and a $0.1bn increase in the US.
Loan commitments and financial guarantees decreased by $22.2bn
since 31 December 2021 to $392.4bn at 31 December 2022,
including a $3.0bn increase related to unsettled reverse repurchase
agreements. This also included adverse foreign exchange movements
of $21.8bn.
The allowance for ECL attributable to wholesale loans and advances
to banks and customers increased by $0.3bn to $8.7bn at
31 December 2022. This included favourable foreign exchange
movements of $0.4bn.
Excluding foreign exchange movements, the total increase in the
wholesale ECL allowance for loans and advances to customers and
banks was driven by a $0.5bn growth in corporate and commercial
allowances. The primary driver of this increase in corporate and
commercial allowance for ECL was $1.1bn in Asia, notably $1.4bn in
Hong Kong, which was partly offset by a decline of $0.4bn in
Singapore. Allowances for ECL decreased by $0.2bn in North
America, and by $0.1bn in both Europe and Latin America.
The allowance for ECL attributable to loan commitments and financial
guarantees at 31 December 2022 remained at $0.4bn from
31 December 2021.
170
HSBC Holdings plc Annual Report and Accounts 2022
Total wholesale lending for loans and advances to banks and customers by stage distribution
Stage 1
$m
353,010
4,805
6,498
70,187
Gross carrying amount
Stage 3
$m
15,696
261
232
2,016
Stage 2
$m
85,521
1,505
1,463
15,251
Total
$m
POCI
$m
129 454,356
6,571
8,194
87,503
—
1
49
Stage 1
$m
(490)
(10)
(5)
(93)
Allowance for ECL
Stage 3
$m
(5,887)
(68)
(145)
(867)
Stage 2
$m
(1,909)
(44)
(21)
(164)
POCI
$m
(38)
—
(1)
(29)
Total
$m
(8,324)
(122)
(172)
(1,153)
15,006
1,799
277
—
17,082
(11)
(31)
(67)
—
(109)
Corporate and commercial
– agriculture, forestry and fishing
– mining and quarrying
– manufacturing
– electricity, gas, steam and air-
conditioning supply
– water supply, sewerage, waste
management and remediation
– construction
– wholesale and retail trade, repair of
motor vehicles and motorcycles
– transportation and storage
– accommodation and food
– publishing, audiovisual and
broadcasting
– real estate
– professional, scientific and technical
activities
– administrative and support services
– public administration and defence,
compulsory social security
– education
– health and care
– arts, entertainment and recreation
– other services
– activities of households
– extra-territorial organisations and
bodies activities
– government
– asset-backed securities
Non-bank financial institutions
Loans and advances to banks
At 31 Dec 2022
By geography
Europe
– of which: UK
Asia
– of which: Hong Kong
MENA
North America
Latin America
At 31 Dec 2022
2,690
277
9,692
2,742
26
791
—
2,993
7
13,232
63,755
15,872
2,805
5
82,437
19,227
9,873
5,062
6,523
556
787
—
2
24,845
17,185
16,609
1,537
249
28
18,423
72,195
24,386
4,834
19 101,434
15,164
2,229
20,592
3,505
1,166
1,346
3,055
1,264
10,391
730
14
181
643
452
1,547
14
542
962
—
87
266
146
589
—
47
—
—
8,699
19
61,752
103,042
517,804
150,592
104,595
293,503
155,513
29,512
31,372
12,825
517,804
506
13
4,718
1,827
92,066
28,060
21,489
50,826
28,275
3,254
6,950
2,976
92,066
270
—
469
82
16,247
7,070
5,432
6,938
5,338
1,530
245
464
16,247
—
17,935
18
25,077
—
—
—
—
—
—
—
1,180
1,614
3,964
1,862
12,527
744
47
9,475
—
32
—
—
66,939
— 104,951
129 626,246
31 185,753
28 131,544
81 351,348
57 189,183
34,313
17
38,567
—
16,265
—
129 626,246
(3)
(21)
(96)
(31)
(23)
(22)
(86)
(21)
(25)
—
(4)
(6)
(4)
(26)
—
—
(3)
—
(43)
(18)
(551)
(223)
(186)
(220)
(104)
(22)
(25)
(61)
(551)
(5)
(51)
(13)
(368)
(226)
(1,341)
(65)
(139)
(153)
(81)
(36)
(58)
(904)
(1,861)
(51)
(90)
(1)
(5)
(17)
(16)
(30)
—
(200)
(293)
—
(22)
(67)
(57)
(219)
—
—
—
—
(13)
(77)
(29)
(2,015)
(628)
(501)
(1,077)
(775)
(49)
(197)
(64)
(2,015)
(7)
—
(137)
(22)
(6,046)
(1,718)
(1,015)
(3,125)
(2,136)
(909)
(44)
(250)
(6,046)
Total wholesale lending for loans and other credit-related commitments and financial guarantees by stage distribution1
Corporate and commercial
Financial
At 31 Dec 2022
By geography
Europe
– of which: UK
Asia
– of which: Hong Kong
MENA
North America
Latin America
At 31 Dec 2022
Stage 1
$m
252,860
105,950
358,810
168,179
60,532
67,473
27,102
7,500
112,695
2,963
358,810
Nominal amount
Stage 3
$m
798
23
821
Stage 2
$m
29,116
3,683
32,799
POCI
$m
Total
$m
— 282,774
— 109,656
— 392,430
Stage 1
$m
(116)
(5)
(121)
Allowance for ECL
Stage 3
$m
(96)
(2)
(98)
Stage 2
$m
(178)
(14)
(192)
17,235
9,941
6,081
2,448
565
8,642
276
32,799
498
278
114
46
21
185
3
821
— 185,912
70,751
—
73,668
—
29,596
—
—
8,086
— 121,522
—
3,242
— 392,430
(41)
(34)
(54)
(14)
(4)
(21)
(1)
(121)
(87)
(64)
(53)
(27)
(5)
(47)
—
(192)
(85)
(46)
(9)
(2)
(2)
(2)
—
(98)
1
Included in loans and other credit-related commitments and financial guarantees is $45bn relating to unsettled reverse repurchase agreements, which
once drawn are classified as ‘Reverse repurchase agreements – non-trading’.
HSBC Holdings plc Annual Report and Accounts 2022
171
—
(3)
(3)
—
(1)
(1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(38)
(1)
(1)
(25)
(22)
(12)
—
—
(38)
POCI
$m
—
—
—
—
—
—
—
—
—
—
—
(21)
(443)
(1,666)
(249)
(244)
(117)
(2,851)
(272)
(408)
(1)
(31)
(90)
(77)
(275)
—
—
(10)
(13)
(257)
(69)
(8,650)
(2,570)
(1,703)
(4,447)
(3,037)
(992)
(266)
(375)
(8,650)
Total
$m
(390)
(21)
(411)
(213)
(144)
(116)
(43)
(11)
(70)
(1)
(411)
Risk review
Risk review
Total wholesale lending for loans and advances to banks and customers by stage distribution
Gross carrying amount
Allowance for ECL
Stage 1
$m
400,894
6,510
7,167
75,193
Stage 2
$m
98,911
1,026
2,055
16,443
Stage 3
$m
13,460
362
447
2,019
Total
$m
POCI
$m
274 513,539
7,899
9,685
93,743
1
16
88
Stage 1
$m
(665)
(10)
(17)
(110)
Stage 2
$m
(1,874)
(23)
(39)
(176)
Stage 3
$m
(5,601)
(104)
(159)
(931)
POCI
$m
(64)
(1)
(12)
(31)
Total
$m
(8,204)
(138)
(227)
(1,248)
15,255
1,285
78
—
16,618
(16)
(21)
(31)
—
(68)
Corporate and commercial
– agriculture, forestry and fishing
– mining and quarrying
– manufacturing
– electricity, gas, steam and air-
conditioning supply
– water supply, sewerage, waste
management and remediation
– construction
– wholesale and retail trade, repair of
motor vehicles and motorcycles
– transportation and storage
– accommodation and food
– publishing, audiovisual and
broadcasting
– real estate
– professional, scientific and technical
activities
– administrative and support services
– public administration and defence,
compulsory social security
– education
– health and care
– arts, entertainment and recreation
– other services
– activities of households
– extra-territorial organisations and
bodies activities
– government
– asset-backed securities
Non-bank financial institutions
Loans and advances to banks
At 31 Dec 2021
By geography
Europe
– of which: UK
Asia
– of which: Hong Kong
MENA
North America
Latin America
At 31 Dec 2021
3,376
468
9,506
3,605
51
842
—
3,895
1
13,954
79,137
12,802
3,003
21,199
8,080
7,726
14,096
658
1,199
2
9
1
94,944
29,592
23,376
16,417
1,804
222
28
18,471
93,633
25,154
2,375
98 121,260
16,160
2,888
23,186
4,740
938
333
1,455
3,743
1,620
10,123
860
273
928
826
1,726
117
637
719
—
65
183
152
448
—
2
—
—
7,010
324
61,086
81,636
602
14
3,874
1,517
543,616 104,302
154,575
101,029
297,423
165,437
26,135
53,513
11,970
31,871
24,461
53,993
30,305
5,295
10,397
2,746
543,616 104,302
—
—
395
—
13,855
6,741
5,126
3,997
1,990
1,682
652
783
13,855
—
19,685
30
28,675
—
—
—
—
—
—
—
1,271
1,793
4,854
2,598
12,297
977
2
—
—
—
—
7,612
338
65,355
83,153
274 662,047
30 193,217
28 130,644
199 355,612
159 197,891
33,134
64,562
15,522
274 662,047
22
—
23
(5)
(24)
(71)
(56)
(67)
(37)
(132)
(26)
(40)
(5)
(4)
(11)
(6)
(26)
—
—
(2)
—
(44)
(14)
(723)
(356)
(306)
(182)
(85)
(62)
(57)
(66)
(723)
(4)
(44)
(20)
(439)
(99)
(1,936)
(116)
(245)
(47)
(737)
(40)
(84)
(3)
(15)
(24)
(44)
(101)
—
(191)
(110)
(94)
(775)
(172)
(296)
—
(18)
(37)
(42)
(246)
—
—
—
(2)
(10)
(26)
(3)
(1,903)
(654)
(518)
(830)
(650)
(108)
(215)
(96)
(1,903)
—
—
(40)
—
(5,641)
(1,806)
(1,060)
(2,299)
(836)
(1,028)
(169)
(339)
(5,641)
Total wholesale lending for loans and other credit-related commitments and financial guarantees by stage distribution1
Corporate and commercial
Financial
At 31 Dec 2021
By geography
Europe
– of which: UK
Asia
– of which: Hong Kong
MENA
North America
Latin America
At 31 Dec 2021
Nominal amount
Allowance for ECL
Stage 1
$m
274,775
105,746
380,521
Stage 2
$m
30,376
2,889
33,265
Stage 3
$m
829
2
831
POCI
$m
Total
$m
— 305,980
— 108,637
— 414,617
Stage 1
$m
(130)
(9)
(139)
Stage 2
$m
(193)
(9)
(202)
Stage 3
$m
(60)
(1)
(61)
189,770
68,136
72,179
31,314
6,335
109,851
2,386
380,521
15,585
8,430
5,229
1,517
1,017
11,350
84
33,265
673
389
20
10
19
91
28
831
— 206,028
76,955
—
77,428
—
32,841
—
—
7,371
— 121,292
—
2,498
— 414,617
(67)
(55)
(35)
(11)
(10)
(24)
(3)
(139)
(76)
(49)
(40)
(17)
(18)
(66)
(2)
(202)
(47)
(28)
(5)
(2)
(3)
(1)
(5)
(61)
1
Included in loans and other credit-related commitments and financial guarantees is $42bn relating to unsettled reverse repurchase agreements, which
once drawn are classified as ‘Reverse repurchase agreements – non-trading’.
172
HSBC Holdings plc Annual Report and Accounts 2022
—
(1)
(1)
—
(1)
(6)
—
—
(11)
—
—
—
—
—
—
—
—
—
—
—
(64)
(9)
(6)
(43)
(21)
(11)
—
(1)
(64)
POCI
$m
—
—
—
—
—
—
—
—
—
—
—
(29)
(508)
(2,107)
(363)
(423)
(184)
(1,644)
(238)
(431)
(8)
(37)
(72)
(92)
(373)
—
—
(4)
(10)
(110)
(17)
(8,331)
(2,825)
(1,890)
(3,354)
(1,592)
(1,209)
(441)
(502)
(8,331)
Total
$m
(383)
(19)
(402)
(190)
(132)
(80)
(30)
(31)
(91)
(10)
(402)
At 1 Jan 2022
Transfers of financial
instruments
– transfers from stage 1 to
stage 2
– transfers from stage 2 to
– transfers to stage 3
– transfers from stage 3
Net remeasurement of
ECL arising from transfer
of stage
New financial assets
originated or purchased
Assets derecognised
(including final
repayments)
Changes to risk
parameters – further
lending/repayments
Change in risk parameters
– credit quality
Changes to models used
for ECL calculation
Assets written off
Credit-related
modifications that resulted
in derecognition
Foreign exchange and
other1
At 31 Dec 2022
ECL income statement
change for the period
Recoveries
Others
Total ECL income
statement change for the
period
Wholesale lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and
customers including loan commitments and financial guarantees
(Audited)
Non-credit impaired
Credit impaired
Stage 1
Stage 2
Stage 3
POCI
Total
Gross
carrying/
nominal
amount
Gross
carrying/
nominal
amount
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Allowance
for ECL
Allowance
for ECL
$m
881,742
$m
(862) 137,541
$m
$m
(2,105)
$m
14,686
$m
(5,702)
$m
274
$m
(64) 1,034,243
$m
$m
(8,733)
(58,188)
(299)
49,569
943
8,619
(644)
(157,553)
201 157,553
(201)
stage 1
100,839
(482) (100,839)
(1,831)
357
7
(25)
(8,100)
955
482
771
(109)
—
241
—
(370)
352,985
(277)
—
—
—
—
(778)
134
(64)
—
—
9,931
(1,312)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(193)
—
26
(2)
353,011
(279)
(250,014)
54
(33,850)
73
(1,763)
292
(97)
—
(285,724)
419
(34,321)
64
(11,501)
128
(1,491)
292
(61)
5
(47,374)
489
—
—
—
321
—
(994)
—
(2,197)
—
6
—
—
—
(57)
—
—
—
(1,579)
1,579
—
(10)
32
—
10
—
(2,838)
—
(51)
(1,589)
1,589
—
—
—
—
(32)
9
—
—
(32)
9
(60,421)
80
(16,984)
175
(1,372)
291
831,783
(672) 124,775
(2,207)
17,068
(6,144)
(3)
129
(19)
(78,780)
527
(38)
973,755
(9,061)
409
(1,220)
(1,677)
35
(2,453)
33
(23)
(2,443)
1 Total includes $33.1bn of gross carrying loans and advances to customers and banks, which were classified to assets held for sale, and a
corresponding allowance for ECL of $204m, reflecting business disposals as disclosed in Note 23 ‘Assets held for sale and liabilities of disposal groups
held for sale’ on page 389.
As shown in the above table, the allowance for ECL for loans and
advances to customers and banks and relevant loan commitments
and financial guarantees increased by $328m during the period from
$8,733m at 31 December 2021 to $9,061m at 31 December 2022.
This increase was primarily driven by:
• $2,838m relating to underlying credit quality changes, including the
credit quality impact of financial instruments transferring between
stages;
• $193m relating to the net remeasurement impact of stage
transfers; and
• $51m of changes to models used for ECL calculation.
These were partly offset by:
• $1,589m of assets written off;
• $629m relating to volume movements, which included the ECL
allowance associated with new originations, assets derecognised
and further lending/repayments; and
• foreign exchange and other movements of $527m.
The ECL charge for the period of $2,453m presented in the previous
table consisted of $2,838m relating to underlying credit quality
changes, including the credit quality impact of financial instruments
transferring between stages, $193m relating to the net
remeasurement impact of stage transfers and $51m in changes to
models used for ECL calculation. This was partly offset by $629m
relating to underlying net book volume movement.
During the period, there was a net transfer to stage 2 of $56,714m
gross carrying/nominal amounts. The movement reflected the
increased level of uncertainty around the macroeconomic outlook
during the period. It was primarily driven by $29,049m in Asia, due to
deterioration in the macroeconomic outlook affecting real estate
portfolios booked in Hong Kong, and $20,860m in Europe, mainly
driven by deterioration in the macroeconomic outlook affecting
corporate and commercial portfolios in France.
HSBC Holdings plc Annual Report and Accounts 2022
173
Risk review
Risk review
Wholesale lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and
customers including loan commitments and financial guarantees
(Audited)
Non-credit impaired
Credit impaired
Stage 1
Stage 2
Stage 3
POCI
Total
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Allowance
for ECL
At 1 Jan 2021
Transfers of financial instruments
– transfers from stage 1 to
stage 2
– transfers from stage 2 to
stage 1
– transfers to stage 3
– transfers from stage 3
Net remeasurement of ECL
arising from transfer of stage
New financial assets originated or
purchased
Assets derecognised (including
final repayments)
Changes to risk parameters –
further lending/repayments
Changes to risk parameters –
credit quality
Changes to models used for ECL
calculation
Assets written off
Credit-related modifications that
resulted in derecognition
Foreign exchange
Others
At 31 Dec 2021
ECL income statement change
for the period
Recoveries
Others
Total ECL income statement
change for the period
$m
841,105
19,285
$m
$m
$m
$m
(1,465) 196,662
(23,361)
(638)
(2,998) 14,662
4,076
888
$m
(6,041)
(250)
(135,932)
238 135,932
(238)
—
—
156,346
(875) (156,346)
(1,363)
234
17
(18)
(3,410)
463
875
276
(25)
—
4,773
(697)
—
(293)
43
—
400
—
(233)
—
(27)
$m
279
—
—
—
—
—
—
$m
$m
(113) 1,052,708
—
—
—
—
—
—
—
—
—
—
—
—
$m
(10,617)
—
—
—
—
—
140
307,150
(342)
—
—
—
—
124
—
307,274
(342)
(221,160)
55
(26,136)
70
(1,514)
239
(10)
6
(248,820)
370
(47,766)
307
(6,014)
384
(987)
525
(108)
12
(54,875)
1,228
—
793
—
(234)
—
(1,347)
—
—
—
(15)
—
—
—
—
—
(33)
—
—
—
(1,085)
1,085
—
(125)
—
(16,157)
(715)
881,742
9
34
(2,560)
(1,050)
(862) 137,541
26
25
(341)
—
(2,105) 14,686
1,198
(46)
112
2
(5,702)
(610)
—
—
(7)
—
(4)
—
274
28
—
7
—
(760)
—
(48)
(1,092)
1,092
—
(125)
—
1
(5)
(19,062)
(1,765)
(64) 1,034,243
148
56
(8,733)
46
588
54
(102)
540
Wholesale lending – distribution of financial instruments to which the impairment requirements of IFRS 9 are applied by credit quality
Gross carrying/nominal amount
Strong
Good Satisfactory
Sub-
standard
Credit
impaired
$m
$m
$m
$m
$m
Allowance
for ECL
$m
Total
$m
Net
$m
By geography
Europe
– of which: UK
Asia
– of which: Hong Kong
MENA
North America
Latin America
At 31 Dec 2022
Percentage of total credit quality
By geography
Europe
– of which: UK
Asia
– of which: Hong Kong
MENA
North America
Latin America
At 31 Dec 2021
Percentage of total credit quality
185,753
60,016
131,544
44,515
351,348
167,720
189,183
77,227
34,313
15,132
38,567
7,445
16,265
1,722
252,035
626,246
40.3 % 25.0 % 27.7 % 4.4 % 2.6 % 100.0 %
49,831 58,580
38,521 36,934
81,907 84,973
44,479 54,500
5,349 11,170
13,390 12,856
6,277 5,941
156,754 173,520
10,224
6,115
9,735
7,581
1,113
4,630
1,859
27,561
7,102
5,459
7,013
5,396
1,549
246
466
16,376
193,217
48,758
130,644
30,390
355,612
155,072
197,891
74,440
33,134
12,264
64,562
11,683
15,522
993
228,770
662,047
34.6 % 27.5 % 31.5 % 4.3 % 2.1 % 100.0 %
74,240
49,254
48,694
37,212
96,046
95,626
63,301
54,703
10,321
7,004
22,022
24,663
5,736
5,638
182,283 208,267
14,196
9,192
4,670
3,297
1,844
5,543
2,349
28,602
6,769
5,156
4,198
2,150
1,701
651
806
14,125
(2,570) 183,183
(1,703) 129,841
(4,447) 346,901
(3,037) 186,146
(992) 33,321
(266) 38,301
(375) 15,890
(8,650) 617,596
(2,825)
(1,890)
(3,354)
(1,592)
(1,209)
(441)
(502)
(8,331)
190,392
128,754
352,258
196,299
31,925
64,121
15,020
653,716
Our risk rating system facilitates the internal ratings-based approach under the Basel framework adopted by the Group to support calculation of
our minimum credit regulatory capital requirement. The credit quality classifications can be found on page 146.
174
HSBC Holdings plc Annual Report and Accounts 2022
Corporate and
commercial
– CRR 1
– CRR 2
– CRR 3
– CRR 4
– CRR 5
– CRR 6
– CRR 7
– CRR 8
– CRR 9/10
Non-bank
financial
institutions
– CRR 1
– CRR 2
– CRR 3
– CRR 4
– CRR 5
– CRR 6
– CRR 7
– CRR 8
– CRR 9/10
Banks
– CRR 1
– CRR 2
– CRR 3
– CRR 4
– CRR 5
– CRR 6
– CRR 7
– CRR 8
– CRR 9/10
At 31 Dec 2022
Wholesale lending – credit risk profile by obligor grade for loans and advances at amortised cost
Gross carrying amount
Allowance for ECL
Basel one-year
PD range Stage 1 Stage 2
Stage
3
POC
I
%
$m
$m
$m $m
Total
$m
Stage
1
Stage
2
Stage
3 POCI
Total
ECL
coverage
Mapped
external
rating
$m
$m
$m $m
$m
353,010 85,521 15,696 129 454,356
(490) (1,909) (5,887)
(38)
(8,324)
330
0.000 to 0.053 35,630
3,234
0.054 to 0.169 87,465
0.170 to 0.740 115,116 17,731
0.741 to 1.927 74,229 21,550
1.928 to 4.914 36,707 21,649
9,171
4.915 to 8.860
5,476
8.861 to 15.000
15.001 to 99.999
6,380
100.000
— — 35,960
— — 90,699
— — 132,847
— — 95,779
— — 58,356
— — 11,684
6,640
— —
6,566
— —
— 15,696 129 15,825
2,513
1,164
186
—
(6)
(28)
(129)
(155)
(146)
(16)
(8)
(2)
—
(1)
(15)
(122)
(210)
(361)
(237)
(337)
(626)
— —
— —
— —
— —
— —
— —
— —
— —
(38)
(7)
(43)
(251)
(365)
(507)
(253)
(345)
(628)
(5,925)
— (5,887)
%
1.8
— AA- and above
A+ to A-
—
BBB+ to BBB-
0.2
BB+ to BB-
0.4
BB- to B
0.9
B-
2.2
CCC+
5.2
CCC to C
9.6
D
37.4
61,752
4,718
469 — 66,939
(43)
(77)
(137) —
(257)
0.4
0.000 to 0.053 15,082
0.054 to 0.169 16,350
0.170 to 0.740 17,254
7,074
0.741 to 1.927
5,215
1.928 to 4.914
716
4.915 to 8.860
46
8.861 to 15.000
15
15.001 to 99.999
—
100.000
103,042
0.000 to 0.053 79,188
0.054 to 0.169 13,508
4,465
0.170 to 0.740
2,154
0.741 to 1.927
3,312
1.928 to 4.914
—
4.915 to 8.860
1
8.861 to 15.000
414
15.001 to 99.999
—
100.000
— — 15,503
— — 16,848
— — 19,017
7,791
— —
5,951
— —
806
— —
78
— —
476
— —
469
469 —
82 — 104,951
— — 79,308
— — 13,717
4,890
— —
2,159
— —
3,484
— —
5
— —
863
— —
443
— —
82
82 —
517,804 92,066 16,247 129 626,246
421
498
1,763
717
736
90
32
461
—
1,827
120
209
425
5
172
5
862
29
—
(2)
(3)
(9)
(19)
(10)
—
—
—
—
(18)
(8)
(2)
(3)
(1)
(4)
—
—
—
—
(1)
(1)
(13)
(4)
(10)
(4)
(3)
(41)
—
(29)
—
—
—
—
(1)
—
(27)
(1)
—
(551) (2,015) (6,046)
— —
— —
— —
— —
— —
— —
— —
— —
(137) —
(22) —
— —
— —
— —
— —
— —
— —
— —
— —
(22) —
(38)
(3)
(4)
(22)
(23)
(20)
(4)
(3)
(41)
(137)
(69)
(8)
(2)
(3)
(1)
(5)
—
(27)
(1)
(22)
(8,650)
— AA- and above
A+ to A-
—
BBB+ to BBB-
0.1
BB+ to BB-
0.3
BB- to B
0.3
B-
0.5
CCC+
3.8
CCC to C
8.6
29.2
D
0.1
— AA- and above
A+ to A-
—
BBB+ to BBB-
0.1
BB+ to BB-
—
BB- to B
0.1
B-
—
CCC+
3.1
CCC to C
0.2
26.8
D
1.4
HSBC Holdings plc Annual Report and Accounts 2022
175
Risk review
ECL
coverage
Mapped
external rating
%
1.6
—
0.1
0.2
0.4
0.8
1.8
3.5
8.5
41.3
0.2
—
—
0.1
0.3
0.2
2.5
3.3
—
10.1
—
—
—
—
0.1
0.2
—
—
66.7
—
1.3
AA- and above
A+ to A-
BBB+ to BBB-
BB+ to BB-
BB- to B
B-
CCC+
CCC to C
D
AA- and above
A+ to A-
BBB+ to BBB-
BB+ to BB-
BB- to B
B-
CCC+
CCC to C
D
AA- and above
A+ to A-
BBB+ to BBB-
BB+ to BB-
BB- to B
B-
CCC+
CCC to C
D
Risk review
Wholesale lending – credit risk profile by obligor grade for loans and advances at amortised cost (continued)
Basel one-year
PD range
Stage 1 Stage 2
%
$m
Gross carrying amount
POC
I
$m $m
Stage
3
$m
Allowance for ECL
Total
$m
Stage
1 Stage 2 Stage 3 POCI
$m $m
$m
$m
Total
$m
Corporate and
commercial
– CRR 1
– CRR 2
– CRR 3
– CRR 4
– CRR 5
– CRR 6
– CRR 7
– CRR 8
– CRR 9/10
Non-bank financial
institutions
– CRR 1
– CRR 2
– CRR 3
– CRR 4
– CRR 5
– CRR 6
– CRR 7
– CRR 8
– CRR 9/10
Banks
– CRR 1
– CRR 2
– CRR 3
– CRR 4
– CRR 5
– CRR 6
– CRR 7
– CRR 8
– CRR 9/10
At 31 Dec 2021
400,894 98,911 13,460 274 513,539
(665)
(1,874)
(5,601)
(64)
(8,204)
0.000 to 0.053 40,583
599 — — 41,182
0.054 to 0.169 78,794 4,843 — — 83,637
0.170 to 0.740 139,739 19,199 — — 158,938
0.741 to 1.927 91,268 23,365 — — 114,633
1.928 to 4.914 45,850 28,375 — — 74,225
4.915 to 8.860 3,280 11,197 — — 14,477
8.861 to 15.000 1,101 4,406 — — 5,507
4 7,210
— 13,460 270 13,730
15.001 to 99.999
100.000
279 6,927 —
—
(7)
(26)
(165)
(218)
(185)
(22)
(24)
(18)
—
(1)
(43)
(145)
(258)
(424)
(242)
(167)
(594)
—
— —
— —
— —
— —
— —
— —
— —
— —
(64)
(5,601)
(8)
(69)
(310)
(476)
(609)
(264)
(191)
(612)
(5,665)
61,086 3,874
395 — 65,355
(44)
(26)
(40) —
(110)
102
5
1
—
98 — —
25 — —
59 — —
395 —
—
122 — — 14,492
0.000 to 0.053 14,370
0.054 to 0.169 16,438
43 — — 16,481
0.170 to 0.740 18,282 1,026 — — 19,308
0.741 to 1.927 6,835 1,204 — — 8,039
1.928 to 4.914 5,053 1,297 — — 6,350
200
4.915 to 8.860
30
8.861 to 15.000
60
15.001 to 99.999
395
100.000
81,636 1,517 — — 83,153
10 — — 61,285
65 — — 11,693
102 — — 4,037
180 — — 4,412
608
550
565
3
—
543,616 104,302 13,855 274 662,047
0.000 to 0.053 61,275
0.054 to 0.169 11,628
0.170 to 0.740 3,935
0.741 to 1.927 4,232
556
1.928 to 4.914
9
4.915 to 8.860
1
8.861 to 15.000
—
15.001 to 99.999
—
100.000
52 — —
541 — —
564 — —
3 — —
— — —
(2)
(5)
(11)
(15)
(11)
—
—
—
—
(14)
(4)
(3)
(2)
(5)
—
—
—
—
—
(723)
(1)
—
(4)
(11)
(4)
(5)
(1)
—
—
(3)
—
—
—
—
(1)
—
—
(2)
—
(1,903)
— —
— —
— —
— —
— —
— —
— —
— —
(40) —
— —
— —
— —
— —
— —
— —
— —
— —
— —
— —
(64)
(5,641)
(3)
(5)
(15)
(26)
(15)
(5)
(1)
—
(40)
(17)
(4)
(3)
(2)
(5)
(1)
—
—
(2)
—
(8,331)
176
HSBC Holdings plc Annual Report and Accounts 2022
Commercial real estate
Commercial real estate lending includes the financing of corporate,
institutional and high net worth customers who are investing primarily
in income-producing assets and, to a lesser extent, in their
construction and development. The portfolio is globally diversified
with larger concentrations in Hong Kong, the UK, mainland China and
the US.
Our global exposure is centred largely on cities with economic,
political or cultural significance. In more developed markets, our
exposure mainly comprises the financing of investment assets, the
redevelopment of existing stock and the augmentation of both
Commercial real estate lending to customers
commercial and residential markets to support economic and
population growth. In less developed commercial real estate markets,
our exposures comprise lending for development assets on relatively
short tenors with a particular focus on supporting larger, better
capitalised developers involved in residential construction or assets
supporting economic expansion.
Excluding adverse foreign exchange movements of $3.8bn,
commercial real estate lending decreased by $14.9bn, mainly due to
the reclassification of assets held for sale of our banking operations in
Canada of $7.1bn, compounded by loan repayments in Hong Kong of
$6.7bn and France of $0.7bn.
Gross loans and advances
Stage 1
Stage 2
Stage 3
POCI
At 31 Dec 2022
– of which: forborne loans
Allowance for ECL
Gross loans and advances
Stage 1
Stage 2
Stage 3
POCI
At 31 Dec 2021
– of which: forborne loans1
Allowance for ECL
Europe
$m
Asia
$m
MENA
$m
North
America
Latin
America
$m
$m
17,318
3,590
980
—
21,888
359
(369)
20,317
3,505
1,062
—
24,884
440
(450)
46,757
16,337
3,320
19
66,433
763
(2,095)
56,734
17,103
543
98
74,478
251
(693)
1,115
364
286
—
1,765
472
(159)
781
569
206
—
1,556
145
(158)
1,534
798
8
—
2,340
173
(12)
8,328
1,265
9
—
9,602
—
(26)
880
44
54
—
978
47
(31)
1,073
218
249
—
1,540
—
(130)
Total
$m
67,604
21,133
4,648
19
93,404
1,814
(2,666)
87,233
22,660
2,069
98
112,060
836
(1,457)
of which:
UK Hong Kong
$m
$m
12,209
3,008
827
—
16,044
336
(323)
14,235
2,781
905
—
17,921
436
(366)
35,963
11,092
3,029
19
50,103
654
(1,879)
42,951
13,300
435
98
56,784
170
(604)
1 Forborne gross loans and advances at 31 December 2021 have not been restated, and agreed with the policies and disclosures presented in the
Annual Report and Accounts 2021.
Refinance risk in commercial real estate
Commercial real estate lending tends to require the repayment of a
significant proportion of the principal at maturity. Typically, a customer
will arrange repayment through the acquisition of a new loan to settle
the existing debt. Refinance risk is the risk that a customer, being
unable to repay the debt on maturity, fails to refinance it at
commercial terms. We monitor our commercial real estate portfolio
closely, assessing indicators for signs of potential issues with
refinancing.
Commercial real estate gross loans and advances to customers maturity analysis
Europe
$m
Asia
$m
MENA
$m
North
America
Latin
America
$m
$m
On demand, overdrafts or revolving
< 1 year
1–2 years
2–5 years
> 5 years
At 31 Dec 2022
On demand, overdrafts or revolving
< 1 year
1–2 years
2–5 years
> 5 years
At 31 Dec 2021
10,996
5,197
4,031
1,664
21,888
12,980
4,794
5,352
1,758
24,884
23,492
18,052
21,818
3,071
66,433
26,736
18,192
26,668
2,882
74,478
434
255
694
382
1,765
478
159
631
288
1,556
196
280
1,832
32
2,340
5,961
1,098
2,297
246
9,602
Total
$m
35,417
23,901
28,837
5,249
93,404
299
117
462
100
978
336
280
559
365
1,540
46,491
24,523
35,507
5,539
112,060
of which:
UK
$m
9,211
3,678
2,472
683
16,044
10,546
3,921
2,805
649
17,921
Hong
Kong
$m
18,698
13,917
14,978
2,510
50,103
20,466
14,399
19,562
2,357
56,784
HSBC Holdings plc Annual Report and Accounts 2022
177
Risk review
Risk review
The following table presents the Group’s exposure to borrowers
classified in the commercial real estate sector where the ultimate
parent is based in mainland China, as well as all commercial real
estate exposures booked on mainland China balance sheets. The
exposures at 31 December 2022 are split by country/territory and
credit quality including allowances for ECL by stage.
Mainland China commercial real estate
Loans and advances to customers2
Guarantees issued and others3
Total mainland China commercial real estate exposure at 31 Dec 2022
Distribution of mainland China commercial real estate exposure by
credit quality
– Strong
– Good
– Satisfactory
– Sub-standard
– Credit impaired
At 31 Dec 2022
Allowance for ECL by credit quality
– Strong
– Good
– Satisfactory
– Sub-standard
– Credit impaired
At 31 Dec 2022
Allowance for ECL by stage distribution
– Stage 1
– Stage 2
– Stage 3
– POCI
At 31 Dec 2022
ECL coverage %
Hong Kong Mainland China Rest of the Group
(unaudited)1
(audited)1
$m
$m
860
5,752
18
755
878
6,507
(audited)1
$m
9,129
249
9,378
Total
(unaudited)1
$m
15,741
1,022
16,763
1,425
697
1,269
2,887
3,100
9,378
—
—
(20)
(458)
(1,268)
(1,746)
(1)
(477)
(1,268)
—
(1,746)
18.6
2,118
1,087
2,248
779
275
6,507
(5)
(8)
(81)
(42)
(105)
(241)
(9)
(127)
(105)
—
(241)
3.7
220
370
77
193
18
878
—
(1)
—
(3)
—
(4)
(1)
(3)
—
—
(4)
3,763
2,154
3,594
3,859
3,393
16,763
(5)
(9)
(101)
(503)
(1,373)
(1,991)
(11)
(607)
(1,373)
—
(1,991)
0.5
11.9
1 Disclosures in respect of mainland China commercial real estate exposures in Hong Kong and mainland China form part of the scope of the audit of
the Group’s Annual Report and Accounts 2022. Amounts disclosed for mainland China commercial real estate exposures elsewhere in the Group have
not been audited but are provided for completeness.
2 Amounts represent gross carrying amount.
3 Amounts represent nominal amount for guarantees and other contingent liabilities.
178
HSBC Holdings plc Annual Report and Accounts 2022
Mainland China commercial real estate
Loans and advances to customers3
Guarantees issued and others4
Total mainland China commercial real estate exposure at 31 Dec 2021
Distribution of mainland China commercial real estate exposure by credit
quality
– Strong
– Good
– Satisfactory
– Sub-standard
– Credit impaired
At 31 Dec 2021
Allowance for ECL by credit quality
– Strong
– Good
– Satisfactory
– Sub-standard
– Credit impaired
At 31 Dec 2021
Allowance for ECL by stage distribution
– Stage 1
– Stage 2
– Stage 3
– POCI
At 31 Dec 2021
ECL coverage %
Hong Kong1 Mainland China
(audited)2
$m
6,811
2,376
9,187
(audited)2
$m
11,484
166
11,650
Rest of the Group
(unaudited)2
$m
410
79
489
Total
(unaudited)2
$m
18,705
2,621
21,326
3,543
2,652
3,383
1,570
502
11,650
(15)
(37)
(382)
(24)
(102)
(560)
(2)
(456)
(102)
—
(560)
4.8
3,864
2,354
2,855
12
102
9,187
(7)
(10)
(20)
(1)
(11)
(49)
(11)
(27)
(11)
—
(49)
0.5
155
73
106
155
—
489
—
—
(2)
—
—
(2)
(1)
(1)
—
—
(2)
0.4
7,562
5,079
6,344
1,737
604
21,326
(22)
(47)
(404)
(25)
(113)
(611)
(14)
(484)
(113)
—
(611)
2.9
1 Comparatives have been restated to reflect an exposure reclassification from ‘guarantees and others‘ to ‘loans and advances to customers‘, which
better reflects the nature of product.
2 Disclosures in respect of mainland China commercial real estate exposures in Hong Kong and mainland China form part of the scope of the audit of
the Group’s Annual Report and Accounts 2022. Amounts disclosed for mainland China commercial real estate exposures elsewhere in the Group have
not been audited but are provided for completeness.
3 Amounts represent gross carrying amount.
4 Amounts represent nominal amount for guarantees and other contingent liabilities.
Commercial real estate financing refers to lending that focuses on
commercial development and investment in real estate and covers
commercial, residential and industrial assets. Commercial real estate
financing can also be provided to a corporate or financial entity for the
purchase or financing of a property which supports the overall
operations of the business.
The exposures in the table are related to companies whose primary
activities are focused on residential, commercial and mixed-use real
estate activities. Lending is generally focused on tier 1 and 2 cities.
The exposures in the table above had 57% (31 December 2021: 89%)
of exposure booked with a credit quality of ‘satisfactory’ or above.
This deterioration reflects increased funding risks and weaker sales
performance for a number of our customers over the period.
Facilities booked in Hong Kong are exposures which represent
relatively higher risk within the mainland China commercial real estate
portfolio. This portfolio had 36% (31 December 2021: 82%) of
exposure booked with a credit quality of ‘satisfactory’ or above,
reflecting sustained credit deterioration in this book over the course of
the year. At 31 December 2022, the Group had allowances for ECL of
$1.7bn (31 December 2021: $0.6bn) held against mainland China
commercial real estate exposures booked in Hong Kong .
Over one third of the unimpaired exposure in the Hong Kong portfolio
reflects lending to state owned enterprises, and much of the
remaining is to relatively strong privately owned enterprises. This is
reflected in the relatively low ECL allowance in this part of the
portfolio.
Regulatory and policy developments in the latter part of 2022 appear
to have stabilised the sector. Sustained liquidity support and improved
domestic residential demand will be necessary to support a recovery.
The Group has additional exposures to mainland China commercial
real estate as a result of lending to multinational corporates, which is
not incorporated in the table above.
HSBC Holdings plc Annual Report and Accounts 2022
179
Risk review
Risk review
Collateral and other credit enhancements
Collateral on loans and advances
Collateral held is analysed separately for commercial real estate and
for other corporate, commercial and financial (non-bank) lending. The
following tables include off-balance sheet loan commitments,
primarily undrawn credit lines.
The collateral measured in the following tables consists of fixed first
charges on real estate, and charges over cash and marketable
financial instruments. The values in the tables represent the expected
market value on an open market basis. No adjustment has been made
to the collateral for any expected costs of recovery. Marketable
securities are measured at their fair value.
Other types of collateral such as unsupported guarantees and floating
charges over the assets of a customer’s business are not measured
in the following tables. While such mitigants have value, often
providing rights in insolvency, their assignable value is not sufficiently
certain and they are therefore assigned no value for disclosure
purposes.
The LTV ratios presented are calculated by directly associating loans
and advances with the collateral that individually and uniquely
supports each facility. When collateral assets are shared by multiple
loans and advances, whether specifically or, more generally, by way
of an all monies charge, the collateral value is pro-rated across the
loans and advances protected by the collateral.
For credit-impaired loans, the collateral values cannot be directly
compared with impairment allowances recognised. The LTV figures
use open market values with no adjustments. Impairment allowances
are calculated on a different basis, by considering other cash flows
and adjusting collateral values for costs of realising collateral as
explained further on page 342.
Commercial real estate loans and advances
The value of commercial real estate collateral is determined by using
a combination of external and internal valuations
and physical inspections. For commercial real estate, where the
facility exceeds regulatory threshold requirements, Group policy
requires an independent review of the valuation at least every three
years, or more frequently as the need arises.
In Hong Kong, market practice is typically for lending to major
property companies to be either secured by guarantees or unsecured.
In Europe, facilities of a working capital nature are generally not
secured by a first fixed charge, and are therefore disclosed as not
collateralised.
(Audited)
Although collateral can be an important mitigant of credit risk, it is the
Group’s practice to lend on the basis of the customer’s ability to meet
their obligations out of cash flow resources rather than placing
primary reliance on collateral and other credit risk enhancements.
Depending on the customer’s standing and the type of product,
facilities may be provided without any collateral or other credit
enhancements. For other lending, a charge over collateral is obtained
and considered in determining the credit decision and pricing. In the
event of default, the Group may utilise the collateral as a source of
repayment.
Depending on its form, collateral can have a significant financial effect
in mitigating our exposure to credit risk. Where there is sufficient
collateral, an expected credit loss is not recognised. This is the case
for reverse repurchase agreements and for certain loans and
advances to customers where the loan to value (‘LTV’) is very low.
Mitigants may include a charge on borrowers’ specific assets, such as
real estate or financial instruments. Other credit risk mitigants include
short positions in securities and financial assets held as part of linked
insurance/investment contracts where the risk is predominantly borne
by the policyholder. Additionally, risk may be managed by employing
other types of collateral and credit risk enhancements, such as
second charges, other liens and unsupported guarantees. Guarantees
are normally taken from corporates and export credit agencies.
Corporates would normally provide guarantees as part of a parent/
subsidiary relationship and span a number of credit grades. The export
credit agencies will normally be investment grade.
Certain credit mitigants are used strategically in portfolio management
activities. While single name concentrations arise in portfolios
managed by Global Banking and Corporate Banking, it is only in Global
Banking that their size requires the use of portfolio level credit
mitigants. Across Global Banking, risk limits and utilisations, maturity
profiles and risk quality are monitored and managed proactively. This
process is key to the setting of risk appetite for these larger, more
complex, geographically distributed customer groups. While the
principal form of risk management continues to be at the point of
exposure origination, through the lending decision-making process,
Global Banking also utilises loan sales and credit default swap (‘CDS’)
hedges to manage concentrations and reduce risk.
These transactions are the responsibility of a dedicated Global
Banking portfolio management team. Hedging activity is carried out
within agreed credit parameters, and is subject to market risk limits
and a robust governance structure. Where applicable, CDSs are
entered into directly with a central clearing house counterparty.
Otherwise, the Group’s exposure to CDS protection providers is
diversified among mainly banking counterparties with strong credit
ratings.
CDS mitigants are held at portfolio level and are not included in the
expected credit loss calculations. CDS mitigants are not reported in
the following tables.
180
HSBC Holdings plc Annual Report and Accounts 2022
Wholesale lending – commercial real estate loans and advances to customers including loan commitments by level of collateral for key
countries/territories (by stage)
(Audited)
Total
Gross carrying/
nominal amount
ECL
coverage
UK
Gross carrying/
nominal amount
of which:
Hong Kong
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
Stage 1
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (A):
– collateral value on A
Total
Stage 2
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (B):
– collateral value on B
Total
Stage 3
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (C):
– collateral value on C
Total
POCI
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (D):
– collateral value on D
Total
At 31 Dec 2022
$m
%
$m
%
44,052
53,475
29,486
18,530
2,941
2,518
4,923
2,800
102,450
9,804
15,423
5,945
6,821
908
1,749
1,624
997
26,851
2,612
1,617
544
594
315
164
513
293
4,742
—
—
—
—
—
—
19
8
19
134,062
0.1
0.1
0.1
0.1
0.1
0.2
0.1
0.1
5.7
1.6
1.6
1.1
2.1
3.6
1.6
3.1
53.7
10.8
16.5
4.4
4.1
28.7
54.2
39.1
—
—
—
—
—
—
—
—
2.1
5,960
10,293
2,900
6,361
556
476
1,920
1,113
18,173
2,511
2,025
664
1,197
140
24
179
144
4,715
295
372
53
291
11
17
176
72
843
—
—
—
—
—
—
—
—
—
23,731
0.3
0.1
0.2
0.1
0.2
0.2
0.2
0.2
1.5
0.9
0.9
0.9
1.4
0.4
1.1
1.3
35.3
6.5
3.8
2.1
18.2
76.5
68.8
29.5
—
—
—
—
—
—
—
—
1.4
$m
20,286
27,926
21,185
5,365
995
381
804
584
49,016
4,673
7,457
3,539
3,536
134
248
390
249
12,520
2,123
864
318
205
264
77
73
39
3,060
—
—
—
—
—
—
19
8
19
64,615
%
—
—
—
0.1
—
—
—
—
10.5
1.1
1.4
1.0
0.1
0.2
2.8
4.7
56.9
5.2
2.2
3.4
1.9
32.5
61.6
42.5
—
—
—
—
—
—
—
—
2.9
HSBC Holdings plc Annual Report and Accounts 2022
181
Risk review
Risk review
Wholesale lending – commercial real estate loans and advances to customers including loan commitments by level of collateral for key
countries/territories (by stage) (continued)
(Audited)
Total
Gross carrying/
nominal amount
Of which:
UK
Hong Kong
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
Stage 1
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (A):
– collateral value on A
Total
Stage 2
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (B):
– collateral value on B
Total
Stage 3
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (C):
– collateral value on C
Total
POCI
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (D):
– collateral value on D
Total
At 31 Dec 2021
$m
%
$m
%
50,603
71,769
35,984
26,390
5,284
4,111
5,429
2,942
127,801
11,729
12,741
5,759
4,804
757
1,421
1,783
930
26,253
828
1,176
645
286
62
183
265
149
2,269
—
98
98
—
—
—
—
—
98
156,421
0.1
0.1
0.1
0.1
0.2
0.1
0.1
0.1
4.3
1.1
1.0
1.1
1.5
1.5
2.7
2.7
40.9
22.0
19.8
9.1
14.5
52.5
47.9
32.0
—
—
—
—
—
—
—
—
1.0
7,623
13,139
4,142
6,460
1,859
678
2,018
874
22,780
1,970
1,131
605
471
43
12
366
223
3,467
407
346
36
250
11
49
204
97
957
—
—
—
—
—
—
—
—
—
27,204
0.4
0.2
0.2
0.2
0.2
—
0.1
0.3
0.9
2.3
3.1
1.3
—
—
0.3
1.3
42.0
5.2
2.8
5.2
—
8.2
49.0
30.2
—
—
—
—
—
—
—
—
1.5
$m
23,864
32,951
22,645
8,082
1,181
1,043
714
447
57,529
7,758
6,385
3,633
2,389
269
94
172
70
14,315
198
290
284
—
2
4
—
—
488
—
98
98
—
—
—
—
—
98
72,430
%
—
—
—
—
—
0.1
—
—
5.9
0.4
0.3
0.5
0.4
—
2.9
3.4
35.9
11.0
10.9
—
—
25.0
—
21.1
—
—
—
—
—
—
—
—
0.8
182
HSBC Holdings plc Annual Report and Accounts 2022
Wholesale lending – commercial real estate loans and advances including loan commitments by level of collateral for key
countries/territories
(Audited)
Total
Gross carrying/
nominal amount
of which:
UK
Hong Kong
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
Rated CRR/PD1 to 7
Not collateralised
Fully collateralised
Partially collateralised (A):
– collateral value on A
Total
Rated CRR/PD8
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (B):
– collateral value on B
Total
Rated CRR/PD9 to 10
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (C):
– collateral value on C
Total
At 31 Dec 2022
Rated CRR/PD1 to 7
Not collateralised
Fully collateralised
Partially collateralised (A):
– collateral value on A
Total
Rated CRR/PD8
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (B):
– collateral value on B
Total
Rated CRR/PD9 to 10
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (C):
– collateral value on C
Total
At 31 Dec 2021
$m
%
$m
%
52,373
68,020
6,479
3,754
126,872
1,483
878
236
594
45
3
68
43
2,429
2,612
1,617
544
594
315
164
532
301
4,761
134,062
61,279
83,456
7,059
3,729
151,794
1,053
1,054
503
447
60
44
153
143
2,260
828
1,274
743
286
62
183
265
149
2,367
156,421
0.6
0.3
0.4
0.4
19.8
9.2
21.6
5.1
0.4
3.3
2.9
15.5
53.7
10.8
16.5
4.4
4.1
28.7
52.3
39.0
2.1
0.5
0.2
0.5
0.3
26.5
3.8
4.8
3.1
1.7
2.3
15.0
15.1
40.9
20.3
17.2
9.1
14.5
52.5
47.9
30.6
1.0
8,457
12,309
2,098
1,257
22,864
14
9
4
3
—
2
1
—
24
295
372
53
291
11
17
176
72
843
23,731
9,586
14,218
2,379
1,092
26,183
7
52
41
8
1
2
5
5
64
407
346
36
250
11
49
204
97
957
27,204
0.7
0.3
0.2
0.4
3.6
11.1
7.5
13.3
—
3.5
8.0
6.6
35.3
6.5
3.8
2.1
18.2
76.5
68.8
29.5
1.4
0.5
0.2
0.2
0.3
42.9
38.5
41.5
25.0
—
—
20.0
37.5
42.0
5.2
2.8
5.2
—
8.2
49.0
30.2
1.5
$m
23,861
34,779
1,194
833
59,834
1,098
604
167
393
44
—
—
—
1,702
2,123
864
318
205
264
77
92
47
3,079
64,615
30,917
38,817
886
517
70,620
705
519
378
137
4
—
—
—
1,224
198
388
382
—
2
4
—
—
586
72,430
%
0.9
0.1
0.9
0.5
26.0
7.1
15.0
4.6
0.2
—
—
19.3
56.9
5.2
2.2
3.4
1.9
32.5
48.9
42.2
2.9
0.6
0.1
0.6
0.3
38.6
2.1
0.8
5.8
—
—
—
23.1
35.9
8.2
8.1
—
—
25.0
—
17.6
0.8
HSBC Holdings plc Annual Report and Accounts 2022
183
Risk review
Risk review
Other corporate, commercial and financial
(non-bank) loans and advances
Other corporate, commercial and financial (non-bank) loans are
analysed separately in the following table, which focuses on the
countries/territories containing the majority of our loans and advances
balances. For financing activities in other corporate and commercial
lending, collateral value is not strongly correlated to principal
repayment performance.
Collateral values are generally refreshed when an obligor’s general
credit performance deteriorates and we have to assess the likely
performance of secondary sources of repayment should it prove
necessary to rely on them.
Accordingly, the following table reports values only for customers
with CRR 8–10, recognising that these loans and advances generally
have valuations that are comparatively recent.
Wholesale lending – other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level
of collateral for key countries/territories (by stage)
(Audited)
Stage 1
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (A):
– collateral value on A
Total
Stage 2
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (B):
– collateral value on B
Total
Stage 3
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (C):
– collateral value on C
Total
POCI
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (D):
– collateral value on D
Total
At 31 Dec 2022
of which:
Total
Gross
carrying/
nominal
amount
ECL
coverage
UK
Gross
carrying/
nominal
amount
ECL
coverage
Hong Kong
Gross
carrying/
nominal
amount
ECL
coverage
$m
%
$m
%
$m
632,847
96,434
36,896
29,242
9,922
20,374
54,836
27,779
784,117
79,013
29,618
11,221
11,948
2,990
3,459
13,130
6,484
121,761
8,278
1,948
678
503
402
365
2,120
1,133
12,346
64
24
—
1
23
—
22
16
110
918,334
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
1.0
1.2
1.3
1.4
1.0
0.8
1.0
1.1
38.4
13.7
18.7
11.3
4.7
17.5
37.3
34.3
18.8
91.7
—
—
95.7
—
18.2
34.5
0.7
105,126
21,192
6,928
7,611
1,889
4,764
6,480
3,470
132,798
16,886
6,511
2,872
2,656
578
405
2,288
1,197
25,685
3,783
699
175
336
102
86
308
158
4,790
28
—
—
—
—
—
—
—
28
163,301
0.1
0.1
0.1
0.1
0.1
—
0.1
0.1
2.2
1.3
1.0
1.5
1.9
1.2
1.2
1.9
17.8
4.6
3.4
6.5
1.0
3.5
25.6
16.4
3.6
—
—
—
—
—
—
3.6
0.9
109,919
39,165
15,695
13,893
4,964
4,613
17,704
7,737
166,788
9,906
12,693
4,577
5,413
1,479
1,224
3,379
1,524
25,978
939
665
175
115
268
107
777
397
2,381
—
24
—
1
23
—
14
13
38
195,185
%
—
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.7
1.0
0.9
1.2
0.7
0.3
0.6
0.8
56.0
3.8
1.7
7.8
0.4
10.3
30.9
33.2
—
91.7
—
—
95.7
—
—
57.9
0.6
184
HSBC Holdings plc Annual Report and Accounts 2022
Wholesale lending – other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level
of collateral for key countries/territories (by stage) (continued)
(Audited)
Stage 1
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (A):
– collateral value on A
Total
Stage 2
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (B):
– collateral value on B
Total
Stage 3
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (C):
– collateral value on C
Total
POCI
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (D):
– collateral value on D
Total
At 31 Dec 2021
Total
UK
Hong Kong
Gross carrying/
nominal
amount
ECL
coverage
Gross carrying/
nominal
amount
ECL
coverage
Gross carrying/
nominal
amount
ECL
coverage
of which:
$m
%
$m
%
$m
624,935
112,905
40,636
38,709
13,284
20,276
64,058
30,890
801,898
85,394
32,019
10,892
14,281
2,752
4,094
12,484
6,675
129,897
8,122
2,278
603
1,110
295
270
2,134
1,200
12,534
114
61
—
57
—
4
2
2
177
944,506
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
1.1
1.1
1.2
1.1
1.2
0.9
1.0
1.1
47.3
12.7
20.9
5.0
11.5
27.4
38.7
39.6
36.0
34.4
—
36.8
—
—
100.0
36.2
0.8
112,188
22,971
6,512
9,431
2,556
4,472
8,665
4,826
143,824
18,562
8,231
3,148
4,161
687
235
1,824
937
28,617
2,979
1,212
249
786
115
62
318
186
4,509
28
—
—
—
—
—
—
—
28
176,978
0.2
0.2
0.2
0.2
0.1
—
0.1
0.2
2.0
1.3
1.5
1.2
1.5
1.7
1.9
1.8
21.6
3.4
4.8
1.4
9.6
9.7
35.5
17.7
21.4
—
—
—
—
—
—
21.4
0.9
111,948
45,479
16,915
16,533
4,920
7,111
20,358
9,322
177,785
8,310
11,503
3,378
5,202
1,148
1,775
1,788
785
21,601
732
240
76
110
26
28
616
358
1,588
4
57
—
57
—
—
—
—
61
201,035
%
—
0.1
—
0.1
0.1
0.1
—
—
1.1
0.7
0.5
0.9
0.9
0.2
0.4
0.8
74.7
2.1
—
3.6
—
3.6
28.9
46.0
—
36.8
—
36.8
—
—
—
34.4
0.5
HSBC Holdings plc Annual Report and Accounts 2022
185
Risk review
Risk review
Wholesale lending – other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level
of collateral for key countries/territories
(Audited)
Rated CRR/PD8
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (A):
– collateral value on A
Total
Rated CRR/PD9 to 10
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (B):
– collateral value on B
Total
At 31 Dec 2022
Rated CRR/PD8
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (A):
– collateral value on A
Total
Rated CRR/PD9 to 10
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (B):
– collateral value on B
Total
At 31 Dec 2021
of which:
Total
Gross
carrying/
nominal
amount
ECL
coverage
UK
Gross
carrying/
nominal
amount
ECL
coverage
$m
%
$m
%
4,209
2,208
1,104
933
44
127
1,298
1,212
7,715
8,342
1,971
677
504
425
365
2,143
1,149
12,456
20,171
4,790
1,653
803
583
116
151
1,253
921
7,696
8,239
2,335
604
1,166
295
270
2,137
1,203
12,711
20,407
3.5
3.8
4.3
3.5
6.8
0.8
2.9
3.5
38.2
14.6
18.8
11.3
9.6
17.5
37.1
34.3
22.5
3.9
3.9
3.5
3.8
5.2
5.3
3.7
3.9
47.1
13.3
20.9
6.7
11.5
27.4
38.7
39.5
26.1
1,071
303
184
95
22
2
24
4
1,398
3,810
699
175
336
102
86
309
158
4,818
6,216
1,587
259
113
110
23
13
138
40
1,984
3,007
1,212
249
786
115
62
318
186
4,537
6,521
1.6
3.3
0.5
5.3
13.6
10.0
4.2
2.0
17.7
4.6
3.4
6.5
1.0
3.5
25.6
16.3
13.1
3.1
6.6
6.2
8.2
4.3
—
8.0
3.9
21.5
3.4
4.8
1.4
9.6
9.7
35.5
17.7
13.5
Hong Kong
Gross
carrying/
nominal
amount
ECL
coverage
$m
62
171
84
84
—
3
9
5
242
939
688
175
116
290
107
792
410
2,419
2,661
79
32
2
1
29
—
11
6
122
736
297
75
168
26
28
616
358
1,649
1,771
%
38.7
12.3
14.3
10.7
—
6.7
11.1
19.0
56.0
6.7
1.7
7.8
7.9
10.3
30.3
33.6
32.2
30.4
—
—
—
—
—
—
20.5
74.3
9.1
—
14.9
—
3.6
28.9
45.6
43.8
Other credit risk exposures
In addition to collateralised lending, other credit enhancements are
employed and methods used to mitigate credit risk arising from
financial assets. These are summarised below:
• Some securities issued by governments, banks and other financial
institutions benefit from additional credit enhancements provided
by government guarantees that cover the assets.
• Debt securities issued by banks and financial institutions include
asset-backed securities (‘ABSs’) and similar instruments, which
are supported by underlying pools of financial assets. Credit risk
associated with ABSs is reduced through the purchase of credit
default swap (‘CDS’) protection.
risk on cash collateral posted since in the event of default of the
counterparty this would be set off against the related liability.
Reverse repos and stock borrowing are by their nature
collateralised.
Collateral accepted as security that the Group is permitted to sell or
repledge under these arrangements is described on page 378 of the
financial statements.
• The Group’s maximum exposure to credit risk includes financial
guarantees and similar contracts granted, as well as loan and other
credit-related commitments. Depending on the terms of the
arrangement, we may use additional credit mitigation if a
guarantee is called upon or a loan commitment is drawn and
subsequently defaults.
• Trading loans and advances mainly pledged against cash collateral
are posted to satisfy margin requirements. There is limited credit
For further information on these arrangements, see Note 33 on the
financial statements.
186
HSBC Holdings plc Annual Report and Accounts 2022
Derivatives
We participate in transactions exposing us to counterparty credit risk.
Counterparty credit risk is the risk of financial loss if the counterparty
to a transaction defaults before satisfactorily settling it. It arises
principally from over-the-counter (‘OTC’) derivatives and securities
financing transactions and is calculated in both the trading and non-
trading books. Transactions vary in value by reference to a market
factor such as an interest rate, exchange rate or asset price.
Notional contract amounts and fair values of derivatives
The counterparty risk from derivative transactions is taken into
account when reporting the fair value of derivative positions. The
adjustment to the fair value is known as the credit valuation
adjustment (‘CVA’).
For an analysis of CVAs, see Note 12 on the financial statements.
The following table reflects by risk type the fair values and gross
notional contract amounts of derivatives cleared through an exchange,
central counterparty or non-central counterparty.
Total OTC derivatives
– total OTC derivatives cleared by central counterparties
– total OTC derivatives not cleared by central counterparties
Total exchange traded derivatives
Gross
Offset
At 31 Dec
Notional
amount
$m
23,649,591
11,360,729
12,288,862
1,146,426
24,796,017
2022
Fair value
Assets
$m
421,309
149,190
272,119
3,824
425,133
(140,987)
284,146
Liabilities
$m
Notional
amount
$m
423,911 21,964,665
154,167 10,086,344
269,744 11,878,321
2,840 1,359,692
426,751 23,324,357
(140,987)
285,764
2021
Fair value
Assets
$m
246,108
59,147
186,961
4,152
250,260
(53,378)
196,882
Liabilities
$m
241,136
60,686
180,450
3,306
244,442
(53,378)
191,064
The purposes for which HSBC uses derivatives are described
in Note 15 on the financial statements.
The reduction was partly mitigated by growth of $8.7bn in the UK,
$2.8bn in Asia and $2.0bn in Latin America.
The International Swaps and Derivatives Association (‘ISDA’) master
agreement is our preferred agreement for documenting derivatives
activity. It is common, and our preferred practice, for the parties
involved in a derivative transaction to execute a credit support annex
(‘CSA’) in conjunction with the ISDA master agreement. Under a CSA,
collateral is passed between the parties to mitigate the counterparty
risk inherent in outstanding positions. The majority of our CSAs are
with financial institutional clients.
We manage the counterparty exposure on our OTC derivative
contracts by using collateral agreements with counterparties and
netting agreements. Currently, we do not actively manage our general
OTC derivative counterparty exposure in the credit markets, although
we may manage individual exposures in certain circumstances.
We place strict policy restrictions on collateral types and as a
consequence the types of collateral received and pledged are, by
value, highly liquid and of a strong quality, being predominantly cash.
Where a collateral type is required to be approved outside the
collateral policy, approval is required from a committee of senior
representatives from Markets, Legal and Risk.
See Note 31 on the financial statements for details regarding legally
enforceable right of offset in the event of counterparty default and
collateral received in respect of derivatives.
Personal lending
This section presents further disclosures related to personal lending.
It provides details of the regions, countries and products that are
driving the change observed in personal loans and advances to
customers, with the impact of foreign exchange separately identified.
Additionally, Hong Kong and UK mortgage book LTV data is provided.
This section also provides a reconciliation of the opening 1 January
2022 to 31 December 2022 closing gross carrying/nominal amounts
and associated allowance for ECL. Further product granularity is also
provided by stage, with geographical data presented for loans and
advances to customers, loan and other credit-related commitments
and financial guarantees.
At 31 December 2022, total personal lending for loans and advances
to customers of $415bn decreased by $63.3bn compared with
31 December 2021. This decrease included adverse foreign exchange
movements of $27.3bn. Excluding foreign exchange movements,
there was a decrease of $36bn. This decrease was due to the
reclassification to assets held for sale of our banking business in
Canada of $26.1bn and our retail banking operations in France of
$23.7bn.
The allowance for ECL attributable to personal lending, excluding off-
balance sheet loan commitments and guarantees, decreased by
$0.2bn to $2.9bn at 31 December 2022. This included favourable
foreign exchange movements of $0.1bn.
Excluding foreign exchange movements and reclassifications to held
for sale, mortgage lending balances increased by $15.4bn to $336.8bn
at 31 December 2022. The majority of the growth was in the UK by
$8.9bn; Asia by $4.4bn, notably $3.4bn in Hong Kong and $1.6bn in
Australia; and in Latin America by $1.0bn. The allowance for ECL,
excluding foreign exchange, attributable to mortgages of $0.6bn
decreased by $0.1bn compared with 31 December 2021.
At 31 December 2022, for certain retail lending portfolios, we
introduced enhancements in the significant increase in credit risk
(‘SICR’) approach in relation to capturing relative movements in
probability of default (‘PD’). The enhanced approach captured relative
movements in PD since origination, which resulted in a significant
migration to stage 2 from loans to customers gross carrying amounts
in stage 1.
The volume of stage 1 customer accounts with lower absolute levels
of credit risk who have exhibited some amount of relative increase in
PD since origination have migrated into stage 2, and accounts
originated with higher absolute levels of credit risk with no or
insignificant increases in PD since origination have been transferred to
stage 1, with no material overall change in risk.
The impact on ECL is immaterial due to the offsetting ECL impacts of
stage migrations and due to the LTV profiles. This is particularly
applicable to UK customers.
The enhancement of the SICR approach constitutes an improvement
towards more responsive models that better reflect the SICR since
origination. This includes consideration of the current cost of living
pressures, as markets adjust to the higher interest-rate environment.
The quality of both our Hong Kong and UK mortgage books remained
strong, with low levels of impairment allowances. The average LTV
ratio on new mortgage lending in Hong Kong was 59%, compared
with an estimated 57% for the overall mortgage portfolio. The
average LTV ratio on new lending in the UK was 67%, compared with
an estimated 50% for the overall mortgage portfolio.
Excluding foreign exchange movements and reclassifications to held
for sale, other personal lending balances at 31 December 2022
decreased by $1.4bn compared with 31 December 2021. This was
mainly from a decline of $2.0bn from Hong Kong in secured personal
lending, partly offset by an increase of $0.5bn from Latin America in
credit cards.
HSBC Holdings plc Annual Report and Accounts 2022
187
Risk review
Risk review
The allowance for ECL, excluding foreign exchange, attributable to
other personal lending of $2.3bn remained unchanged from
31 December 2021. Excluding foreign exchange, the allowance for
ECL attributable to credit cards increased by $0.1bn, offset by a
decrease of $0.1bn in unsecured personal lending.
Total personal lending for loans and advances to customers at amortised cost by stage distribution
By portfolio
First lien residential mortgages
– of which: interest only (including offset)
– affordability (including US adjustable rate
mortgages)
Other personal lending
– second lien residential mortgages
– guaranteed loans in respect of residential
property
– other personal lending which is secured
– credit cards
– other personal lending which is unsecured
– motor vehicle finance
At 31 Dec 2022
By geography
Europe
– of which: UK
Asia
– of which: Hong Kong
MENA
North America
Latin America
At 31 Dec 2022
Stage 1
$m
Gross carrying amount
Stage 3
$m
Stage 2
$m
Total
$m
Stage 1
$m
Allowance for ECL
Stage 2
$m
Stage 3
$m
294,918
19,636
39,860
4,485
2,043
169
336,821
24,290
14,773
67,863
353
369
9,031
20
240
15,382
1,297
6
78,191
379
1,121
121
125
1,367
31,306
16,705
16,617
1,761
362,781
143,438
132,312
185,828
128,218
5,347
17,772
10,396
362,781
594
4,423
3,706
167
48,891
38,186
37,974
8,723
4,563
237
562
1,183
48,891
206
260
687
13
3,340
1,269
1,027
1,117
236
132
439
383
3,340
32,106
21,388
21,010
1,941
415,012
182,893
171,313
195,668
133,017
5,716
18,773
11,962
415,012
(74)
(3)
(5)
(488)
(1)
(1)
(15)
(225)
(235)
(11)
(562)
(151)
(137)
(139)
(59)
(33)
(15)
(224)
(562)
(230)
(46)
(3)
(1,275)
(2)
(3)
(10)
(777)
(470)
(13)
(1,505)
(706)
(696)
(363)
(255)
(42)
(44)
(350)
(1,505)
(270)
(41)
(4)
(535)
(3)
(30)
(30)
(160)
(305)
(7)
(805)
(282)
(230)
(188)
(39)
(70)
(67)
(198)
(805)
Total
$m
(574)
(90)
(12)
(2,298)
(6)
(34)
(55)
(1,162)
(1,010)
(31)
(2,872)
(1,139)
(1,063)
(690)
(353)
(145)
(126)
(772)
(2,872)
At 31 December 2022, the stage 2 personal lending balances in the
UK of $38.0bn increased by $33.3bn compared with 31 December
2021. This increase was largely due to the enhancement in the SICR
approach in relation to capturing relative movements in PD since
origination, and also, to a lesser extent, it considered cost of living
pressures. The impact on ECL was immaterial due to the offsetting
ECL impacts of stage migrations due to the low LTV profiles
applicable to these UK customers.
Total personal lending for loans and other credit-related commitments and financial guarantees by stage distribution
Europe
– of which: UK
Asia
– of which: Hong Kong
MENA
North America
Latin America
At 31 Dec 2022
Stage 1
$m
53,299
51,589
170,103
128,990
2,328
10,418
4,496
240,644
Nominal amount
Stage 2
$m
592
454
2,914
2,176
20
140
31
3,697
Stage 3
$m
114
107
633
624
2
48
3
800
Total
$m
54,005
52,150
173,650
131,790
2,350
10,606
4,530
245,141
Stage 1
$m
(11)
(11)
(2)
(2)
(1)
(1)
(11)
(26)
Allowance for ECL
Stage 2
$m
Stage 3
$m
(1)
(1)
—
—
—
—
—
(1)
—
—
—
—
—
—
—
—
Total
$m
(12)
(12)
(2)
(2)
(1)
(1)
(11)
(27)
188
HSBC Holdings plc Annual Report and Accounts 2022
Total personal lending for loans and advances to customers at amortised cost by stage distribution (continued)
By portfolio
First lien residential mortgages
– of which: interest only (including offset)
– affordability (including US adjustable rate
mortgages)
Other personal lending
– second lien residential mortgages
– guaranteed loans in respect of residential
property
– other personal lending which is secured
– credit cards
– other personal lending which is unsecured
– motor vehicle finance
At 31 Dec 2021
By geography
Europe
– of which: UK
Asia
– of which: Hong Kong
MENA
North America
Latin America
At 31 Dec 2021
Stage 1
$m
Gross carrying amount
Stage 3
$m
Stage 2
$m
Total
$m
Stage 1
$m
Allowance for ECL
Stage 2
$m
Stage 3
$m
360,686
28,506
13,621
96,270
314
20,643
36,533
18,623
18,743
1,414
456,956
212,284
176,547
187,391
125,854
4,965
43,489
8,827
456,956
7,637
1,795
712
8,802
44
3,045
255
371,368
30,556
452
14,785
1,897
37
106,969
395
731
236
21,610
1,096
3,897
2,820
214
16,439
5,639
4,668
7,796
4,959
252
2,126
626
16,439
366
338
915
5
4,942
2,148
1,488
1,303
202
202
1,005
284
4,942
37,995
22,858
22,478
1,633
478,337
220,071
182,703
196,490
131,015
5,419
46,620
9,737
478,337
(128)
(5)
(6)
(530)
(1)
(9)
(21)
(246)
(240)
(13)
(658)
(199)
(167)
(158)
(65)
(38)
(43)
(220)
(658)
(131)
(24)
(6)
(1,088)
(4)
(7)
(15)
(675)
(378)
(9)
(1,219)
(499)
(480)
(381)
(231)
(40)
(67)
(232)
(1,219)
(416)
(81)
(5)
(810)
(9)
(42)
(120)
(214)
(421)
(4)
(1,226)
(637)
(399)
(226)
(43)
(94)
(118)
(151)
(1,226)
Total personal lending for loans and other credit-related commitments and financial guarantees by stage distribution (continued)
Europe
– of which: UK
Asia
– of which: Hong Kong
MENA
North America
Latin America
At 31 Dec 2021
Stage 1
$m
57,109
54,704
160,248
121,597
2,568
15,039
3,920
238,884
Nominal amount
Stage 2
$m
558
407
894
292
30
251
29
1,762
Stage 3
$m
107
104
21
19
16
23
2
169
Total
$m
57,774
55,215
161,163
121,908
2,614
15,313
3,951
240,815
Stage 1
$m
(11)
(10)
—
—
(5)
(15)
(6)
(37)
Allowance for ECL
Stage 2
$m
Stage 3
$m
(1)
(1)
—
—
—
(1)
—
(2)
—
—
—
—
—
—
—
—
Total
$m
(675)
(110)
(17)
(2,428)
(14)
(58)
(156)
(1,135)
(1,039)
(26)
(3,103)
(1,335)
(1,046)
(765)
(339)
(172)
(228)
(603)
(3,103)
Total
$m
(12)
(11)
—
—
(5)
(16)
(6)
(39)
HSBC Holdings plc Annual Report and Accounts 2022
189
Risk review
Risk review
Exposure to UK interest-only mortgage
loans
The following information is presented for HSBC branded interest-
only mortgage loans. This excludes offset mortgages in first direct
and private banking mortgages.
At the end of 2022, the average LTV ratio of the interest-only
mortgage loans was 41% (2021: 40%) and 99% (2021: 99%) had a
LTV ratio of 75% or less.
Of the interest-only mortgage loans that expired in 2020, 83% were
repaid within 12 months of expiry with a total of 96% being repaid
within 24 months of expiry. For those expiring during 2021, 95%
were repaid within 12 months of expiry. The increase of the amount
fully repaid within the 12 months is explained by the extensions
granted as part of the FCA guidance on helping borrowers with
maturing interest-only mortgages during the pandemic, which
reduced the repayment rates within 12 months for cases maturing in
2022. Following the end of these extension in October 2021,
repayment rates have now returned to levels similar to 2019.
At 31 December 2022, interest-only mortgage loans exposures were
$14.4bn and the maturity profile is as follows:
UK interest-only mortgage loans
Expired interest-only mortgage loans
Interest-only mortgage loans by maturity
– 2023
– 2024
– 2025
– 2026
– 2027–2031
– post-2031
At 31 Dec 2022
Expired interest-only mortgage loans
Interest-only mortgage loans by maturity
– 2022
– 2023
– 2024
– 2025
– 2026–2030
– post-2030
At 31 Dec 2021
$m
134
219
215
300
383
2,951
10,248
14,450
167
267
401
330
420
3,288
10,333
15,206
Exposure to offset mortgage in first direct
The offset mortgage in first direct is a flexible way for our customers
to take control of their finances. It works by grouping together the
customer’s mortgage, savings and current accounts to offset their
credit and debit balances against their mortgage exposure.
At 31 December 2022, exposures were worth a total $5.5bn with an
average LTV ratio of 32% (2021: $7.0bn exposure and 35% LTV ratio).
190
HSBC Holdings plc Annual Report and Accounts 2022
Personal lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to
customers including loan commitments and financial guarantees
(Audited)
Non-credit impaired
Stage 1
Stage 2
Credit impaired
Stage 3
Total
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Gross
carrying/
nominal
amount
Allowance
for ECL
Allowance
for ECL
At 1 Jan 2022
Transfers of financial instruments
– transfers from stage 1 to stage 2
– transfers from stage 2 to stage 1
– transfers to stage 3
– transfers from stage 3
Net remeasurement of ECL arising from transfer
of stage
New financial assets originated or purchased
Assets derecognised (including final repayments)
Changes to risk parameters – further lending/
repayments
Change in risk parameters – credit quality
Changes to models used for ECL calculation
Assets written off
Foreign exchange and other1
At 31 Dec 2022
ECL income statement change for the period
Recoveries
Other
Total ECL income statement change for the
period
$m
695,840
(40,834)
(68,063)
27,407
(561)
383
—
130,632
(68,645)
(31,457)
—
—
—
(82,111)
603,425
$m
(695)
(499)
269
(734)
2
(36)
498
(271)
94
162
82
(2)
—
43
(588)
563
$m
18,201
39,483
68,063
(27,407)
(1,987)
814
—
—
(4,091)
4,538
—
—
—
(5,543)
52,588
$m
(1,221)
677
(269)
734
361
(149)
(583)
—
270
$m
5,111
1,351
—
—
2,548
(1,197)
—
—
(1,043)
$m
(1,226)
(178)
—
—
(363)
185
$m
719,152
—
—
—
—
—
(88)
—
124
—
130,632
(73,779)
(35)
897
(33)
(26,022)
(676)
(94)
—
156
(1,506)
(1,118)
—
—
(1,215)
(961)
4,140
(822)
13
1,215
190
(805)
(806)
—
—
(1,215)
(88,615)
660,153
$m
(3,142)
—
—
—
—
—
(173)
(271)
488
94
(1,416)
(83)
1,215
389
(2,899)
(1,361)
283
(3)
(1,081)
1 Total includes $49.6bn of gross carrying loans and advances to customers, which were classified to assets held for sale, and a corresponding
allowance for ECL of $221m, reflecting business disposals as disclosed in Note 23 ‘Assets held for sale and liabilities of disposal groups held for sale’
on page 389.
As shown in the above table, the allowance for ECL for loans and
advances to customers and relevant loan commitments and financial
guarantees decreased by $243m during the period from $3,142m at
31 December 2021 to $2,899m at 31 December 2022.
This decrease was primarily driven by:
• $1,215m of assets written off;
• foreign exchange and other movements of $389m; and
• $311m relating to volume movements, which included the ECL
allowance associated with new originations, assets derecognised
and further lending/repayment.
These were partly offset by:
• $1,416m relating to underlying credit quality changes, including the
credit quality impact of financial instruments transferring between
stages;
• $173m relating to the net remeasurement impact of stage
transfers; and
• $83m of changes to models used for ECL calculation.
The ECL charge for the period of $1,361m presented in the above
table consisted of $1,416m relating to underlying credit quality
changes, including the credit quality impact of financial instruments
transferring between stages, $83m in changes to models used for
ECL calculation and $173m relating to the net remeasurement impact
of stage transfers. This was partly offset by $311m relating to
underlying net book volume movements.
During the period, there was a net transfer to stage 2 of $40,656m
gross carrying/nominal amounts. This increase was primarily driven by
$36,816m in Europe, of which $34,278m was from the UK, largely
due to enhancements in the SICR approach in relation to capturing
relative movements in PD since origination and taking into
consideration cost of living pressures. Further details are presented
on page 187.
HSBC Holdings plc Annual Report and Accounts 2022
191
Risk review
Risk review
Personal lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to customers
including loan commitments and financial guarantees
(Audited)
Non-credit impaired
Stage 1
Stage 2
Credit impaired
Stage 3
Total
Gross
carrying/
nominal
amount
$m
665,346
1,822
(23,701)
26,086
(982)
419
—
136,920
(82,998)
(13,976)
—
—
—
(9,074)
(2,200)
695,840
At 1 Jan 2021
Transfers of financial instruments
– transfers from stage 1 to stage 2
– transfers from stage 2 to stage 1
– transfers to stage 3
– transfers from stage 3
Net remeasurement of ECL arising from transfer of
stage
New financial assets originated or purchased
Assets derecognised (including final repayments)
Changes to risk parameters – further lending/
repayments
Change in risk parameters – credit quality
Changes to models used for ECL calculation
Assets written off
Foreign exchange
Others1
At 31 Dec 2021
ECL income statement change for the period
Recoveries
Other
Total ECL income statement change for the period
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Allowance
for ECL
$m
(866)
(1,154)
289
(1,404)
7
(46)
825
(211)
119
240
318
(2)
—
17
19
(695)
1,289
$m
26,770
(4,502)
23,701
(26,086)
(3,068)
951
—
—
(5,257)
2,380
—
—
—
(358)
(832)
18,201
Gross
carrying/
nominal
amount
$m
697,878
—
—
—
—
—
$m
(1,503)
(559)
—
—
(741)
182
(7)
—
219
—
136,920
(89,491)
Allowance
for ECL
$m
(4,774)
—
—
—
—
—
455
(211)
757
$m
(2,405)
1,713
(289)
1,404
734
(136)
(363)
—
419
$m
5,762
2,680
—
—
4,050
(1,370)
—
—
(1,236)
114
(281)
51
(11,877)
405
(778)
—
—
19
60
(1,221)
(608)
—
—
(1,525)
(138)
(151)
5,111
(1,007)
1
1,520
45
14
(1,226)
(743)
—
—
(1,525)
(9,570)
(3,183)
719,152
(1,467)
(1)
1,520
81
93
(3,142)
(62)
355
(9)
284
1 Total includes $3.0bn of gross carrying loans and advances to customers, which were classified to assets held for sale, and a corresponding allowance
for ECL of $123m, reflecting our exit of the domestic mass market retail banking in the US.
Personal lending – credit risk profile by internal PD band for loans and advances to customers at amortised cost
Gross carrying amount
Allowance for ECL
PD range1
%
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
$m
$m
$m
$m
$m
$m
$m
294,918
39,860
2,043 336,821
0.000 to 0.250 247,330
19,614
0.251 to 0.500
21,323
0.501 to 1.500
6,594
1.501 to 5.000
34
5.001 to 20.000
23
20.001 to 99.999
—
100.000
67,863
30,151
7,219
17,183
10,342
2,501
467
—
362,781
0.000 to 0.250
0.251 to 0.500
0.501 to 1.500
1.501 to 5.000
5.001 to 20.000
20.001 to 99.999
100.000
21,220
7,900
5,691
2,694
1,024
1,331
—
9,031
153
251
1,499
2,061
3,692
1,375
—
48,891
— 268,550
27,514
—
27,014
—
9,288
—
1,058
—
1,354
—
2,043
2,043
78,191
1,297
30,304
—
7,470
—
18,682
—
12,403
—
6,193
—
1,842
—
1,297
1,297
3,340 415,012
(74)
(13)
(4)
(18)
(39)
—
—
—
(488)
(54)
(26)
(82)
(171)
(154)
(1)
—
(562)
(230)
(4)
(3)
(7)
(24)
(40)
(152)
—
(1,275)
(13)
(1)
(44)
(104)
(520)
(593)
—
(1,505)
(270)
—
—
—
—
—
—
(270)
(535)
—
—
—
—
—
—
(535)
(805)
ECL
coverage
%
0.2
—
—
0.1
0.7
3.8
11.2
13.2
2.9
0.2
0.4
0.7
2.2
10.9
32.2
41.2
0.7
Total
$m
(574)
(17)
(7)
(25)
(63)
(40)
(152)
(270)
(2,298)
(67)
(27)
(126)
(275)
(674)
(594)
(535)
(2,872)
First lien residential
mortgages
– Band 1
– Band 2
– Band 3
– Band 4
– Band 5
– Band 6
– Band 7
Other personal lending
– Band 1
– Band 2
– Band 3
– Band 4
– Band 5
– Band 6
– Band 7
At 31 Dec 2022
1 12-month point in time adjusted for multiple economic scenarios.
192
HSBC Holdings plc Annual Report and Accounts 2022
Personal lending – credit risk profile by internal PD band for loans and advances to customers at amortised cost (continued)
Gross carrying amount
Allowance for ECL
First lien residential
mortgages
– Band 1
– Band 2
– Band 3
– Band 4
– Band 5
– Band 6
– Band 7
Other personal lending
– Band 1
– Band 2
– Band 3
– Band 4
– Band 5
– Band 6
– Band 7
At 31 Dec 2021
PD range1
%
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
$m
$m
$m
$m
$m
$m
$m
Total
$m
360,686
7,637
3,045 371,368
0.000 to 0.250 310,042
19,741
0.251 to 0.500
25,835
0.501 to 1.500
4,976
1.501 to 5.000
88
5.001 to 20.000
4
20.001 to 99.999
—
100.000
96,270
45,049
12,625
22,791
13,006
2,732
67
—
456,956
0.000 to 0.250
0.251 to 0.500
0.501 to 1.500
1.501 to 5.000
5.001 to 20.000
20.001 to 99.999
100.000
451
203
1,936
2,657
1,416
974
—
8,802
187
605
1,518
2,360
3,257
875
—
16,439
— 310,493
19,944
—
27,771
—
7,633
—
1,504
—
978
—
3,045
3,045
1,897 106,969
45,236
—
13,230
—
24,309
—
15,366
—
5,989
—
942
—
1,897
1,897
4,942 478,337
(128)
(30)
(7)
(79)
(12)
—
—
—
(530)
(50)
(27)
(102)
(213)
(138)
—
—
(658)
(131)
(416)
(675)
(5)
(2)
(8)
(30)
(35)
(51)
—
(1,088)
(13)
(6)
(30)
(108)
(554)
(377)
—
(1,219)
—
—
—
—
—
—
(416)
(810)
—
—
—
—
—
—
(810)
(1,226)
(35)
(9)
(87)
(42)
(35)
(51)
(416)
(2,428)
(63)
(33)
(132)
(321)
(692)
(377)
(810)
(3,103)
ECL
coverage
%
0.2
—
—
0.3
0.6
2.3
5.2
13.7
2.3
0.1
0.2
0.5
2.1
11.6
40.0
42.7
0.6
1 12-month point in time adjusted for multiple economic scenarios.
Collateral on loans and advances
(Audited)
The following table provides a quantification of the value of fixed
charges we hold over specific assets where we have a history
of enforcing, and are able to enforce, collateral in satisfying a debt in
the event of the borrower failing to meet its contractual
obligations, and where the collateral is cash or can be realised by sale
in an established market. The collateral valuation excludes any
adjustments for obtaining and selling the collateral and, in particular,
loans shown as not collateralised or partially collateralised may also
benefit from other forms of credit mitigants.
HSBC Holdings plc Annual Report and Accounts 2022
193
Risk review
Risk review
Personal lending – residential mortgage loans including loan commitments by level of collateral for key countries/territories by stage
(Audited)
Total
Gross carrying/
nominal amount
of which:
UK
Hong Kong
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
Stage 1
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 60%
– 61% to 70%
– 71% to 80%
– 81% to 90%
– 91% to 100%
Partially collateralised (A):
LTV ratio:
– 101% to 110%
– 111% to 120%
– greater than 120%
– collateral value on A
Total
Stage 2
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 60%
– 61% to 70%
– 71% to 80%
– 81% to 90%
– 91% to 100%
Partially collateralised (B):
LTV ratio:
– 101% to 110%
– 111% to 120%
– greater than 120%
– collateral value on B
Total
Stage 3
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 60%
– 61% to 70%
– 71% to 80%
– 81% to 90%
– 91% to 100%
Partially collateralised (C):
LTV ratio:
– 101% to 110%
– 111% to 120%
– greater than 120%
– collateral value on C
Total
At 31 Dec 2022
$m
310,705
154,337
57,386
44,805
25,458
17,106
11,613
6,964
6,127
570
267
6,521
317,669
%
—
—
—
—
—
—
—
—
—
—
0.4
—
$m
134,044
70,936
23,226
20,391
12,849
5,922
720
329
73
61
195
237
134,373
%
—
—
—
—
—
—
—
—
—
—
—
—
39,906
0.6
34,541
0.4
12,250
7,372
9,617
6,770
3,388
509
143
73
24
46
123
40,049
0.7
0.5
0.4
0.5
0.5
1.1
6.9
3.6
12.5
9.1
0.6
2,097
9.9
1,077
330
207
212
147
124
133
37
17
79
79
2,230
359,948
7.2
7.6
12.6
14.7
17.8
18.1
46.9
24.3
32.7
60.5
12.1
0.2
10,387
6,402
8,541
5,922
2,918
371
49
10
10
29
38
34,590
676
448
110
48
33
10
27
12
10
—
2
4
688
169,651
0.6
0.4
0.3
0.3
0.2
0.2
0.3
1.2
—
0.1
0.4
11.1
9.4
9.7
15.9
19.7
24.5
22.5
9.8
3.7
64.9
36.2
11.1
0.1
$m
94,949
44,740
18,027
10,096
4,167
7,883
10,036
6,441
5,953
482
6
6,146
101,390
981
577
171
85
37
51
60
47
45
2
—
44
1,028
237
105
26
11
25
27
43
1
1
—
—
1
238
102,656
%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.1
0.2
0.2
0.2
—
—
—
0.1
—
0.1
0.7
0.1
—
—
0.3
0.4
—
—
0.1
—
194
HSBC Holdings plc Annual Report and Accounts 2022
Personal lending – residential mortgage loans including loan commitments by level of collateral for key countries/territories by stage
(continued)
(Audited)
Total
UK
Hong Kong
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
Gross carrying/
nominal amount
ECL
coverage
$m
%
$m
%
$m
%
of which:
Stage 1
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 60%
– 61% to 70%
– 71% to 80%
– 81% to 90%
– 91% to 100%
Partially collateralised (A):
LTV ratio:
– 101% to 110%
– 111% to 120%
– greater than 120%
– collateral value on A
Total
Stage 2
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 60%
– 61% to 70%
– 71% to 80%
– 81% to 90%
– 91% to 100%
Partially collateralised (B):
LTV ratio:
– 101% to 110%
– 111% to 120%
– greater than 120%
– collateral value on B
Total
Stage 3
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 60%
– 61% to 70%
– 71% to 80%
– 81% to 90%
– 91% to 100%
Partially collateralised (C):
LTV ratio:
– 101% to 110%
– 111% to 120%
– greater than 120%
– collateral value on C
Total
At 31 Dec 2021
377,454
—
168,737
190,370
64,217
51,842
46,932
18,778
5,315
682
254
98
330
484
378,136
—
—
—
0.1
0.1
0.1
0.3
0.6
0.4
0.1
—
81,582
28,555
25,949
24,114
7,899
638
358
104
60
194
235
169,095
—
—
—
—
—
—
—
—
—
—
—
—
98,020
61,234
12,070
4,649
8,360
8,420
3,287
30
26
1
3
28
98,050
7,710
1.7
2,738
2.1
1,166
4,380
1,317
1,016
725
208
64
24
7
8
9
20
7,734
1.5
1.4
1.6
2.3
4.3
4.1
13.6
18.6
16.6
6.7
1.7
1,846
397
282
175
32
6
3
1
—
2
2
2,741
1.6
2.4
3.0
4.7
5.6
1.9
7.7
1.0
—
11.1
2.1
2,853
11.5
954
14.2
1,490
443
371
256
171
122
220
56
29
135
143
3,073
388,943
9.2
8.6
10.9
15.4
20.4
32.2
39.6
27.5
29.2
46.9
13.5
0.2
635
129
79
67
21
23
7
4
—
3
6
961
172,797
13.0
14.0
16.2
19.1
25.2
18.6
30.8
22.3
—
45.5
14.4
0.1
905
106
34
50
58
13
—
—
—
—
—
1,166
68
48
10
2
3
4
1
—
—
—
—
—
68
99,284
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.3
0.5
0.1
0.1
—
—
—
—
—
—
—
0.3
—
HSBC Holdings plc Annual Report and Accounts 2022
195
Risk review
Risk review
Supplementary information
Wholesale lending – loans and advances to customers at amortised cost by country/territory
Gross carrying amount
Allowance for ECL
Europe
– UK
– France
– Germany
– Switzerland
– other
Asia
– Hong Kong
– Australia
– India
– Indonesia
– mainland China
– Malaysia
– Singapore
– Taiwan
– other
Middle East and North Africa (excluding
Saudi Arabia)
– Egypt
– UAE
– other
North America
– US
– Canada2
– other
Latin America
– Mexico
– other
At 31 Dec 2022
Europe
– UK
– France
– Germany
– Switzerland
– other
Asia
– Hong Kong
– Australia
– India
– Indonesia
– mainland China
– Malaysia
– Singapore
– Taiwan
– other
Middle East and North Africa (excluding
Saudi Arabia)
– Egypt
– UAE
– other
North America
– US
– Canada
– other
Latin America
– Mexico
– other
At 31 Dec 2021
Non-bank
financial
institutions
Corporate
and
commercial
Total
Corporate
and
commercial
$m
146,236
104,775
27,571
6,603
988
6,299
245,872
145,411
11,641
9,052
3,214
31,790
5,986
15,904
4,700
18,174
Of which:
real estate1
$m
19,814
14,309
4,216
252
635
402
73,164
56,161
3,106
1,711
85
5,752
1,081
3,812
20
1,436
$m
18,198
12,663
4,152
713
298
372
38,863
20,812
1,157
4,267
226
8,908
180
1,192
65
2,056
$m
164,434
117,438
31,723
7,316
1,286
6,671
284,735
166,223
12,798
13,319
3,440
40,698
6,166
17,096
4,765
20,230
21,565
1,766
324
21,889
1,261
13,503
6,801
28,619
28,249
—
370
12,064
9,784
2,280
454,356
163,341
115,386
34,488
6,746
1,188
5,533
263,821
162,684
9,937
8,221
3,436
33,555
7,229
16,401
6,291
16,067
21,963
1,788
12,942
7,233
52,577
27,002
25,048
527
11,837
9,561
2,276
513,539
77
1,569
120
5,783
5,714
—
69
907
903
4
101,434
23,137
16,233
5,520
306
731
347
81,453
62,792
2,596
1,786
86
6,811
1,741
4,158
31
1,452
1,555
69
1,370
116
13,639
5,895
7,650
94
1,476
1,475
1
121,260
101
149
74
8,791
8,640
—
151
763
717
46
66,939
17,818
11,306
4,391
987
688
446
36,321
20,182
717
4,003
226
9,359
197
782
47
808
1,362
13,652
6,875
37,410
36,889
—
521
12,827
10,501
2,326
521,295
181,159
126,692
38,879
7,733
1,876
5,979
300,142
182,866
10,654
12,224
3,662
42,914
7,426
17,183
6,338
16,875
376
22,339
152
190
34
10,197
8,511
1,546
140
643
618
25
65,355
1,940
13,132
7,267
62,774
35,513
26,594
667
12,480
10,179
2,301
578,894
Of which:
real estate1
$m
(370)
(329)
(36)
—
—
(5)
(2,197)
(1,966)
(1)
(22)
(1)
(167)
(15)
(12)
—
(13)
(158)
(5)
(152)
(1)
(102)
(94)
—
(8)
(24)
(24)
—
(2,851)
(546)
(489)
(47)
—
—
(10)
(731)
(624)
(3)
(29)
(2)
(41)
(21)
(5)
—
(6)
(158)
(7)
(149)
(2)
(87)
(64)
(15)
(8)
(122)
(122)
—
(1,644)
Non-bank
financial
institutions
$m
(139)
(130)
(4)
(3)
—
(2)
(77)
(36)
—
(10)
—
(30)
—
(1)
—
—
(3)
(1)
—
(2)
(37)
(26)
—
(11)
(1)
(1)
—
(257)
(41)
(32)
(2)
(3)
—
(4)
(44)
(7)
—
(8)
(1)
(28)
—
—
—
—
(3)
—
—
(3)
(18)
(1)
(6)
(11)
(4)
(4)
—
(110)
Total
$m
(2,515)
(1,652)
(626)
(157)
(8)
(72)
(4,438)
(3,037)
(97)
(90)
(187)
(358)
(133)
(389)
(1)
(146)
(986)
(118)
(673)
(195)
(267)
(240)
—
(27)
(375)
(336)
(39)
(8,581)
(2,811)
(1,887)
(656)
(123)
(8)
(137)
(3,341)
(1,592)
(108)
(92)
(247)
(226)
(172)
(792)
—
(112)
(1,210)
(161)
(811)
(238)
(445)
(208)
(204)
(33)
(507)
(456)
(51)
(8,314)
$m
(2,376)
(1,522)
(622)
(154)
(8)
(70)
(4,361)
(3,001)
(97)
(80)
(187)
(328)
(133)
(388)
(1)
(146)
(983)
(117)
(673)
(193)
(230)
(214)
—
(16)
(374)
(335)
(39)
(8,324)
(2,770)
(1,855)
(654)
(120)
(8)
(133)
(3,297)
(1,585)
(108)
(84)
(246)
(198)
(172)
(792)
—
(112)
(1,207)
(161)
(811)
(235)
(427)
(207)
(198)
(22)
(503)
(452)
(51)
(8,204)
1 Real estate lending within this disclosure corresponds solely to the industry of the borrower. Commercial real estate on page 177 includes borrowers
in multiple industries investing in income-producing assets and to a lesser extent, their construction and development.
2 Classified as held for sale at 31 December 2022.
196
HSBC Holdings plc Annual Report and Accounts 2022
Personal lending – loans and advances to customers at amortised cost by country/territory
Gross carrying amount
Allowance for ECL
Europe
– UK
– France1
– Germany
– Switzerland
– other
Asia
– Hong Kong
– Australia
– India
– Indonesia
– mainland China
– Malaysia
– Singapore
– Taiwan
– other
Middle East and North Africa (excluding
Saudi Arabia)
– Egypt
– UAE
– other
North America
– US
– Canada2
– other
Latin America
– Mexico
– other
At 31 Dec 2022
Europe
– UK
– France1
– Germany
– Switzerland
– other
Asia
– Hong Kong
– Australia
– India
– Indonesia
– mainland China
– Malaysia
– Singapore
– Taiwan
– other
Middle East and North Africa (excluding
Saudi Arabia)
– Egypt
– UAE
– other
North America
– US
– Canada
– other
Latin America
– Mexico
– other
At 31 Dec 2021
First lien
residential
mortgages
$m
159,063
154,519
30
—
1,378
3,136
151,058
101,478
21,372
1,078
70
9,305
2,292
7,501
5,428
2,534
Other
personal
$m
23,830
16,794
76
234
5,094
1,632
44,610
31,539
456
590
278
921
2,437
6,264
1,189
936
Of which:
credit
cards
$m
6,665
6,622
9
—
—
34
11,805
8,645
396
162
141
378
843
422
284
534
First lien
residential
mortgages
$m
(265)
(226)
(14)
—
—
(25)
(50)
(1)
(11)
(4)
(1)
(3)
(27)
—
—
(3)
Total
$m
182,893
171,313
106
234
6,472
4,768
195,668
133,017
21,828
1,668
348
10,226
4,729
13,765
6,617
3,470
2,450
3,266
735
5,716
—
2,104
346
17,907
16,847
—
1,060
6,343
6,124
219
336,821
170,818
163,549
3,124
—
1,367
2,778
149,709
98,019
21,149
981
76
10,525
2,532
7,811
5,672
2,944
310
1,340
1,616
866
704
—
162
5,619
4,894
725
78,191
49,253
19,154
22,908
282
6,615
294
46,781
32,996
504
543
272
1,103
2,657
6,649
1,188
869
83
426
226
256
213
—
43
1,927
1,615
312
21,388
8,624
8,213
366
—
—
45
11,413
8,154
427
181
147
563
791
367
271
512
310
3,444
1,962
18,773
17,551
—
1,222
11,962
11,018
944
415,012
220,071
182,703
26,032
282
7,982
3,072
196,490
131,015
21,653
1,524
348
11,628
5,189
14,460
6,860
3,813
2,262
3,157
761
5,419
—
1,924
338
43,529
16,642
25,773
1,114
5,050
4,882
168
371,368
368
1,232
1,557
3,091
799
2,123
169
4,687
4,006
681
106,969
98
417
246
555
232
284
39
1,505
1,172
333
22,858
368
3,156
1,895
46,620
17,441
27,896
1,283
9,737
8,888
849
478,337
(22)
—
(14)
(8)
(91)
(10)
—
(81)
(146)
(145)
(1)
(574)
(329)
(223)
(38)
—
—
(68)
(59)
(1)
(5)
(10)
(1)
(4)
(33)
—
—
(5)
(26)
—
(18)
(8)
(141)
(12)
(33)
(96)
(120)
(119)
(1)
(675)
Other
personal
$m
(874)
(837)
(8)
—
(22)
(7)
(640)
(352)
(19)
(18)
(17)
(62)
(93)
(36)
(18)
(25)
(123)
(2)
(83)
(38)
(35)
(30)
—
(5)
(626)
(593)
(33)
(2,298)
(1,006)
(823)
(91)
—
(75)
(17)
(706)
(338)
(33)
(30)
(20)
(72)
(122)
(40)
(17)
(34)
(146)
(3)
(88)
(55)
(87)
(53)
(27)
(7)
(483)
(450)
(33)
(2,428)
Of which:
credit
cards
$m
(451)
(449)
—
—
—
(2)
(423)
(258)
(18)
(13)
(12)
(49)
(31)
(14)
(5)
(23)
(52)
(1)
(41)
(10)
(24)
(23)
—
(1)
(212)
(196)
(16)
(1,162)
(437)
(434)
(3)
—
—
—
(428)
(217)
(32)
(20)
(14)
(66)
(34)
(13)
(5)
(27)
(60)
(1)
(39)
(20)
(47)
(36)
(8)
(3)
(163)
(148)
(15)
(1,135)
Total
$m
(1,139)
(1,063)
(22)
—
(22)
(32)
(690)
(353)
(30)
(22)
(18)
(65)
(120)
(36)
(18)
(28)
(145)
(2)
(97)
(46)
(126)
(40)
—
(86)
(772)
(738)
(34)
(2,872)
(1,335)
(1,046)
(129)
—
(75)
(85)
(765)
(339)
(38)
(40)
(21)
(76)
(155)
(40)
(17)
(39)
(172)
(3)
(106)
(63)
(228)
(65)
(60)
(103)
(603)
(569)
(34)
(3,103)
1
Included in other personal lending at 31 December 2022 is nil (31 December 2021: $19,972m) guaranteed by Crédit Logement as our retail banking
business in France has been classified as held for sale.
2 Classified as held for sale at 31 December 2022.
HSBC Holdings plc Annual Report and Accounts 2022
197
Risk review
Risk review
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied – by global business
Loans and advances to customers at amortised cost
– WPB
– CMB
– GBM
– Corporate Centre
Loans and advances to banks at amortised cost
– WPB
– CMB
– GBM
– Corporate Centre
Other financial assets measured at amortised cost
– WPB
– CMB
– GBM
– Corporate Centre
Total gross carrying amount on-balance sheet at
31 Dec 2022
Loans and other credit-related commitments
– WPB
– CMB
– GBM
– Corporate Centre
Financial guarantees
– WPB
– CMB
– GBM
– Corporate Centre
Total nominal amount off-balance sheet at
31 Dec 2022
Gross carrying/nominal amount
Allowance for ECL
Stage 1 Stage 2 Stage 3
POCI
Total Stage 1 Stage 2 Stage 3
POCI
Total
$m
$m
$m
325
103,042
26,111
23,735
47,128
6,068
777,543 139,130 19,505
373,889 49,096
3,502
232,296 69,784 12,794
3,209
171,033 20,207
—
43
82
1,827
—
377
4
257
78
1,050
—
143
797
996,489 17,166
458
248,708
5,644
253
184,459 10,883
78
637
486,224
8
2
77,098
$m
$m
129 936,307
— 426,487
112 314,986
17 194,466
368
—
— 104,951
26,488
—
23,996
—
48,256
—
6,211
—
46 1,014,498
46 254,856
— 195,595
— 486,939
77,108
—
$m
(1,095)
(572)
(435)
(88)
—
(18)
(3)
(5)
(9)
(1)
(124)
(57)
(37)
(28)
(2)
$m
(3,491)
(1,512)
(1,529)
(437)
(13)
(29)
(1)
—
(28)
—
(188)
(96)
(84)
(8)
—
$m
(6,829)
(850)
(4,891)
(1,088)
—
(22)
—
(2)
(20)
—
(234)
(130)
(91)
(13)
—
$m
$m
(38) (11,453)
(2,934)
—
(6,893)
(38)
(1,613)
—
(13)
—
(69)
—
(4)
—
(7)
—
(57)
—
(1)
—
(553)
(7)
(290)
(7)
(212)
—
(49)
—
(2)
—
1,877,074 158,123 20,384
175 2,055,756
(1,237)
(3,708)
(7,085)
(45) (12,075)
583,383 34,033
238,161
4,377
121,909 18,376
223,065 11,279
1
2,463
11
1,524
928
—
248
16,071
1,196
6,665
8,210
—
1,372
769
512
91
—
249
1
128
120
—
— 618,788
— 243,307
— 140,797
— 234,435
249
—
18,783
—
1,208
—
8,317
—
9,258
—
—
—
(141)
(25)
(78)
(38)
—
(6)
—
(5)
(1)
—
(180)
(1)
(128)
(51)
—
(13)
—
(8)
(5)
—
(65)
—
(55)
(10)
—
(33)
—
(26)
(7)
—
—
—
—
—
—
—
—
—
—
—
(386)
(26)
(261)
(99)
—
(52)
—
(39)
(13)
—
599,454 36,496
1,621
— 637,571
(147)
(193)
(98)
—
(438)
WPB
CMB
GBM
Corporate Centre
Debt instruments measured at FVOCI at
31 Dec 2022
113,557
70,728
75,951
3,347
1,213
736
434
299
—
—
—
—
33 114,803
71,468
76,386
3,646
4
1
—
(18)
(9)
(11)
(31)
(26)
(15)
(8)
(19)
—
—
—
(1)
(6)
(1)
—
—
(50)
(25)
(19)
(51)
263,583
2,682
—
38 266,303
(69)
(68)
(1)
(7)
(145)
198
HSBC Holdings plc Annual Report and Accounts 2022
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied – by global business (continued)
Loans and advances to customers at amortised cost
– WPB
– CMB
– GBM
– Corporate Centre
Loans and advances to banks at amortised cost
– WPB
– CMB
– GBM
– Corporate Centre
Other financial assets measured at amortised cost
– WPB
– CMB
– GBM
– Corporate Centre
Total gross carrying amount on-balance sheet at
31 Dec 2021
Loans and other credit-related commitments
– WPB
– CMB
– GBM
– Corporate Centre
Financial guarantees
– WPB
– CMB
– GBM
– Corporate Centre
Total nominal amount off-balance sheet at
31 Dec 2021
Allowance for ECL
$m
$m
Stage 1
$m
Stage 2 Stage 3
$m
Gross carrying/nominal amount
POCI
$m
274 1,057,231
— 491,973
245 356,022
29 208,485
—
751
— 83,153
— 20,945
— 15,621
— 37,529
—
9,058
43 880,351
43 208,960
— 165,888
— 411,074
— 94,429
918,936 119,224 18,797
17,285 5,211
469,477
76,798 11,462
267,517
25,085 2,124
181,247
—
695
—
81,636
—
20,464
—
15,269
—
36,875
—
9,028
304
875,016
175
207,335
61
163,457
62
409,808
6
94,416
Total Stage 1 Stage 2 Stage 3
$m
(6,867)
(1,276)
(4,904)
(687)
—
—
—
—
—
—
(42)
(14)
(20)
(8)
—
$m
(3,119)
(1,247)
(1,369)
(493)
(10)
(3)
(1)
—
(2)
—
(54)
(44)
(8)
(2)
—
$m
(1,367)
(664)
(571)
(132)
—
(14)
(1)
(1)
(10)
(2)
(91)
(51)
(12)
(28)
—
56
1,517
481
352
654
30
4,988
1,407
2,370
1,204
7
Total
$m
POCI
$m
(64) (11,417)
(3,187)
—
(6,897)
(53)
(1,323)
(11)
(10)
—
(17)
—
(2)
—
(1)
—
(12)
—
(2)
—
(193)
(6)
(115)
(6)
(40)
—
(38)
—
—
—
1,875,588 125,729 19,101
317 2,020,735
(1,472)
(3,176)
(6,909)
(70) (11,627)
594,473
235,722
126,728
231,890
133
24,932
1,295
6,105
17,531
1
32,389
2,111
17,490
12,788
—
2,638
15
1,606
1,017
—
775
153
555
67
—
225
1
126
98
—
— 627,637
— 237,986
— 144,773
— 244,745
—
133
— 27,795
1,311
—
—
7,837
— 18,646
1
—
(165)
(37)
(80)
(48)
—
(11)
—
(7)
(4)
—
(174)
(3)
(118)
(53)
—
(30)
(1)
(16)
(13)
—
(40)
—
(37)
(3)
—
(21)
—
(17)
(4)
—
—
—
—
—
—
—
—
—
—
—
(379)
(40)
(235)
(104)
—
(62)
(1)
(40)
(21)
—
619,405
35,027 1,000
— 655,432
(176)
(204)
(61)
—
(441)
WPB
CMB
GBM
Corporate Centre
Debt instruments measured at FVOCI at
31 Dec 2021
143,373
86,247
111,473
4,038
718
471
526
311
—
—
—
—
35 144,126
10 86,728
1 112,000
4,349
—
(20)
(11)
(13)
(25)
(7)
(1)
(2)
(11)
—
—
—
—
(5)
(1)
—
—
(32)
(13)
(15)
(36)
345,131
2,026
—
46 347,203
(69)
(21)
—
(6)
(96)
HSBC Holdings plc Annual Report and Accounts 2022
199
Risk review
Risk review
Loans and advances to customers and banks metrics
Gross
carrying
amount
of which:
stage 3
and POCI
Allowance
for ECL
of which:
stage 3
and POCI
Change in
ECL Write-offs
Recoveries
First lien residential mortgages
– second lien residential mortgages
– guaranteed loans in respect of residential property
– other personal lending which is secured
– credit cards
– other personal lending which is unsecured
– motor vehicle finance
Other personal lending
Personal lending
– agriculture, forestry and fishing
– mining and quarrying
– manufacturing
– electricity, gas, steam and air-conditioning supply
– water supply, sewerage, waste management and
remediation
– construction
– wholesale and retail trade, repair of motor vehicles and
motorcycles
– transportation and storage
– accommodation and food
– publishing, audiovisual and broadcasting
– real estate
– professional, scientific and technical activities
– administrative and support services
– public administration and defence, compulsory social
security
– education
– health and care
– arts, entertainment and recreation
– other services
– activities of households
– extra-territorial organisations and bodies activities
– government
– asset-backed securities
Corporate and commercial
Non-bank financial institutions
Wholesale lending
Loans and advances to customers
Loans and advances to banks
At 31 Dec 2022
$m
336,821
379
1,367
32,106
21,388
21,010
1,941
78,191
415,012
6,571
8,194
87,503
17,082
2,993
13,232
82,437
24,845
17,185
18,423
101,434
17,935
25,077
$m
2,043
6
125
206
260
687
13
1,297
3,340
261
233
2,065
277
26
798
2,810
556
789
277
4,853
542
980
$m
(574)
(6)
(34)
(55)
(1,162)
(1,010)
(31)
(2,298)
(2,872)
(122)
(172)
(1,153)
(109)
(21)
(443)
(1,666)
(249)
(244)
(117)
(2,851)
(272)
(408)
1,180
—
(1)
1,614
3,964
1,862
12,527
744
47
9,475
32
454,356
66,939
521,295
936,307
104,951
1,041,258
87
266
146
589
—
—
270
—
15,825
469
16,294
19,634
82
19,716
(31)
(90)
(77)
(275)
—
—
(10)
(13)
(8,324)
(257)
(8,581)
(11,453)
(69)
(11,522)
$m
(270)
(3)
(30)
(30)
(160)
(305)
(7)
(535)
(805)
(68)
(146)
(896)
(67)
(13)
(371)
(1,344)
(153)
(82)
(59)
(1,861)
(200)
(293)
—
(22)
(67)
(57)
(219)
—
—
(7)
—
(5,925)
(137)
(6,062)
(6,867)
(22)
(6,889)
$m
180
9
(11)
(16)
(638)
(655)
39
(1,272)
(1,092)
(32)
(24)
(191)
(75)
3
(93)
(344)
(13)
103
9
(1,537)
(81)
(27)
5
1
(30)
1
120
—
1
(5)
(4)
(2,213)
(165)
(2,378)
(3,470)
(53)
(3,523)
$m
(48)
(1)
(9)
(8)
(471)
(660)
(18)
(1,167)
(1,215)
(42)
(46)
(171)
(16)
(1)
(136)
(667)
(82)
(29)
(47)
(174)
(31)
(27)
—
(3)
(7)
(17)
(92)
—
—
—
—
(1,588)
(1)
(1,589)
(2,804)
—
(2,804)
$m
26
4
2
1
126
119
5
257
283
—
—
3
—
—
6
8
1
—
1
2
1
1
—
—
1
—
7
—
1
—
—
32
1
33
316
—
316
200
HSBC Holdings plc Annual Report and Accounts 2022
Loans and advances to customers and banks metrics (continued)
First lien residential mortgages
– second lien residential mortgages
– guaranteed loans in respect of residential property
– other personal lending which is secured
– credit cards
– other personal lending which is unsecured
– motor vehicle finance
Other personal lending
Personal lending
– agriculture, forestry and fishing
– mining and quarrying
– manufacturing
– electricity, gas, steam and air-conditioning supply
– water supply, sewerage, waste management and
remediation
– construction
– wholesale and retail trade, repair of motor vehicles and
motorcycles
– transportation and storage
– accommodation and food
– publishing, audiovisual and broadcasting
– real estate
– professional, scientific and technical activities
– administrative and support services
– public administration and defence, compulsory social
security
– education
– health and care
– arts, entertainment and recreation
– other services
– activities of households
– extra-territorial organisations and bodies activities
– government
– asset-backed securities
Corporate and commercial
Non-bank financial institutions
Wholesale lending
Loans and advances to customers
Loans and advances to banks
At 31 Dec 2021
Gross
carrying
amount
of which:
stage 3 and
POCI
Allowance
for ECL
of which:
stage 3 and
POCI
Change in
ECL Write-offs Recoveries
$m
371,368
395
21,610
37,995
22,858
22,478
1,633
106,969
478,337
7,899
9,685
93,743
16,618
3,895
13,954
94,944
29,592
23,376
18,471
121,260
19,685
28,675
$m
3,045
37
236
366
338
915
5
1,897
4,942
363
463
2,107
78
51
843
3,005
667
1,200
250
2,473
637
749
$m
(675)
(14)
(58)
(156)
(1,135)
(1,039)
(26)
(2,428)
(3,103)
(138)
(227)
(1,248)
(68)
(29)
(508)
(2,107)
(363)
(423)
(184)
(1,644)
(238)
(431)
1,271
—
(8)
1,793
4,854
2,598
12,297
977
2
7,612
338
513,539
65,355
578,894
1,057,231
83,153
1,140,384
65
183
152
448
—
—
—
—
13,734
395
14,129
19,071
—
19,071
(37)
(72)
(92)
(373)
—
—
(4)
(10)
(8,204)
(110)
(8,314)
(11,417)
(17)
(11,434)
$m
(416)
(9)
(42)
(120)
(214)
(421)
(4)
(810)
(1,226)
(105)
(171)
(962)
(31)
(20)
(440)
(1,937)
(191)
(111)
(100)
(775)
(172)
(307)
—
(18)
(37)
(42)
(246)
—
—
—
—
(5,665)
(40)
(5,705)
(6,931)
—
(6,931)
$m
—
12
(5)
(11)
172
135
(22)
281
281
61
72
102
5
3
(13)
163
100
12
(12)
(674)
97
48
6
1
44
27
(59)
—
1
(6)
3
(19)
129
110
391
22
413
$m
(70)
(1)
(8)
(11)
(751)
(659)
(20)
(1,450)
(1,520)
(5)
(57)
(222)
—
(7)
(94)
(238)
(10)
(17)
(4)
(152)
(39)
(37)
—
(1)
(69)
(26)
(109)
—
—
—
—
(1,087)
(5)
(1,092)
(2,612)
—
(2,612)
$m
31
6
2
1
153
156
6
324
355
—
(1)
7
—
—
9
15
2
6
1
5
1
—
1
—
1
—
6
—
1
—
—
54
—
54
409
—
409
HSBC Holdings
(Audited)
Risk in HSBC Holdings is overseen by the HSBC Holdings Asset and
Liability Management Committee. The major risks faced by HSBC
Holdings are credit risk, liquidity risk and market risk (in the form of
interest rate risk and foreign exchange risk).
Credit risk in HSBC Holdings primarily arises from transactions with
Group subsidiaries and its investments in those subsidiaries.
In HSBC Holdings, the maximum exposure to credit risk arises from
two components:
• financial instruments on the balance sheet (see page 332); and
• financial guarantees and similar contracts, where the maximum
exposure is the maximum that we would have to pay if the
guarantees were called upon (see Note 33).
In the case of our derivative balances, we have amounts with a legally
enforceable right of offset in the case of counterparty default that are
not included in the carrying value. These offsets also include collateral
received in cash and other financial assets.
The total offset relating to our derivative balances was $3.1bn at
31 December 2022 (2021: $1.6bn).
The credit quality of loans and advances and financial investments,
both of which consist of intra-Group lending and US Treasury bills and
bonds, is assessed as ‘strong’, with 100% of the exposure being
neither past due nor impaired (2021: 100%). For further details of
credit quality classification, see page 146.
HSBC Holdings plc Annual Report and Accounts 2022
201
Risk review
Risk review
Treasury risk
Contents
202
202
204
205
209
212
213
Overview
Treasury risk management
Other Group risks
Capital risk in 2022
Liquidity and funding risk in 2022
Structural foreign exchange risk in 2022
Interest rate risk in the banking book in 2022
Overview
Treasury risk is the risk of having insufficient capital, liquidity or
funding resources to meet financial obligations and satisfy regulatory
requirements, including the risk of adverse impact on earnings or
capital due to structural or transactional foreign exchange exposures
and changes in market interest rates, together with pension and
insurance risk.
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
(Audited)
Our objective in the management of treasury risk is to maintain
appropriate levels of capital, liquidity, funding, foreign exchange and
market risk to support our business strategy, and meet our regulatory
and stress testing-related requirements.
Our approach to treasury management is driven by our strategic and
organisational requirements, taking into account the regulatory,
economic and commercial environment. We aim to maintain a strong
capital and liquidity base to support the risks inherent in our business
and invest in accordance with our strategy, meeting both consolidated
and local regulatory requirements at all times.
Our policy is underpinned by our risk management framework. The
risk management framework incorporates a number of measures
aligned to our assessment of risks for both internal and regulatory
purposes. These risks include credit, market, operational, pensions,
structural and transactional foreign exchange risk, and interest rate
risk in the banking book.
For further details, refer to our Pillar 3 Disclosures at 31 December
2022.
Treasury risk management
Key developments in 2022
• All of the Group’s material operating entities were above
regulatory minimum levels of capital, liquidity and funding at
31 December 2022.
• Our CET1 position decreased from 15.8% at 31 December 2021 to
14.2% at 31 December 2022. This included a 0.8 percentage point
impact from new regulatory requirements and a 0.7 percentage
point decrease from the fall in the fair value of securities.
• The Board approved a new interest rate risk in the banking book
(‘IRRBB’) strategy in September, with the objective of increasing
our stabilisation of net interest income (‘NII’), with consideration
given to any capital or other constraints, and then adopting a
managed approach based on interest rates and outlook.
• We took steps to reduce the duration risk of the Global Treasury
hold-to-collect-and-sell portfolio, which is accounted for at fair
value through other comprehensive income (‘FVOCI‘), primarily to
dampen the capital impact from rising interest rates. This risk
reduction lowered the hold-to-collect-and-sell stressed value at risk
(‘VaR’) exposure of this portfolio from $3.63bn at the end of 2021
to $2.15bn at the end of 2022. For further details of the calculation
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HSBC Holdings plc Annual Report and Accounts 2022
of this exposure and the use of this metric in our interest rate risk
management framework, see page 215.
• We implemented a new hold-to-collect business model to better
reflect our management strategy to stabilise NII. This portfolio of
high-quality liquid assets will form a material part of our liquid
asset buffer going forward, as well as being a hedge to our
structural interest rate risk.
• We enhanced monitoring and forecasting as a result of the Russia-
Ukraine war, although there were no direct material capital or
liquidity impacts.
• The HBUK section of the HSBC Bank (UK) Pension Scheme’s
trustee funding level remained stable during the volatility in the UK
gilt markets in September and October, as a result of its proactive
pension scheme management, low-risk investment strategy and
limited leverage in its liability-driven investment funds.
Refinements relating to the scheme‘s inflation hedging strategy
ensured continued effectiveness in the high-inflation environment.
• HSBC Overseas Holdings (UK) Limited entered into an agreement
to sell its banking business in Canada to Royal Bank of Canada,
subject to regulatory and governmental approvals. The transaction
is expected to complete in late 2023. As a consequence of the
gain on the sale and disposal of risk-weighted assets (‘RWAs‘)
from our banking business in Canada, we expect an increase of
approximately 1.3 percentage points in CET1 capital before any
distribution. In addition, the hedging activity in respect to this
transaction reduced the full-year 2022 ratio by 0.06 percentage
point. This impact will revert on completion of sale.
• HSBC Continental Europe signed a framework agreement with
Promontoria MMB SAS (‘My Money Group’) and its subsidiary
Banque des Caraïbes SA for the sale of its retail banking business
in France. The sale, which is subject to regulatory and
governmental approvals, is anticipated to complete in the second
half of 2023. The impact of classifying the disposal as held for sale
resulted in a 0.3 percentage point reduction in the Group‘s CET1
ratio, which will be partly offset by the reduction in RWAs upon
closing.
• We identified an error in the RWA calculations of the European
resolution group whereby $35bn of non-capital MREL instruments
issued by the Asian and US resolution groups and held by the
European resolution group were excluded from these calculations
and were only deducted from MREL, whereas the relevant UK
legislation requires these instruments to be both risk-weighted and
deducted from MREL. In rectifying this error, we changed our
treatment of $35bn of non-capital MREL investments held by the
European resolution group from entities outside its group to
deduct them from the European resolution group’s own funds
rather than from solely its MREL, allowing us to exclude them
from RWAs. The change in treatment significantly reduced the
European resolution group’s total capital and increased its leverage
ratio at 31 December 2022, although the European resolution
group has no capital requirements. For further details regarding
MREL, see ‘Assessment and risk appetite’ on page 203.
• We performed our inaugural resolvability self-assessment to meet
the Bank of England requirements, which came into effect on
1 January 2022. This was incorporated into the Bank of England’s
publication of its findings on its first assessment of the
resolvability of the eight major UK firms, as part of the
Resolvability Assessment Framework.
For quantitative disclosures on capital ratios, own funds and RWAs,
see pages 205 to 207. For quantitative disclosures on liquidity and
funding metrics, see pages 209 to 210. For quantitative disclosures
on interest rate risk in the banking book, see pages 213 to 215.
Governance and structure
The Global Head of Traded and Treasury Risk Management and Risk
Analytics is the accountable risk steward for all treasury risks. The
Group Treasurer is the risk owner for all treasury risks, with the
exception of pension risk and insurance risk. The Group Treasurer co-
owns pension risk with the Group Head of Performance, Reward and
Employee Relations. Insurance risk is owned by the Chief Executive
Officer for Global Insurance.
Capital risk, liquidity risk, interest rate risk in the banking book,
structural foreign exchange risk and transactional foreign exchange
risk are the responsibility of the Group Executive Committee and the
Group Risk Committee (‘GRC’). Global Treasury actively manages
these risks on an ongoing basis, supported by the Holdings Asset and
Liability Management Committee (‘ALCO’) and local ALCOs, overseen
by Treasury Risk Management and Risk Management Meetings.
Pension risk is overseen by a network of local and regional pension
risk management meetings. The Global Pensions Risk Management
Meeting provides oversight of all pension plans sponsored by HSBC
globally, and is chaired by the accountable risk steward. Insurance risk
is overseen by the Global Insurance Risk Management Meeting,
chaired by the Chief Risk Officer for Global Insurance.
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,
minimum requirements for own funds and eligible liabilities (‘MREL’),
the leverage ratio and double leverage. Our internal capital adequacy
assessment process (‘ICAAP’) is an assessment of the Group’s
capital position, outlining both regulatory and internal capital resources
and requirements resulting from HSBC’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. The Group’s ICAAP supports the
determination of the consolidated capital risk appetite and target
ratios, as well as enables the assessment and determination of capital
requirements by regulators. Subsidiaries prepare ICAAPs in line with
global guidance, while considering their local regulatory regimes to
determine their own risk appetites and ratios.
HSBC Holdings is the provider of equity capital and MREL-eligible
debt to its subsidiaries, and also provides them with non-equity capital
where necessary. These investments are funded by HSBC Holdings’
own equity capital and MREL-eligible debt. MREL includes own funds
and liabilities that can be written down or converted into capital
resources in order to absorb losses or recapitalise a bank in the event
of its failure. In line with our existing structure and business model,
HSBC has three resolution groups – the European resolution group,
the Asian resolution group and the US resolution group. There are
some smaller entities that fall outside these resolution groups.
HSBC Holdings seeks to maintain a prudent balance between the
composition of its capital and its investments in subsidiaries.
As a matter of long-standing policy, the holding company retains a
substantial holdings capital buffer comprising high-quality liquid assets
(‘HQLA’), which at 31 December 2022 was in excess of $24bn.
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 internal liquidity
adequacy assessment process (‘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 form part of the annual financial resource plan
that is approved by the Board. Capital and RWA forecasts are
submitted to the Group Executive Committee on a monthly basis, and
capital and RWAs are monitored and managed against the plan. The
responsibility for global capital allocation principles rests with the
Group Chief Financial Officer, supported by the Group Capital
Management Meeting. This is a specialist forum addressing capital
management, reporting into Holdings ALCO.
Through our internal governance processes, we seek to strengthen
discipline over our investment and capital allocation decisions, and to
ensure that returns on investment meet management’s objectives.
Our strategy is to allocate capital to businesses and entities to
support growth objectives where returns above internal hurdle levels
have been identified and in order to meet their regulatory and
economic capital needs. We evaluate and manage business returns
by using a return on average tangible equity measure.
Funding and liquidity plans also form part of the financial resource
plan that is approved by the Board. The Board-level appetite measures
are the liquidity coverage ratio (‘LCR’) and net stable funding ratio
(‘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.
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. Downside and Upside scenarios are assessed against our
management objectives, and mitigating actions are assigned as
necessary. We closely monitor future regulatory changes and
continue to evaluate the impact of these upon our capital and liquidity
requirements, particularly those related to the UK’s implementation of
the outstanding measures to be implemented from the Basel III
reforms (‘Basel 3.1‘).
Regulatory developments
Our capital adequacy ratios were affected by regulatory developments
in 2022, including changes to internal-ratings based (’IRB’) modelling
requirements and the UK’s implementation of the revisions to the
Capital Requirements Regulation and Directive (’CRR II’). The PRA’s
final rules on NSFR were implemented and have been reflected in
disclosures since the first quarter of 2022.
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 currently do not foresee a material net impact on our ratios
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.
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 our prudential regulatory
reporting, focusing on PRA requirements initially. We commissioned a
number of independent external reviews, some at the request of our
regulators, including one on our credit risk RWA reporting process,
which concluded in December 2022. These reviews have so far
HSBC Holdings plc Annual Report and Accounts 2022
203
Risk review Risk review
resulted in enhancements to our RWAs and the LCR through
improvements in reporting accuracy, which have been reflected in our
year-end regulatory reported ratios. Our prudential regulatory
reporting programme is being phased over a number of years,
prioritising RWA, capital and liquidity reporting in the early stages of
the programme. While this programme continues, there may be
further impacts on some of our regulatory ratios, such as the CET1,
LCR and NSFR, as we implement recommended changes and
continue to enhance our controls across the process.
Stress testing and recovery and resolution planning
The Group uses 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 in many jurisdictions. These include the
programmes of the Bank of England, the US Federal Reserve Board,
the European Banking Authority, the European Central Bank and the
Hong Kong Monetary Authority. 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 and other regulators feed into the setting of regulatory minimum
ratios and buffers.
We maintain recovery plans for the Group and material entities, which
set 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 HSBC to a stable and viable
position, and so lowering the probability of failure from either
idiosyncratic company-specific stress or systemic market-wide issues.
Our material entities’ recovery plans provide detailed actions that
management would consider taking in a stress scenario should their
positions deteriorate and threaten to breach risk appetite and
regulatory minimum levels. This is to help ensure that HSBC entities
can stabilise their financial position and recover from financial losses
in a stress environment.
The Group also has capabilities, resources and arrangements in place
to address the unlikely event that HSBC 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, HSBC’s recovery and resolution planning helps safeguard the
Group’s financial and operational stability. The Group is 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 in order to hedge positions held with trading intent. Interest rate
risk that can be economically hedged may be transferred to Global
Treasury. Hedging is generally executed through interest rate
derivatives or fixed-rate government bonds. Any interest rate risk that
Global Treasury cannot economically hedge is not transferred and will
remain within the global business where the risks originate.
Global Treasury uses a number of measures to monitor and control
interest rate risk in the banking book, including:
• net interest income sensitivity; and
• economic value of equity sensitivity.
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HSBC Holdings plc Annual Report and Accounts 2022
Net interest income sensitivity
A principal part of our management of non-traded interest rate risk is
to monitor the sensitivity of expected net interest income (‘NII’) under
varying interest rate scenarios (i.e. simulation modelling), where all
other economic variables are held constant. This monitoring is
undertaken at an entity level, where entities calculate both one-year
and five-year NII sensitivities across a range of interest rate scenarios.
NII sensitivity figures represent the effect of pro forma movements in
projected yield curves based on a static balance sheet size and
structure, except for certain mortgage products where balances are
impacted by interest-rate sensitive prepayments. These sensitivity
calculations do not incorporate actions that would be taken by Global
Treasury or in the business that originates the risk to mitigate the
effect of interest rate movements.
The NII sensitivity calculations assume that interest rates of all
maturities move by the same amount in the ‘up-shock’ scenario. The
sensitivity calculations in the ‘down-shock’ scenarios reflect no floors
to the shocked market rates. However, customer product-specific
interest rate floors are recognised where applicable.
Economic value of equity sensitivity
Economic value of equity (‘EVE’) represents the present value of the
future banking book cash flows that could be distributed to equity
holders 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.
Further details of HSBC’s risk management of interest rate risk in the
banking book can be found in the Group’s Pillar 3 Disclosures at
31 December 2022.
Other Group risks
Non-trading book foreign exchange
exposures
Structural foreign exchange exposures
Structural foreign exchange exposures arise from net assets or capital
investments in foreign operations, together with any associated
hedging. A foreign operation is defined as a subsidiary, associate, joint
arrangement or branch where the activities are conducted in a
currency other than that of the reporting entity. An entity’s functional
reporting currency is normally that of the primary economic
environment in which the entity operates.
Exchange differences on structural exposures are recognised in other
comprehensive income (‘OCI’). We use the US dollar as our
presentation currency in our consolidated financial statements
because the US dollar and currencies linked to it form the major
currency bloc in which we transact and fund our business. Therefore,
our consolidated balance sheet is affected by exchange differences
between the US dollar and all the non-US dollar functional currencies
of underlying foreign operations.
Our structural foreign exchange exposures are managed with the
primary objective of ensuring, where practical, that our consolidated
capital ratios and the capital ratios of individual banking subsidiaries
are largely protected from the effect of changes in exchange rates.
We hedge structural foreign exchange positions where it is capital
efficient to do so, and subject to approved limits. This is achieved
through a combination of net investment hedges and economic
hedges. Hedging positions are monitored and rebalanced periodically
to manage RWA or downside risks associated with HSBC’s foreign
currency investments.
For further details of our structural foreign exchange exposures, see
page 212.
Transactional foreign exchange exposures
Transactional foreign exchange risk arises primarily from day-to-day
transactions in the banking book generating profit and loss or fair
value through other comprehensive income (‘FVOCI’) reserves in a
currency other than the reporting currency of the operating entity.
Transactional foreign exchange exposure generated through profit and
loss is periodically transferred to Markets and Securities Services and
managed within limits with the exception of limited residual foreign
exchange exposure arising from timing differences or for other
reasons. Transactional foreign exchange exposure generated through
OCI reserves is managed by Global Treasury within agreed appetite.
HSBC Holdings risk management
As a financial services holding company, HSBC Holdings has limited
market risk activities. Its activities predominantly involve maintaining
sufficient capital resources to support the Group’s diverse activities;
allocating these capital resources across the Group’s businesses;
earning dividend and interest income on its investments in the
businesses; payment of operating expenses; providing dividend
payments to its equity shareholders and interest payments to
providers of debt capital; and maintaining a supply of short-term liquid
assets for deployment under extraordinary circumstances.
The main market risks to which HSBC Holdings is exposed are
banking book interest rate risk and foreign currency risk. Exposure to
these risks arises from short-term cash balances, funding positions
held, loans to subsidiaries, investments in long-term financial assets,
financial liabilities including debt capital issued, and structural foreign
exchange hedges. The objective of HSBC Holdings’ market risk
management strategy is to manage volatility in capital resources, cash
flows and distributable reserves that could be caused by movements
in market parameters. Market risk for HSBC Holdings is monitored by
Holdings ALCO in accordance with its risk appetite statement.
HSBC Holdings uses interest rate swaps and cross-currency interest
rate swaps to manage the interest rate risk and foreign currency risk
arising from its long-term debt issues. It also uses forward foreign
exchange contracts to manage its structural foreign exchange
exposures.
For quantitative disclosures on interest rate risk in the banking book,
see pages 213 to 215.
Pension risk management processes
Our global pensions strategy is to move from defined benefit to
defined contribution plans, where local law allows and it is considered
competitive to do so.
In defined contribution pension plans, the contributions that HSBC is
required to make are known, while the ultimate pension benefit will
vary, typically with investment returns achieved by investment
choices made by the employee. While the market risk to HSBC of
defined contribution plans is low, the Group is still exposed to
operational and reputational risk.
In defined benefit pension plans, the level of pension benefit is
known. Therefore, the level of contributions required by HSBC will
vary due to a number of risks, including:
• investments delivering a return below that required to provide the
projected plan benefits;
• the prevailing economic environment leading to corporate failures,
thus triggering write-downs in asset values (both equity and debt);
• a change in either interest rates or inflation expectations, causing
an increase in the value of plan liabilities; and
• plan members living longer than expected (known as longevity
risk).
Pension risk is assessed using an economic capital model that takes
into account potential variations in these factors. The impact of these
variations on both pension assets and pension liabilities is assessed
using a one-in-200-year stress test. Scenario analysis and other stress
tests are also used to support pension risk management, including
the review of de-risking opportunities.
To fund the benefits associated with defined benefit plans,
sponsoring Group companies, and in some instances employees,
make regular contributions in accordance with advice from actuaries
and in consultation with the plan’s fiduciaries where relevant. These
contributions are normally set to ensure that there are sufficient funds
to meet the cost of the accruing benefits for the future service of
active members. However, higher contributions are required when
plan assets are considered insufficient to cover the existing pension
liabilities. Contribution rates are typically revised annually or once
every three years, depending on the plan.
The defined benefit plans invest contributions in a range of
investments designed to limit the risk of assets failing to meet a
plan’s liabilities. Any changes in expected returns from the
investments may also change future contribution requirements. In
pursuit of these long-term objectives, an overall target allocation is
established between asset classes of the defined benefit plan. In
addition, each permitted asset class has its own benchmarks, such as
stock-market or property valuation indices or liability characteristics.
The benchmarks are reviewed at least once every three to five years
and more frequently if required by local legislation or circumstances.
The process generally involves an extensive asset and liability review.
In addition, some of the Group’s pension plans hold longevity swap
contracts. These arrangements provide long-term protection to the
relevant plans against costs resulting from pensioners or their
dependants living longer than initially expected. The most sizeable
plan to do this is the HSBC Bank (UK) Pension Scheme, which holds
longevity swaps covering approximately 60% of the plan’s pensioner
liabilities.
Capital risk in 2022
Capital overview
Capital adequacy metrics
At
31 Dec
2022
31 Dec
2021
Risk-weighted assets (‘RWAs’) ($bn)
Credit risk
Counterparty credit risk
Market risk
Operational risk
Total RWAs
Capital on a transitional basis ($bn)
Common equity tier 1 (‘CET1’) capital
Tier 1 capital
Total capital
Capital ratios on a transitional basis (%)
Common equity tier 1 ratio
Tier 1 ratio
Total capital ratio
Capital on an end point basis ($bn)
Common equity tier 1 (‘CET1’) capital
Tier 1 capital
Total capital
Capital ratios on an end point basis (%)
Common equity tier 1 ratio
Tier 1 ratio
Total capital ratio
Liquidity coverage ratio (‘LCR’)1
Total high-quality liquid assets ($bn)
Total net cash outflow ($bn)
LCR ratio (%)
Net stable funding ratio (‘NSFR’)1
Total available stable funding ($bn)
Total required stable funding ($bn)
NSFR ratio (%)
679.1
37.1
37.6
85.9
839.7
119.3
139.1
162.4
14.2
16.6
19.3
119.3
139.1
157.2
14.2
16.6
18.7
647.0
490.8
131.8
1,552.0
1,138.4
136.3
680.6
35.9
32.9
88.9
838.3
132.6
156.3
177.8
15.8
18.6
21.2
132.6
155.0
167.5
15.8
18.5
20.0
688.2
495.1
139.0
N/A
N/A
N/A
1 The LCR and NSFR ratios presented in the above table are based on
average value. The LCR is the average of the preceding 12 months.
The NSFR is the average of the preceding four quarters. The prior
periods for LCR have been restated for consistency. We have not
restated the prior periods for NSFR as no comparatives are available.
HSBC Holdings plc Annual Report and Accounts 2022
205
Risk review
Risk review
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.
Capital figures and ratios in the previous table are calculated in
accordance with the revised Capital Requirements Regulation and
Directive, as implemented (‘CRR II’). The table presents them under
the transitional arrangements in CRR II for capital instruments and
after their expiry, known as the end point. The end point figures in the
table above include the benefit of the regulatory transitional
arrangements in CRR II for IFRS 9, which are more fully described
below. Where applicable, they also reflect government relief schemes
intended to mitigate the impact of the Covid-19 pandemic.
At 31 December 2022, our common equity tier 1 (‘CET1’) capital ratio
decreased to 14.2% from 15.8% at 31 December 2021. This primarily
reflected a decrease of $13.3bn in our CET1 capital. The key drivers of
the fall in our CET1 ratio were:
• a 0.8 percentage point impact from new regulatory requirements,
which reduced CET1 capital by $3.5bn and increased risk-weighted
assets (‘RWAs’) by $27.1bn at implementation;
• a 0.7 percentage point decrease from a $5.6bn fall in the fair value
through other comprehensive income (‘FVOCI’);
• a 0.4 percentage point impact from RWA growth, offset by
favourable foreign currency translations; and
• a 0.3 percentage point impact from the $2.0bn impairment on the
reclassification of our French retail operations to held for sale.
Profits and other movements added $4.4bn to CET1 capital and a
0.7 percentage point to the CET1 ratio. This included capital
deductions for deferred tax, dividends and the share buy-back.
Our Pillar 2A requirement at 31 December 2022, as per the PRA’s
Individual Capital Requirement based on a point-in-time assessment,
was 2.6% of RWAs, of which 1.5% was required to be met by CET1.
Structural foreign exchange risk is now capitalised in RWAs under
Pillar 1 and assessed for Pillar 2A in the same manner as other risks.
Own funds disclosure
(Audited)
Ref*
Common equity tier 1 (‘CET1’) capital: instruments and reserves
Capital instruments and the related share premium accounts
– ordinary shares
Retained earnings1
Accumulated other comprehensive income (and other reserves)1
Minority interests (amount allowed in consolidated CET1)
Independently reviewed net profits net of any foreseeable charge or dividend
Common equity tier 1 capital before regulatory adjustments2
Total regulatory adjustments to common equity tier2
Common equity tier 1 capital
Additional tier 1 capital before regulatory adjustments
Total regulatory adjustments to additional tier 1 capital
Additional tier 1 capital
Tier 1 capital
Tier 2 capital before regulatory adjustments
Total regulatory adjustments to tier 2 capital
Tier 2 capital
Total capital
1
2
3
5
5a
6
28
29
36
43
44
45
51
57
58
59
At
31 Dec
2022
$m
23,406
23,406
127,155
4,105
4,444
8,633
167,743
(48,452)
119,291
19,836
(60)
19,776
139,067
24,779
(1,423)
23,356
162,423
31 Dec
2021
$m
23,513
23,513
121,059
8,273
4,186
5,887
162,918
(30,353)
132,565
23,787
(60)
23,727
156,292
23,018
(1,524)
21,494
177,786
* The references identify lines prescribed in the Prudential Regulatory Authority (‘PRA’) template, which are applicable and where there is a value.
1 To comply with new disclosures guidance from the PRA, with effect from 1 January 2022 we report changes in ‘Retained earnings’ during 2022
separately in ‘Accumulated other comprehensive income’. As this change has no impact on CET1 capital, we have not restated prior periods.
2 From 30 September 2022, investments in non-financial institution subsidiaries or participations have been measured on an equity accounting basis in
compliance with UK regulatory requirements. This change increased ‘Common equity tier 1 capital before regulatory adjustments’ and ‘Total
regulatory adjustments to common equity tier’ by $13.2bn, with no impact on CET1 capital as at 31 December 2022. As this change has immaterial
impact on CET1 capital as at 31 December 2021, we have not restated the comparatives.
Throughout 2022, we complied with the PRA’s regulatory capital
adequacy requirements, including those relating to stress testing.
Regulatory and other developments
We expect the recently announced reduction of the Hong Kong
Monetary Authority’s risk weight floor for residential mortgages from
25% to 15% to improve our CET1 ratio by 0.1 percentage points with
effect from 1 January 2023. This reduction will be partly offset by a
change to the sourcing and risk-weighting of balances we
proportionally consolidate for our associates.
During 2023, our CET1 ratio will continue to be affected by strategic
decisions we have taken.
Based on our capital position on 31 December 2022, we would
expect that on completing the planned sale of our banking operations
in Canada, branch operations in Greece, and our retail banking
operations in France, we would improve our CET1 ratio by around
1.4 percentage points, net of the impact from foreign exchange
hedges related to the proceeds from the planned sale of our Canada
business. The exact timing and impact on our capital position of these
transactions may change as the balance sheets being disposed evolve
in 2023.
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HSBC Holdings plc Annual Report and Accounts 2022
Risk-weighted assets
RWAs by global business
Credit risk
Counterparty credit risk
Market risk
Operational risk
At 31 Dec 2022
At 31 Dec 2021
RWAs by geographical region
Credit risk
Counterparty credit risk
Market risk1
Operational risk
At 31 Dec 2022
At 31 Dec 2021
WPB
$bn
149.3
0.9
1.6
31.1
182.9
178.3
CMB
$bn
307.4
0.7
1.1
25.6
334.8
332.9
GBM
$bn
146.2
33.8
23.6
29.9
233.5
236.2
Corporate
Centre
$bn
76.2
1.7
11.3
(0.7)
88.5
90.9
Europe
$bn
180.3
18.9
28.2
23.8
251.2
261.1
Asia
$bn
330.2
10.4
28.6
40.1
409.3
396.3
MENA
North
America
Latin
America
$bn
49.8
2.7
2.6
5.9
61.0
60.2
$bn
87.4
4.2
4.2
10.7
106.5
110.4
$bn
31.4
0.9
1.2
5.4
38.9
35.9
Total
$bn
679.1
37.1
37.6
85.9
839.7
838.3
Total
$bn
679.1
37.1
37.6
85.9
839.7
838.3
1 RWAs are non-additive across geographical regions due to market risk diversification effects within the Group.
RWA movement by global business by key driver
Credit risk, counterparty credit risk and operational
risk
Corporate
Centre
Market
risk
Total
RWAs
RWAs at 1 Jan 2022
Asset size
Asset quality
Model updates
Methodology and policy
Acquisitions and disposals
Foreign exchange movements1
Total RWA movement
RWAs at 31 Dec 2022
WPB
$bn
176.6
6.5
1.6
(3.1)
11.6
(2.0)
(9.9)
4.7
181.3
CMB
$bn
332.0
13.7
(1.1)
1.0
8.9
—
(20.8)
1.7
333.7
GBM
$bn
215.9
(3.5)
3.4
(0.7)
4.7
—
(9.9)
(6.0)
209.9
$bn
80.9
(0.6)
(0.8)
(0.1)
(0.9)
—
(1.3)
(3.7)
77.2
$bn
32.9
4.8
—
—
(0.1)
—
—
4.7
37.6
RWA movement by geographical region by key driver
Credit risk, counterparty credit risk and
operational risk
Europe
Asia MENA
North
America
Latin
RWAs at 1 Jan 2022
Asset size
Asset quality
Model updates
Methodology and policy
Acquisitions and disposals
Foreign exchange movements1
Total RWA movement
RWAs at 31 Dec 2022
$bn
236.5
1.5
(2.6)
(3.0)
11.2
—
(20.6)
(13.5)
223.0
$bn
371.0
3.9
7.1
0.2
10.5
—
(12.0)
9.7
380.7
$bn
57.9
3.6
—
0.1
1.4
(0.2)
(4.4)
0.5
58.4
America Market risk
$bn
32.9
4.8
—
—
(0.1)
—
—
4.7
37.6
$bn
34.9
5.2
0.3
—
0.2
—
(2.9)
2.8
37.7
$bn
105.1
1.9
(1.7)
(0.2)
1.0
(1.8)
(2.0)
(2.8)
102.3
$bn
838.3
20.9
3.1
(2.9)
24.2
(2.0)
(41.9)
1.4
839.7
Total
RWAs
$bn
838.3
20.9
3.1
(2.9)
24.2
(2.0)
(41.9)
1.4
839.7
1 Foreign exchange movements in this disclosure are computed by retranslating the RWAs into US dollars for non-US dollar branches, subsidiaries, joint
ventures and associates.
Risk-weighted assets (‘RWAs’) rose by $1.4bn during the year. An
increase of $43.3bn, driven by regulatory change and lending growth,
was partly offset by a decrease of $41.9bn due to favourable foreign
currency translation differences. At 31 December 2022, our
cumulative RWA saves as part of our transformation programme
were $128bn.
Asset size
The $20.9bn increase in RWAs due to asset size movement included
an increase of $4.8bn in market risk RWAs, mostly attributable to
heightened market risk volatility, and an increase in transactional and
structural foreign exchange exposures. The $13.7bn increase in CMB
RWAs reflected corporate loan growth in Europe, Asia and North
America.
HSBC Holdings plc Annual Report and Accounts 2022
207
Risk review
Risk review
GBM RWAs fell by $3.5bn due to a reduction in counterparty credit
risk of $2.8bn, driven by mark-to-market movements and
management initiatives. Lower lending in Europe further reduced
RWAs, which was partly offset by growth in Asia and Latin America.
WPB RWAs increased by $6.5bn, primarily due to lending growth in
Asia and Latin America, largely in term lending and the mortgage
portfolio.
Asset quality
The increase of $3.1bn RWAs was mostly driven by credit migration,
primarily in Europe and Asia and partly offset against portfolio mix
changes.
the introduction of a counterparty credit risk equity model in Europe.
This was mostly offset by a $2.1bn increase in RWAs in GBM and
CMB due to a commercial property loan model in Asia.
Methodology and policy
The $24.2bn increase in RWAs was driven by the regulatory changes
of $27.1bn for revised IRB modelling requirements and the UK‘s
implementation of the CRR II rules.
These increases were partly offset by reductions predominantly due
to data enhancements driven by internal and external reviews of our
regulatory reporting processes, and the reversal of the beneficial
changes to the treatment of software assets in Corporate Centre.
Model updates
Acquisitions and disposals
The $3.1bn RWA decrease in WPB was mostly due to the
implementation of a credit card model in Hong Kong and a retail
model in France. A reduction of $1.6bn RWAs in GBM was driven by
Leverage ratio1
The $2.0bn RWA decrease was mainly due to the $1.8bn sale of WPB
retail branches in US.
Tier 1 capital
Total leverage ratio exposure
Leverage ratio
At
31 Dec
2022
$bn
139.1
2,417.2
%
5.8
31 Dec
2021
$bn
155.0
2,962.7
%
5.2
1 The CRR II regulatory transitional arrangements for IFRS 9 are applied in the leverage ratio calculation. This calculation is in line with the UK leverage
rules that were implemented on 1 January 2022, and excludes central bank claims. Comparatives for 2021 are reported based on the disclosure rules
in force at that time, and include claims on central banks.
Our leverage ratio was 5.8% at 31 December 2022, up from 5.2% at
31 December 2021. The improvement was mainly due to the
exclusion of central bank claims following the implementation of the
UK leverage ratio framework from 1 January 2022, and foreign
exchange translation movement. This was partly offset by a decline in
tier 1 capital.
Any add-back must be tax affected and accompanied by a
recalculation of deferred tax, exposure and RWAs. The impact is
calculated separately for portfolios using the standardised (‘STD’) and
internal ratings-based (‘IRB’) approaches. For IRB portfolios, there is
no add-back to capital unless loan loss allowances exceed regulatory
12-month expected losses.
At 31 December 2022, our UK minimum leverage ratio requirement of
3.25% was supplemented by a leverage ratio buffer of 0.8%, which
consists of an additional leverage ratio buffer of 0.7% and a
countercyclical leverage ratio buffer of 0.1%. These buffers translated
into capital values of $16.9bn and $2.4bn respectively. We exceeded
these leverage requirements.
Regulatory transitional arrangements for
IFRS 9 ‘Financial Instruments’
We have adopted the regulatory transitional arrangements in CRR II
for IFRS 9, including paragraph four of article 473a. Our capital and
ratios are presented under these arrangements throughout the tables
in this section, including in the end point figures. Without their
application, our CET1 ratio would be 14.2%.
The IFRS 9 regulatory transitional arrangements allow banks to add
back to their capital base a proportion of the impact that IFRS 9 has
upon their loan loss allowances. The impact is defined as:
• the increase in loan loss allowances on day one of IFRS 9
adoption; and
• any subsequent increase in ECL in the non-credit-impaired book
thereafter.
The EU’s CRR ‘Quick Fix’ relief package increased the 2022 scalar
from 25% to 75% the relief that banks may take for loan loss
allowances recognised since 1 January 2020 on the
non-credit-impaired book.
In the current period, the add-back to CET1 capital amounted to
$0.4bn under the STD approach with a tax impact of $0.1bn. At
31 December 2021, the add-back to the capital base under the STD
approach was $1.0bn with a tax impact of $0.2bn.
Pillar 3 disclosure requirements
Pillar 3 of the Basel regulatory framework is related to market
discipline and aims to make financial services firms more transparent
by requiring publication of wide-ranging information on their risks,
capital and management. Our Pillar 3 Disclosures at 31 December
2022 is published on our website at www.hsbc.com/investors.
208
HSBC Holdings plc Annual Report and Accounts 2022
Liquidity and funding risk in 2022
Liquidity metrics
At 31 December 2022, all of the Group’s material operating entities
were above regulatory minimum liquidity and funding levels.
Each entity maintains sufficient unencumbered liquid assets to
comply with local and regulatory requirements. The liquidity value of
these assets for each entity is shown in the following table, along
with the individual LCR ratio on a local regulatory requirements basis
wherever applicable. Where local regulatory requirements are not
Operating entities’ liquidity1
applicable, the PRA LCR is shown. The local basis may differ from
PRA measures due to differences in the way regulators have
implemented the Basel III standards.
Each entity maintains a sufficient stable funding profile and is
assessed using the NSFR or other appropriate metrics.
In addition to regulatory metrics, we use a wide set of measures to
manage our liquidity and funding profile.
The Group liquidity and funding position on an average basis is
analysed in the following sections.
At 31 December 2022
HSBC UK Bank plc (ring-fenced bank)2
HSBC Bank plc (non-ring-fenced bank)3,4
The Hongkong and Shanghai Banking Corporation – Hong Kong branch5
HSBC Singapore6
Hang Seng Bank
HSBC Bank China
HSBC Bank USA
HSBC Continental Europe 7,8
HSBC Bank Middle East Ltd – UAE branch
HSBC Canada7
HSBC Mexico
HSBC UK Bank plc (ring-fenced bank)2
HSBC Bank plc (non-ring-fenced bank)3,4
The Hongkong and Shanghai Banking Corporation – Hong Kong branch5
HSBC Singapore6
Hang Seng Bank
HSBC Bank China
HSBC Bank USA
HSBC Continental Europe7
HSBC Bank Middle East Ltd – UAE branch
HSBC Canada7
HSBC Mexico
%
226
143
179
247
228
183
164
151
239
149
155
222
142
190
277
200
155
169
142
203
154
210
LCR
HQLA
Net
outflows
$bn
$bn
136
128
147
21
50
23
85
55
12
22
8
At 31 December 2021
143
118
139
19
48
23
104
56
12
25
9
NSFR
%
164
115
130
173
156
132
131
132
158
122
129
176
115
136
165
145
143
145
131
154
125
138
60
90
82
9
22
13
52
37
5
15
5
64
84
74
7
24
15
62
39
6
16
4
1 The LCR and NSFR ratios presented in the above table are based on average values. The LCR is the average of the preceding 12 months. The NSFR is
the average of the preceding four quarters. Prior period numbers have been restated for consistency.
2 HSBC UK Bank plc refers to the HSBC UK liquidity group, which comprises four legal entities: HSBC UK Bank plc, Marks and Spencer Financial
Services plc, HSBC Private Bank (UK) Ltd and HSBC Trust Company (UK) Limited, managed as a single operating entity, in line with the application of
UK liquidity regulation as agreed with the PRA.
3 HSBC Bank plc includes overseas branches and special purpose entities consolidated by HSBC for financial statements purposes.
4 HSBC Bank plc implemented a strategic data enhancement that resulted in a reclassification of some securities. This reclassification drove a reduction
in total HQLA and corresponding LCR as of 31 December 2022. Prior period numbers have been restated for consistency.
5 The Hongkong and Shanghai Banking Corporation – Hong Kong branch represents the material activities of The Hongkong and Shanghai Banking
Corporation Limited.
6 HSBC Singapore includes HSBC Bank Singapore Limited and The Hongkong and Shanghai Banking Corporation – Singapore branch. Liquidity and
funding risk is monitored and controlled at country level in line with the local regulator’s approval. Prior period numbers have been restated for
consistency.
7 HSBC Continental Europe and HSBC Canada represent the consolidated banking operations of the Group in France and Canada, respectively. HSBC
Continental Europe and HSBC Canada are each managed as single distinct operating entities for liquidity purposes.
8 In response to the requirement for an intermediate parent undertaking in line with EU Capital Requirements Directive (’CRD V’), HSBC Continental
Europe acquired control of HSBC Germany and HSBC Bank Malta on 30 November 2022. The averages for LCR and NSFR includes the impact of the
inclusion of two entities for November 2022 and December 2022.
HSBC Holdings plc Annual Report and Accounts 2022
209
Risk review
Risk review
Consolidated liquidity metrics
Liquidity pool by currency1
Net stable funding ratio
From 1 January 2022, we started managing funding risk based on the
PRA’s NSFR rules. The Group’s NSFR at 31 December 22, calculated
from the average of the four preceding quarters average, was 136%.
Total available stable funding ($bn)
Total required stable funding ($bn)
NSFR ratio (%)
31 Dec
2022
$bn
1,552
1,138
136
At1
30 Jun
2022
$bn
1,567
1,139
138
31 Dec
2021
$bn
N/A
N/A
N/A
1 Group NSFR numbers above are based on average values. The NSFR
number is the average of the preceding quarters.
Liquidity coverage ratio
At 31 December 2022, the average HQLA held at entity level
amounted to $812bn (31 December 2021: $861bn). Since 2021, we
have implemented a revised approach to the application of the
requirements under the European Commission Delegated Regulation
(EU) 2015/61 and PRA rule book. This revised approach was used to
reflect the impact of limitations in the transferability of entity liquidity
around the Group, and resulted in an adjustment of $165bn to LCR
HQLA and $9bn to LCR inflows on an average basis. The change in
methodology was designed to better incorporate local regulatory
restrictions on the transferability of liquidity.
High-quality liquid assets (in entities)
EC Delegated Act adjustment for transfer
restrictions2
Group LCR HQLA
Net outflows
Liquidity coverage ratio
31 Dec
2022
$bn
812
(174)
647
491
132%
At1
30 Jun
2022
$bn
848
(181)
676
500
135%
31 Dec
2021
$bn
861
(176)
688
495
139%
1 Group LCR numbers above are based on average values. The LCR is
the average of the preceding 12 months.
2 This includes adjustments made to high-quality liquid assets and
inflows in entities to reflect liquidity transfer restrictions.
Liquid assets
After the $165bn adjustment, the average Group LCR HQLA of
$647bn (31 December 2021: $688bn) was held in a range of asset
classes and currencies. Of these, 97% were eligible as level 1
(31 December 2021: 93%).
The following tables reflect the composition of the average liquidity
pool by asset type and currency at 31 December 2022.
Liquidity pool by asset type1
Cash and balance at central
bank
Central and local government
bonds
Regional government public
sector entities
International organisation and
multilateral developments
banks
Covered bonds
Other
Total at 31 Dec 2022
Total at 31 Dec 2021
Liquidity
pool
$bn
Cash Level 12 Level 22
$bn
$bn
$bn
344
344
—
288
—
272
2
—
2
9
2
2
647
688
—
—
—
344
390
9
—
1
284
251
—
16
—
—
2
1
19
47
1 Group liquid assets numbers are based on average values.
2 As defined in EU regulations, level 1 assets means ‘assets of
extremely high liquidity and credit quality’, and level 2 assets means
‘assets of high liquidity and credit quality’.
210
HSBC Holdings plc Annual Report and Accounts 2022
Liquidity pool at 31 Dec
2022
Liquidity pool at 31 Dec
2021
$
$bn
£
$bn
€
$bn
HK$ Other Total
$bn
$bn
$bn
167 191
98
54
137 647
176 206 117
67
122 688
1 Group liquid assets numbers are based on average values.
Sources of funding
Our primary sources of funding are customer current accounts and
savings deposits payable on demand or at short notice. We issue
secured and unsecured wholesale securities to supplement customer
deposits, meet regulatory obligations and to change the currency mix,
maturity profile or location of our liabilities.
The following ‘Funding sources’ and ‘Funding uses’ tables provide a
view of how our consolidated balance sheet is funded. In practice, all
the principal operating entities are required to manage liquidity and
funding risk on a stand-alone basis.
The tables analyse 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 at a net balancing
source or deployment of funds.
Funding sources
(Audited)
Customer accounts
Deposits by banks
Repurchase agreements – non-trading
Debt securities in issue
Cash collateral, margin and settlement accounts
Liabilities of disposal groups held for sale1
Subordinated liabilities
Financial liabilities designated at fair value
Liabilities under insurance contracts
Trading liabilities
– repos
– stock lending
– other trading liabilities
Total equity
Other balance sheet liabilities
At 31 Dec
Funding uses
(Audited)
2022
$m
2021
$m
1,570,303 1,710,574
101,152
126,670
78,557
65,452
9,005
20,487
145,502
112,745
84,904
11,004
2,332
71,568
206,777
296,114
2,966,530 2,957,939
66,722
127,747
78,149
88,468
114,597
22,290
127,327
114,844
72,353
16,254
3,541
52,558
196,028
387,702
Loans and advances to customers
Loans and advances to banks
Reverse repurchase agreements – non-trading
Cash collateral, margin and settlement accounts
Assets held for sale1
Trading assets
– reverse repos
– stock borrowing
– other trading assets
Financial investments
Cash and balances with central banks
Other balance sheet assets
At 31 Dec
2022
$m
2021
$m
924,854 1,045,814
83,136
104,882
241,648
253,754
59,884
82,986
3,411
115,919
248,842
218,093
14,994
14,797
8,082
10,706
225,766
192,590
446,274
425,564
403,018
327,002
425,912
513,476
2,966,530 2,957,939
1 ‘Liabilities of disposal groups held for sale’ includes $85bn and $27bn
and ‘Assets held for sale’ includes $90bn and $23bn, in respect of
planned sale of our banking business in Canada and planned sale of our
retail banking operations in France respectively, that were classified as
assets held for sale during 2022.
Wholesale term debt maturity profile
The maturity profile of our wholesale term debt obligations is set out
in the following table. The balances in the table are not directly
comparable with those in the consolidated balance sheet because the
table presents gross cash flows relating to principal payments and not
the balance sheet carrying value, which includes debt securities and
subordinated liabilities measured at fair value.
Wholesale funding cash flows payable by HSBC under financial liabilities by remaining contractual maturities1
Due not
more
than
1 month
Due over
1 month
but not
more than
3 months
Due over
3 months
but not
more than
6 months
Due over
6 months
but not
more than
9 months
Due over
9 months
but not
more
than
1 year
Due over
1 year
but not
more than
2 years
Due over
2 years
but not
more than
5 years
Due
over
5 years
Total
Debt securities issued
– unsecured CDs and CP
– unsecured senior MTNs
– unsecured senior structured notes
– secured covered bonds
– secured asset-backed commercial paper
– secured ABS
– others
Subordinated liabilities
– subordinated debt securities
– preferred securities
At 31 Dec 2022
Debt securities issued
– unsecured CDs and CP
– unsecured senior MTNs
– unsecured senior structured notes
– secured covered bonds
– secured asset-backed commercial paper
– secured ABS
– others
Subordinated liabilities
– subordinated debt securities
– preferred securities
At 31 Dec 2021
$m
11,959
3,821
5,973
1,264
—
690
15
196
—
—
—
11,959
17,602
4,586
8,542
2,090
—
956
1
1,427
—
—
—
17,602
$m
11,266
6,017
2,351
1,421
—
—
28
1,449
—
—
—
11,266
14,593
6,795
4,140
1,610
1,137
—
133
778
—
—
—
14,593
$m
12,532
7,088
3,534
1,247
—
—
40
623
11
11
—
12,543
9,293
4,281
2,633
1,017
—
—
33
1,329
11
11
—
9,304
$m
8,225
4,137
1,363
1,850
—
—
38
837
160
160
—
8,385
9,249
2,837
2,078
975
997
—
31
2,331
—
—
—
9,249
$m
8,212
3,123
3,238
1,627
—
—
36
188
—
—
—
8,212
5,233
1,189
2,074
1,206
—
—
193
571
—
—
—
5,233
$m
26,669
1,264
19,229
4,463
—
—
123
1,590
2,000
2,000
—
28,669
25,058
947
14,932
2,996
2,417
—
896
2,870
417
417
—
25,475
1 Excludes financial liabilities of disposal groups.
$m
$m
707
$m
52,435 52,952 184,250
1,004 27,161
44,023 44,021 123,732
5,990 20,471
2,609
602
602
690
—
1,156
656
3,838
1,717 10,438
5,581 25,189 32,941
5,581 23,446 31,198
1,743
1,743
58,016 78,141 217,191
—
—
220
—
834
55,388 56,639 193,055
931 22,400
45,063 45,259 124,721
8,604 21,880
3,382
6,548
1,997
956
—
3,081
1,696
2,416
1,747 13,469
7,023 21,274 28,725
7,023 19,427 26,878
1,847
1,847
62,411 77,913 221,780
—
—
98
—
HSBC Holdings plc Annual Report and Accounts 2022
211
Risk review
Risk review
Structural foreign exchange risk in 2022
Structural foreign exchange exposures represent net assets or capital investments in subsidiaries, branches, joint arrangements or associates,
together with any associated hedges, the functional currencies of which are currencies other than the US dollar. Exchange differences on
structural exposures are usually recognised in ‘other comprehensive income’.
Net structural foreign exchange exposures
Net
investment
in foreign
operations
(excl non-
controlling
interest)
Net
investment
hedges
2022
Structural
foreign
exchange
exposures
(pre-
economic
hedges)
$m
47,204
39,535
35,801
15,182
4,402
4,967
3,989
4,182
4,534
2,715
3,108
2,264
2,058
1,453
1,233
1,283
908
746
785
968
5,135
182,452
44,714
47,935
35,879
14,671
5,147
5,106
3,598
4,115
4,155
2,713
2,339
2,300
2,105
1,748
1,107
1,219
859
1,051
725
795
5,242
187,523
$m
(4,597)
(14,000)
(3,532)
(777)
(811)
(1,380)
—
(109)
(731)
—
(358)
—
(1,140)
(469)
(727)
(817)
—
—
(200)
—
(495)
(30,143)
(4,992)
(15,717)
—
—
(1,093)
—
—
—
(700)
—
(680)
—
(1,019)
—
(809)
(696)
—
—
—
—
(200)
(25,906)
$m
42,607
25,535
32,269
14,405
3,591
3,587
3,989
4,073
3,803
2,715
2,750
2,264
918
984
506
466
908
746
585
968
4,640
152,309
2021
39,722
32,218
35,879
14,671
4,054
5,106
3,598
4,115
3,455
2,713
1,659
2,300
1,086
1,748
298
523
859
1,051
725
795
5,042
161,617
Economic
hedges –
structural
FX hedges1
$m
(8,363)
—
(994)
—
—
—
—
—
(2,285)
—
—
—
—
—
—
—
—
—
(277)
—
(36)
(11,955)
(7,935)
—
(1,255)
—
—
—
—
—
(1,985)
—
—
—
—
—
—
—
—
—
(332)
—
(36)
(11,543)
Economic
hedges –
equity
securities
(AT1)2
$m
—
(1,205)
—
(2,402)
—
—
—
—
—
—
(559)
—
—
—
—
—
—
—
—
—
—
(4,166)
—
(1,353)
—
(4,262)
—
—
—
—
—
—
(1,298)
—
—
—
—
—
—
—
—
—
—
(6,913)
Net
structural
foreign
exchange
exposures
$m
34,244
24,330
31,275
12,003
3,591
3,587
3,989
4,073
1,518
2,715
2,191
2,264
918
984
506
466
908
746
308
968
4,604
136,188
31,787
30,865
34,624
10,409
4,054
5,106
3,598
4,115
1,470
2,713
361
2,300
1,086
1,748
298
523
859
1,051
393
795
5,006
143,161
Currency of structural exposure
Hong Kong dollars
Pounds sterling
Chinese renminbi
Euros
Canadian dollars
Indian rupees
Mexican pesos
Saudi riyals
UAE dirhams
Malaysian ringgit
Singapore dollars
Australian dollars
Taiwanese dollars
Indonesian rupiah
Swiss francs
Korean won
Thai baht
Egyptian pound
Qatari rial
Argentinian peso
Others, each less than $700m
At 31 Dec
Hong Kong dollars
Pounds sterling
Chinese renminbi
Euros
Canadian dollars
Indian rupees
Mexican pesos
Saudi riyals
UAE dirhams
Malaysian ringgit
Singapore dollars
Australian dollars
Taiwanese dollars
Indonesian rupiah
Swiss francs
Korean won
Thai baht
Egyptian pound
Qatari rial
Argentinian peso
Others, each less than $700m
At 31 Dec
1 Represents hedges that do not qualify as net investment hedges for accounting purposes.
2 Represents foreign currency-denominated preference share and AT1 instruments. These are accounted for at historical cost under IFRSs and do not
qualify as net investment hedges for accounting purposes. The gain or loss arising from changes in the US dollar value of these instruments is
recognised on redemption in retained earnings.
For definition of structural foreign exchange exposures, see page 205.
212
HSBC Holdings plc Annual Report and Accounts 2022
Interest rate risk in the banking book
in 2022
Net interest income sensitivity
The following tables set out the assessed impact to a hypothetical
base case projection of our banking book NII under the following
scenarios:
• an immediate shock of 25 basis points (‘bps’) to the current
market-implied path of interest rates across all currencies on
1 January 2023 (effects over one year and five years); and
• an immediate shock of 100bps to the current market-implied path
of interest rates across all currencies on 1 January 2023 (effects
over one year and five years).
The sensitivities shown represent a hypothetical simulation of the
base case NII, assuming a static balance sheet (specifically no
assumed migration from current account to term deposits), no
management actions from Global Treasury and a simplified 50% pass-
on assumption applied for material entities. This also incorporates the
effect of interest rate behaviouralisation, hypothetical managed rate
product pricing assumptions, prepayment of mortgages and deposit
stability. The sensitivity calculations exclude pensions, insurance and
investments in subsidiaries.
The NII sensitivity analysis performed in the case of a down-shock
does not include floors to market rates, and it does not include floors
on some wholesale assets and liabilities. However, floors have been
maintained for deposits and loans to customers where this is
contractual or where negative rates would not be applied.
including the absolute level of market rates, regulatory and contractual
frameworks, and competitive dynamics. To aid comparability between
markets, we have simplified the basis of preparation for our
disclosure, and have used a 50% pass-on assumption for major
entities on certain interest bearing deposits. Our pass-through asset
assumptions are largely in line with our contractual agreements or
established market practice, which typically results in a significant
portion of interest rate changes being passed on.
The one-year and five-year NII sensitivities in the down-shock
scenarios decreased at 31 December 2022 at Group level when
compared with 31 December 2021. This was driven by changes in the
forecasted yield curves and changes in balance sheet composition.
Immediate interest rate rises of 25bps and 100bps would increase
projected NII for the 12 months to 31 December 2023 by $884m and
$3,535m, respectively. Immediate interest rate falls of 25bps and
100bps would decrease projected NII for the 12 months to
31 December 2023 by $973m and $3,969m, respectively.
The sensitivity of NII for 12 months decreased by $1,879m in the plus
100bps parallel shock and by $1,792m in the minus 100bps parallel
shock, comparing 31 December 2022 with 31 December 2021. The
decrease in the sensitivity of NII for 12 months in the plus 100bps
parallel shock was mainly driven by changes in market pricing,
reflecting current market expectations of main policy rates. The key
drivers of the reduction in NII sensitivity are the reduced effects of
flooring as rates have moved higher, deposit migration, and
management actions.
The sensitivities broken down by currency in the tables below do not
include the impact of vanilla foreign exchange swaps to optimise cash
management across the Group.
As market and policy rates move, the degree to which these changes
are passed on to customers will vary based on a number of factors,
For further details of measurement of interest rate risk in the banking
book, see page 204.
NII sensitivity to an instantaneous change in yield curves (12 months) – 1 year NII sensitivity by currency
Change in Jan 2023 to Dec 2023 (based on balance sheet at 31 December 2022)
+25bps parallel
-25bps parallel
+100bps parallel
-100bps parallel
Change in Jan 2022 to Dec 2022 (based on balance sheet at 31 December 2021)
+25bps parallel
-25bps parallel
+100bps parallel
-100bps parallel
.
$
$m
(66)
64
(267)
236
125
(257)
458
(466)
Currency
£
$m
HK$
$m
107
(115)
413
(476)
265
(536)
1,054
(1,020)
245
(289)
1,026
(1,177)
420
(594)
1,739
(2,070)
€
$m
Other
$m
Total
$m
167
(194)
674
(765)
106
(170)
632
(595)
431
(439)
1,689
(1,787)
393
(395)
1,532
(1,610)
884
(973)
3,535
(3,969)
1,309
(1,952)
5,414
(5,761)
NII sensitivity to an instantaneous change in yield curves (5 years) – Cumulative 5 years NII sensitivity by currency
Change in Jan 2023 to Dec 2027 (based on balance sheet at 31 December 2022)
+25bps parallel
-25bps parallel
+100bps parallel
-100bps parallel
Change in Jan 2022 to Dec 2026 (based on balance sheet at 31 December 2021)
+25bps parallel
-25bps parallel
+100bps parallel
-100bps parallel
$
$m
192
(282)
673
(1,522)
1,026
(1,701)
3,922
(5,060)
Currency
£
$m
HK$
$m
€
$m
Other
$m
Total
$m
668
(688)
2,401
(3,004)
2,315
(2,336)
9,254
(9,454)
924
(1,044)
3,764
(4,173)
2,500
(2,498)
9,765
(10,317)
6,599
(6,848)
25,857
(28,470)
1,410
(2,887)
4,870
(7,052)
3,333
(4,216)
13,389
(14,893)
827
(997)
3,919
(3,571)
2,510
(2,600)
9,841
(10,481)
9,106
(12,401)
35,941
(41,057)
The net interest income sensitivities arising from the scenarios presented in the tables above are not directly comparable. This is due to timing
differences relating to interest rate changes and the repricing of assets and liabilities.
HSBC Holdings plc Annual Report and Accounts 2022
213
Risk review
Risk review
NII sensitivity to an instantaneous change in yield curves (5 years) – NII sensitivity by years
Change in Jan 2023 to Dec 2027 (based on balance sheet at 31 December 2022)
+25bps parallel
-25bps parallel
+100bps parallel
-100bps parallel
Change in Jan 2022 to Dec 2026 (based on balance sheet at 31 December 2021)
+25bps parallel
-25bps parallel
+100bps parallel
-100bps parallel
Year 1
$m
Year 2
$m
Year 3
$m
Year 4
$m
Year 5
$m
Total
$m
884
(973)
3,535
(3,969)
1,309
(1,952)
5,414
(5,761)
1,145
(1,178)
4,565
(4,944)
1,758
(2,324)
6,738
(7,664)
1,378
(1,420)
5,367
(5,925)
1,896
(2,593)
7,492
(8,675)
1,550
(1,579)
5,962
(6,565)
2,002
(2,687)
7,937
(9,354)
1,642
(1,699)
6,429
(7,067)
6,599
(6,848)
25,857
(28,470)
2,141
(2,845)
8,359
(9,603)
9,106
(12,401)
35,941
(41,057)
Non-trading value at risk
Non-trading portfolios comprise positions that primarily arise from the
interest rate management of our retail and commercial banking assets
and liabilities, financial investments measured at fair value through
other comprehensive income, debt instruments measured at
amortised cost, and exposures arising from our insurance operations.
Value at risk of non-trading portfolios
Value at risk (‘VaR’) is a technique for estimating potential losses on
risk positions as a result of movements in market rates and prices
over a specified time horizon and to a given level of confidence. The
use of VaR is integrated into the market risk management of non-
trading portfolios to have a complete picture of risk, complementing
risk sensitivity analysis.
Our models are predominantly based on historical simulation that
incorporates the following features:
• historical market rates and prices, which are calculated with
reference to interest rates, credit spreads and the associated
volatilities;
• potential market movements that are calculated with reference to
data from the past two years; and
• calculations to a 99% confidence level and using a one-day holding
period.
Daily VaR (non-trading portfolios), 99% 1 day ($m)
Although a valuable guide to risk, VaR is used for non-trading
portfolios with awareness of its limitations. For example:
• The use of historical data as a proxy for estimating future market
moves may not encompass all potential market events, particularly
those that are extreme in nature. As the model is calibrated on the
last 500 business days, it does not adjust instantaneously to a
change in the market regime.
• The use of a one-day holding period for risk management purposes
of non-trading books is only an indication of exposure and not
indicative of the time period required to hedge or liquidate
positions.
• The use of a 99% confidence level by definition does not take into
account losses that might occur beyond this level of confidence.
The interest rate risk on the fixed-rate securities issued by HSBC
Holdings is not included in the Group non-trading VaR. The
management of this risk is described on page 217. Non-trading VaR
also excludes the equity risk on securities held at fair value and non-
trading book foreign exchange risk.
The VaR for non-trading activity at 31 December 2022 was lower than
at 31 December 2021.
The daily levels of total non-trading VaR in 2022 are set out in the
graph below.
214
HSBC Holdings plc Annual Report and Accounts 2022
Non-trading total IR non-trading CS non-trading intent DiversificationDec-21Jan-22Feb-22Mar-22Apr-22May-22Jun-22Jul-22Aug-22Sep-22Oct-22Nov-22Dec-22-100-80-60-40-20020406080100120140160180200220240260280300
The Group non-trading VaR for 2022 is shown in the table below.
Non-trading VaR, 99% 1 day
(Audited)
Balance at 31 Dec 2022
Average
Maximum
Minimum
Balance at 31 Dec 2021
Average
Maximum
Minimum
Interest
rate
$m
159.8
134.6
225.5
98.3
216.4
200.7
248.7
163.3
Credit
spread
$m
56.6
56.9
84.7
43.4
70.3
76.9
99.3
64.7
Portfolio
diversification1
$m
(45.3)
(35.9)
(66.3)
(40.3)
—
—
Total2
$m
171.1
155.6
265.3
106.3
220.4
237.3
298.8
193.5
1 Portfolio diversification is the market risk dispersion effect of holding a portfolio containing different risk types. It represents the reduction in
unsystematic market risk that occurs when combining a number of different risk types – such as interest rate and credit spreads – together in one
portfolio. It is measured as the difference between the sum of the VaR by individual risk type and the combined total VaR. A negative number
represents the benefit of portfolio diversification. As the maximum and minimum occurs on different days for different risk types, it is not meaningful
to calculate a portfolio diversification benefit for these measures.
2 The total VaR is non-additive across risk types due to diversification effects.
The decrease at the end of February was primarily driven by Covid-19
scenarios moving out of the two-year historical scenario window used
to calculate VaR. Non-trading VaR remained at relatively low levels
throughout the next two quarters, with an increase in duration risk
exposure in Global Treasury during November driving an increase in
both interest rate and total VaR. The average portfolio diversification
effect between interest rate and credit spread exposure remained
relatively stable between 2021 and 2022.
Sensitivity of capital and reserves
Hold-to-collect-and-sell stressed VaR is a quantification of the
potential losses to a 99% confidence level of the portfolio of high-
quality liquid assets held under a hold-to-collect-and-sell business
model in Global Treasury. The portfolio is accounted for at fair value
through other comprehensive income together with the derivatives
held in designated hedging relationships with these securities. The
mark-to-market of this portfolio therefore has an impact on CET1.
Stressed VaR 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. At the end of December 2022, the stressed VaR of
the portfolio was $2.15bn (2021: $3.63bn). The decrease was
primarily due to actions taken to reduce the overall duration risk of the
portfolio in order to dampen the capital impact from higher interest
rates.
Alongside our monitoring of the stressed VaR of this portfolio, we
also monitor the sensitivity of reported cash flow hedging reserves to
interest rate movements on a yearly basis by assessing the expected
reduction in valuation of cash flow hedges due to parallel movements
of plus or minus 100bps in all yield curves.
The following table describes the sensitivity of our cash flow hedge
reported reserves to the stipulated movements in yield curves at the
year end. The sensitivities are indicative and based on simplified
scenarios. These particular exposures form only a part of our overall
interest rate exposure. We apply flooring on negative rates in the
minus 100bps scenario in this assessment. However, due to
increases in interest rates in most major markets, the effect of this
flooring is immaterial at the end of 2022.
Comparing 31 December 2022 with 31 December 2021, the
sensitivity of the cash flow hedging reserve increased by $368m in
the plus 100bps scenario and increased by $375m in the minus
100bps scenario. Although our largest exposure by currency remained
fixed rate pound sterling hedges transacted in HSBC UK Bank plc, the
increase in sensitivity during 2022 was driven by increases in hedge
exposure in a variety of other currencies including US dollars and
Hong Kong dollars.
Sensitivity of cash flow hedging reported reserves to interest rate movements
At 31 Dec 2022
+100 basis point parallel move in all yield curves
As a percentage of total shareholders’ equity
-100 basis point parallel move in all yield curves
As a percentage of total shareholders’ equity
At 31 Dec 2021
+100 basis point parallel move in all yield curves
As a percentage of total shareholders’ equity
-100 basis point parallel move in all yield curves
As a percentage of total shareholders’ equity
$m
(1,899)
(1.01)%
1,912
1.02%
(1,531)
(0.77)%
1,537
0.78%
Third-party assets in Markets Treasury
Third-party assets in Markets Treasury decreased by 3% compared
with 31 December 2021. The net decrease of $22bn was partly
reflective of a reduction in our commercial surplus during the year, as
well as the impact of foreign exchange rates and interest rates, as
central banks tightened monetary policy during 2022. The increase of
$31bn in ‘Other’ was largely driven by the reclassification of our
banking business in Canada to held for sale.
HSBC Holdings plc Annual Report and Accounts 2022
215
Risk review
Risk review
Third-party assets in Markets Treasury
Cash and balances at central banks
Trading assets
Loans and advances:
– to banks
– to customers
Reverse repurchase agreements
Financial investments
Other
At 31 Dec
2022
$m
317,479
498
67,612
2,102
53,016
319,852
36,192
796,751
2021
$m
379,106
329
47,363
371
47,067
338,692
5,451
818,379
Defined benefit pension plans
Market risk arises within our defined benefit pension plans to the
extent that the obligations of the plans are not fully matched by
assets with determinable cash flows.
For details of our defined benefit plans, including asset allocation, see
Note 5 on the financial statements, and for pension risk management,
see page 205.
Additional market risk measures applicable
only to the parent company
.
HSBC Holdings monitors and manages foreign exchange risk and
interest rate risk. In order to manage interest rate risk, HSBC Holdings
uses the projected sensitivity of its NII to future changes in yield
curves and the interest rate repricing gap tables.
During 2022, HSBC Holdings hedged $22.7bn of previously unhedged
issuances. The impact can be observed in the NII sensitivity tables
with a change from positive to negative sensitivities due to increases
in interest rates.
Foreign exchange risk
HSBC Holdings’ foreign exchange exposures derive almost entirely
from the execution of structural foreign exchange hedges on behalf of
the Group as its business-as-usual foreign exchange exposures are
managed within tight risk limits. At 31 December 2022, HSBC
Holdings had forward foreign exchange contracts of
NII sensitivity to an instantaneous change in yield curves (12 months)
$30.1bn (2021: $25.9bn) to manage the Group’s structural foreign
exchange exposures.
For further details of our structural foreign exchange exposures, see
page 212.
Sensitivity of net interest income
HSBC Holdings monitors NII sensitivity over 12-month and five-year
time horizons, reflecting the longer-term perspective on interest rate
risk management appropriate to a financial services holding company.
These sensitivities assume that any issuance where HSBC Holdings
has an option to reimburse at a future call date is called at this date.
The tables below set out the effect on HSBC Holdings’ future NII of
the following scenarios:
• an immediate shock of 25bps to the current market-implied path of
interest rates across all currencies on 1 January 2023; and
• an immediate shock of 100bps to the current market-implied path
of interest rates across all currencies on 1 January 2023.
The NII sensitivities shown are indicative and based on simplified
scenarios. Immediate interest rate rises of 25bps and 100bps would
decrease projected NII for the 12 months to 31 December 2023 by
$60m and $240m respectively. Conversely, falls of 25bps and 100bps
would increase projected NII for the 12 months to 31 December 2023
by $60m and $240m respectively.
Change in Jan 2023 to Dec 2023 (based on balance sheet at 31 December 2022)
+25bps
-25bps
+100bps
-100bps
Change in Jan 2022 to Dec 2022 (based on balance sheet at 31 December 2021)
+25bps
-25bps
+100bps
-100bps
NII sensitivity to an instantaneous change in yield curves (5 years)
Change in Jan 2023 to Dec 2023 (based on balance sheet at 31 December 2022)
+25bps
-25bps
+100bps
-100bps
Change in Jan 2022 to Dec 2022 (based on balance sheet at 31 December 2021)
+25bps
-25bps
+100bps
-100bps
216
HSBC Holdings plc Annual Report and Accounts 2022
$
$m
HK$
$m
(66)
66
(265)
265
16
(16)
65
(64)
—
—
—
—
—
—
—
—
£
$m
4
(4)
16
(16)
8
(8)
31
(31)
€
$m
Other
$m
Total
$m
2
(2)
9
(9)
4
(4)
16
(14)
—
—
—
—
—
—
—
—
(60)
60
(240)
240
29
(28)
113
(109)
Year 1
$m
Year 2
$m
Year 3
$m
Year 4
$m
Year 5
$m
Total
$m
(60)
60
(240)
240
29
(28)
113
(109)
(41)
41
(162)
162
44
(44)
177
(174)
(36)
36
(143)
143
45
(45)
180
(174)
(37)
37
(148)
148
38
(38)
152
(148)
(38)
38
(154)
154
—
28
(28)
112
(109)
(212)
212
(847)
847
184
(183)
733
(715)
The figures represent hypothetical movements in NII based on our
projected yield curve scenarios, HSBC Holdings’ current interest rate
risk profile and assumed changes to that profile during the next five
years.
The sensitivities represent our assessment of the change to a
hypothetical base case based on a static balance sheet assumption,
and do not take into account the effect of actions that could be taken
to mitigate this interest rate risk.
Interest rate repricing gap table
The interest rate risk on the fixed-rate securities issued by HSBC
Holdings is not included within the Group VaR, but is managed on a
repricing gap basis. The following ‘Repricing gap analysis of HSBC
Holdings’ table analyses the full term structure of interest rate
mismatches within HSBC Holdings’ balance sheet where debt
issuances are reflected based on either the next repricing date if
floating rate or the maturity/call date (whichever is first) if fixed rate.
Repricing gap analysis of HSBC Holdings
Cash at bank and in hand:
– balances with HSBC undertakings
Derivatives
Loans and advances to HSBC undertakings
Financial investments in HSBC undertakings
Investments in subsidiaries
Other assets
Total assets
Amounts owed to HSBC undertakings
Financial liabilities designated at fair values
Derivatives
Debt securities in issue
Other liabilities
Subordinated liabilities
Total equity
Total liabilities and equity
Off-balance sheet items attracting interest rate sensitivity
Net interest rate risk gap at 31 Dec 2022
Cumulative interest rate gap
Cash at bank and in hand:
– balances with HSBC undertakings
Derivatives
Loans and advances to HSBC undertakings
Financial investments in HSBC undertakings
Investments in subsidiaries
Other assets
Total assets
Amounts owed to HSBC undertakings
Financial liabilities designated at fair values
Derivatives
Debt securities in issue
Other liabilities
Subordinated liabilities
Total equity
Total liabilities and equity
Off-balance sheet items attracting interest rate sensitivity
Net interest rate risk gap at 31 Dec 20211
Cumulative interest rate gap
Total
$m
2,590
2,811
76,516
26,194
163,211
1,850
273,172
(111)
(32,418)
(1,220)
(67,483)
(4,551)
(17,059)
(150,330)
(273,172)
2,590
2,811
76,516
26,194
163,211
1,850
273,172
(111)
(32,418)
(1,220)
(67,483)
(4,551)
(17,059)
(150,330)
(273,172)
Up to
1 year
From over
1 to 5 years
From over
5 to 10
years
More than
10 years
Non-interest
bearing
$m
$m
$m
$m
$m
2,590
22,545
22,917
5,425
29,759
3,268
8,395
20,347
2,000
600
53,477
41,422
20,947
2,000
(5,925)
(10,801)
(14,942)
(750)
(11,244)
(34,917)
(19,322)
(2,000)
(1,131)
(2,446)
(20,746)
(18,797)
13,952
13,952
2,590
22,545
22,917
5,425
(3,705)
(11,096)
(60,519)
(10,871)
(8,226)
5,726
(1,780)
(8,721)
(44,765)
1,434
(22,384)
(16,658)
(10,443)
(13,193)
6,184
(5,009)
(21,667)
29,759
3,268
8,395
20,347
2,000
600
53,477
41,422
20,947
2,000
(5,925)
(10,801)
(14,942)
(750)
(11,244)
(34,917)
(19,322)
(2,000)
(1,131)
(2,446)
(20,746)
(18,797)
13,952
13,952
(3,705)
(11,096)
(60,519)
(10,871)
(8,226)
5,726
(1,780)
(8,721)
(44,765)
1,434
(22,384)
(16,658)
(10,443)
(13,193)
6,184
(5,009)
(21,667)
2,811
1,865
9
148,791
1,850
155,326
(111)
(1,220)
(4,551)
(128,067)
(133,949)
308
21,667
2,811
1,865
9
148,791
1,850
155,326
(111)
(1,220)
(4,551)
(128,067)
(133,949)
308
21,667
1
Investments in subsidiaries and equity have been allocated based on call dates for any callable bonds. The prior year figures have been amended to
reflect this.
HSBC Holdings plc Annual Report and Accounts 2022
217
Risk review
Risk review
Market risk
Contents
Overview
218
218 Market risk management
219 Market risk in 2022
219
220 Market risk balance sheet linkages
Trading portfolios
Overview
Market risk is the risk of an adverse financial impact on trading
activities arising from changes in market parameters such as interest
rates, foreign exchange rates, asset prices, volatilities, correlations
and credit spreads. Exposure to market risk is separated into two
portfolios: trading portfolios and non-trading portfolios.
For further details of market risk in non-trading portfolios, page 214, of
the Annual Report and Accounts 2022.
Market risk management
Key developments in 2022
There were no material changes to our policies and practices for the
management of market risk in 2022.
Governance and structure
The following diagram summarises the main business areas where
trading market risks reside and the market risk measures used to
monitor and limit exposures.
Trading risk
• Foreign exchange and commodities
• Interest rates
• Credit spreads
• Equities
GBM
Risk types
Global business
Risk measure
Sensitivity analysis
Sensitivity analysis measures the impact of individual market factor
movements on specific instruments or portfolios, including interest
rates, foreign exchange rates and equity prices. We use sensitivity
measures to monitor the market risk positions within each risk type.
Granular sensitivity limits are set for trading desks with consideration
of market liquidity, customer demand and capital constraints, among
other factors.
Value at risk
(Audited)
VaR is a technique for estimating potential losses on risk positions as
a result of movements in market rates and prices over a specified
time horizon and to a given level of confidence. The use of VaR is
integrated into market risk management and calculated for all trading
positions regardless of how we capitalise them. Where we do not
calculate VaR explicitly, we use alternative tools as summarised in the
‘Stress testing’ section below.
Our models are predominantly based on historical simulation that
incorporates the following features:
• historical market rates and prices, which are calculated with
reference to foreign exchange rates, commodity prices, interest
rates, equity prices and the associated volatilities;
• potential market movements that are calculated with reference to
data from the past two years; and
• calculations to a 99% confidence level and using a one-day holding
period.
The models also incorporate the effect of option features on the
underlying exposures. The nature of the VaR models means that an
increase in observed market volatility will lead to an increase in VaR
without any changes in the underlying positions.
VaR model limitations
Although a valuable guide to risk, VaR is used with awareness of its
limitations. For example:
Value at risk | Sensitivity | Stress testing
• The use of historical data as a proxy for estimating future market
The objective of our risk management policies and measurement
techniques is to manage and control market risk exposures to
optimise return on risk while maintaining a market profile consistent
with our established risk appetite.
Market risk is managed and controlled through limits approved by the
Group Chief Risk and Compliance Officer for HSBC Holdings. These
limits are allocated across business lines and to the Group’s legal
entities. Each major operating entity has an independent market risk
management and control sub-function, which is responsible for
measuring, monitoring and reporting market risk exposures against
limits on a daily basis. Each operating entity is required to assess the
market risks arising in its business and to transfer them either to its
local Markets and Securities Services or Markets Treasury unit for
management, or to separate books managed under the supervision of
the local ALCO. The Traded Risk function enforces the controls
around trading in permissible instruments approved for each site as
well as changes that follow completion of the new product approval
process. Traded Risk also restricts trading in the more complex
derivative products to offices with appropriate levels of product
expertise and robust control systems.
Key risk management processes
Monitoring and limiting market risk exposures
Our objective is to manage and control market risk exposures while
maintaining a market profile consistent with our risk appetite.
We use a range of tools to monitor and limit market risk exposures
including sensitivity analysis, VaR and stress testing.
218
HSBC Holdings plc Annual Report and Accounts 2022
moves may not encompass all potential market events, particularly
those that are extreme in nature. As the model is calibrated on the
last 500 business days, it does not adjust instantaneously to a
change in the market regime.
• The use of a one-day holding period for risk management purposes
of trading books assumes that this short period is sufficient to
hedge or liquidate all positions.
• The use of a 99% confidence level by definition does not take into
account losses that might occur beyond this level of confidence.
• VaR is calculated on the basis of exposures outstanding at the
close of business and therefore does not reflect intra-day
exposures.
Risk not in VaR framework
The risks not in VaR (‘RNIV’) framework captures and capitalises
material market risks that are not adequately covered in the VaR
model.
Risk factors are reviewed on a regular basis and are either
incorporated directly in the VaR models, where possible, or quantified
through either the VaR-based RNIV approach or a stress test approach
within the RNIV framework. While VaR-based RNIVs are calculated by
using historical scenarios, stress-type RNIVs are estimated on the
basis of stress scenarios whose severity is calibrated to be in line
with the capital adequacy requirements. The outcome of the VaR-
based RNIV approach is included in the overall VaR calculation but
excluded from the VaR measure used for regulatory back-testing. In
addition, the stressed VaR measure also includes risk factors
considered in the VaR-based RNIV approach.
Stress-type RNIVs include a deal contingent derivatives capital charge
to capture risk for these transactions and a de-peg risk measure to
capture risk to pegged and heavily managed currencies.
Stress testing
Stress testing is an important procedure that is integrated into our
market risk management framework to evaluate the potential impact
on portfolio values of more extreme, although plausible, events or
movements in a set of financial variables. In such scenarios, losses
can be much greater than those predicted by VaR modelling.
Stress testing is implemented at legal entity, regional and overall
Group levels. A set of scenarios is used consistently across all regions
within the Group. The risk appetite around potential stress losses
for the Group is set and monitored against a referral limit.
Market risk reverse stress tests are designed to identify vulnerabilities
in our portfolios by looking for scenarios that lead to loss levels
considered severe for the relevant portfolio. These scenarios may be
quite local or idiosyncratic in nature, and complement the systematic
top-down stress testing.
Stress testing and reverse stress testing provide senior management
with insights regarding the ‘tail risk’ beyond VaR, for which our
appetite is limited.
Trading portfolios
Trading portfolios comprise positions held for client servicing and
market-making, with the intention of short-term resale and/or to
hedge risks resulting from such positions.
Back-testing
We routinely validate the accuracy of our VaR models by back-testing
the VaR metric against both actual and hypothetical profit and loss.
Hypothetical profit and loss excludes non-modelled items such as
fees, commissions and revenue of intra-day transactions. The
hypothetical profit and loss reflects the profit and loss that would be
realised if positions were held constant from the end of one trading
day to the end of the next. This measure of profit and loss does not
align with how risk is dynamically hedged, and is not therefore
necessarily indicative of the actual performance of the business.
The number of hypothetical loss back-testing exceptions, together
with a number of other indicators, is used to assess model
performance and to consider whether enhanced internal monitoring of
a VaR model is required. We back-test our VaR at set levels of our
Group entity hierarchy.
Market risk in 2022
During 2022, financial markets were driven by concerns over high
inflation and recession risks, against the backdrop of the Russia-
Ukraine war and continued Covid-19-related pandemic restrictions in
some countries. Throughout the year, several major central banks
tightened their monetary policies at a faster pace than previously
anticipated in order to counter rising inflation. As a result, bond
markets sold off sharply and bond yields rose to multi-year highs. In
addition, a change in the UK fiscal stance in late September led to the
pound reaching record lows and to significant turmoil in the market
for long-dated UK government bonds, which was exacerbated by
rapid deleveraging of liability-driven investment funds used by pension
schemes. There was pronounced volatility in equity valuations, with
declines across most market sectors due to recession risks and
tighter liquidity conditions. Foreign exchange markets were largely
dominated by a strong US dollar, as a result of global geopolitical
instability and the relatively fast pace of monetary tightening by the
US Federal Reserve. Investor sentiment remained fragile in credit
markets, with credit spreads in both investment-grade and high-yield
debt benchmarks reaching their widest levels since the start of the
Covid-19 pandemic.
We continued to manage market risk prudently during 2022.
Sensitivity exposures and VaR remained within appetite as the
business pursued its core market-making activity in support of our
customers. Market risk was managed using a complementary set of
risk measures and limits, including stress testing and scenario
analysis.
Trading portfolios
Value at risk of the trading portfolios
Trading VaR was predominantly generated by the Markets and
Securities Services business.
Trading VaR as at 31 December 2022 increased compared with
31 December 2021. The increase, which peaked in September 2022,
was mainly driven by interest rate risk factors across business lines,
although lower loss contributions from credit spread risks provided a
partial offset. VaR returned to normal operating range in the fourth
quarter of 2022.
The daily levels of total trading VaR during 2022 are set out in the graph below.
Daily VaR (trading portfolios), 99% 1 day ($m)
HSBC Holdings plc Annual Report and Accounts 2022
219
Trading totalInterest rate (‘IR’) trading Equity (‘EQ’) tradingCredit spread (‘CS’) trading intentForeign exchange (‘FX’) trading DiversificationDec-21Jan-22Feb-22Mar-22Apr-22May-22Jun-22Jul-22Aug-22Sep-22Oct-22Nov-22Dec-22-60-40-20020406080100Risk review Risk review
The Group trading VaR for the year is shown in the table below.
Trading VaR, 99% 1 day1
(Audited)
Balance at 31 Dec 2022
Average
Maximum
Minimum
Balance at 31 Dec 2021
Average
Maximum
Minimum
Foreign
exchange and
commodity
Interest
rate
Equity
Credit
spread
$m
15.4
13.6
29.2
5.7
9.1
12.9
31.8
6.7
$m
40.0
29.6
73.3
20.2
25.9
33.8
51.7
18.5
$m
18.6
16.1
24.8
11.5
15.4
16.7
24.3
12.1
$m
11.9
16.8
27.9
9.1
24.8
19.2
29.4
12.2
Portfolio
diversification2
$m
(36.4)
(34.0)
(36.5)
(45.5)
Total3
$m
49.5
42.1
78.3
29.1
38.8
37.1
53.8
27.7
1 Trading portfolios comprise positions arising from the market-making and warehousing of customer-derived positions.
2 Portfolio diversification is the market risk dispersion effect of holding a portfolio containing different risk types. It represents the reduction in
unsystematic market risk that occurs when combining a number of different risk types – such as interest rate, equity and foreign exchange – together
in one portfolio. It is measured as the difference between the sum of the VaR by individual risk type and the combined total VaR. A negative number
represents the benefit of portfolio diversification. As the maximum and minimum occurs on different days for different risk types, it is not meaningful
to calculate a portfolio diversification benefit for these measures.
3 The total VaR is non-additive across risk types due to diversification effects.
The table below shows trading VaR at a 99% confidence level
compared with trading VaR at a 95% confidence level at
31 December 2022. This comparison facilitates the benchmarking
Comparison of trading VaR, 99% 1 day vs trading VaR, 95% 1 day
of the trading VaR, which can be stated at different confidence levels,
with financial institution peers. The 95% VaR is unaudited.
Trading VaR,
99% 1 day
$m
49.5
42.1
78.3
29.1
Trading VaR,
95% 1 day
$m
31.7
24.6
49.0
17.5
38.8
37.1
53.8
27.7
21.6
24.0
30.0
18.9
Market risk balance sheet linkages
The following balance sheet lines in the Group’s consolidated position
are subject to market risk:
Trading assets and liabilities
The Group’s trading assets and liabilities are in almost all cases
originated by GBM. These assets and liabilities are treated as traded
risk for the purposes of market risk management, other than a limited
number of exceptions, primarily in Global Banking where the short-
term acquisition and disposal of the assets are linked to other non-
trading-related activities such as loan origination.
Derivative assets and liabilities
We undertake derivative activity for three primary purposes: to create
risk management solutions for clients, to manage the portfolio risks
arising from client business, and to manage and hedge our own risks.
Most of our derivative exposures arise from sales and trading
activities within GBM. The assets and liabilities included in trading
VaR give rise to a large proportion of the income included in net
income from financial instruments held for trading or managed on a
fair value basis. Adjustments to trading income such as valuation
adjustments are not measured by the trading VaR model.
For information on the accounting policies applied to financial
instruments at fair value, see Note 1 on the financial statements.
Balance at 31 Dec 2022
Average
Maximum
Minimum
Balance at 31 Dec 2021
Average
Maximum
Minimum
Back-testing
During 2022, the Group experienced 10 loss back-testing exceptions
against hypothetical profit and losses, of which seven exceptions
occurred in the second half of the year. The high number of
hypothetical back-testing exceptions was primarily driven by the
volatile market environment and a rapid shift in the global interest rate
regime in 2022.
The hypothetical profit and loss reflects the profit and loss that would
be realised if positions were held constant from the end of one
trading day to the end of the next. This measure of profit and loss
does not align with how risk is dynamically hedged, and is not
therefore indicative of the actual performance of the business.
Accordingly, of the 10 loss back-testing exceptions against
hypothetical profit and loss, only one corresponded to an actual profit
and loss exception.
The Group experienced four loss back-testing exceptions against
actual profit and losses during 2022. Losses were attributable to fair
value adjustments that were adopted for factors not incorporated
within valuation models, and from the impacts of restructuring of
derivative exposures under our RWA optimisation programme.
Given the heightened number of hypothetical loss back-testing
exceptions in the second half of 2022, we have undertaken a review
of our VaR model assumptions and updated the risk parameters
within the model.
220
HSBC Holdings plc Annual Report and Accounts 2022
Climate risk TCFD
Contents
221
Overview
Climate risk management
222
223 Wholesale credit risk
224
Retail credit risk
Overview
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. Climate risk can materialise through:
• physical risk, which arises from the increased frequency and
severity of weather events, such as hurricanes and floods, or
chronic shifts in weather patterns;
• transition risk, which arises from the process of moving to a low-
carbon economy, including changes in government or public
policy, technology and end-demand; and
• greenwashing risk, which arises from the act of knowingly or
unknowingly misleading stakeholders regarding our strategy
relating to climate, the climate impact/benefit of a product or
service, or the climate commitments or performance of our
customers.
Approach and policy
We are affected by climate risks either directly or indirectly through
our relationships with our customers, resulting in both financial and
non-financial impacts.
We may face direct exposure to the physical impacts of climate
change, which could negatively affect our day-to-day operations. Any
detrimental impact to our customers from climate risk could
negatively impact us either through credit losses on our loan book or
losses on trading assets. We may also be impacted by reputational
concerns related to the climate action or inaction of our customers. In
addition, if we are perceived to mislead stakeholders on our business
activities or if we fail to achieve our stated net zero ambitions, we
could face greenwashing risk resulting in significant reputational
damage and potential regulatory fines, impacting our revenue
generating ability.
We have integrated climate risk into our existing risk taxonomy, and
incorporated it within the risk management framework through the
policies and controls for the existing risks where appropriate.
Our climate risk approach is aligned to our Group-wide risk
management framework and three lines of defence model, which
sets out how we identify, assess and manage our risks (for further
225
225
225
226
Resilience risk
Regulatory compliance risk
Reputational risk
Insights from climate scenario analysis
details of our three lines of defence framework, see page 134). This
approach provides the Board and senior management with visibility
and oversight of our key climate risks.
Our initial approach to managing climate risk was focused on
understanding physical and transition impacts across five priority risk
types: wholesale credit risk, retail credit risk, reputational risk,
resilience risk and regulatory compliance risk. In 2022, we expanded
our scope to consider climate risk impacts on our other risk types in
our risk taxonomy.
We consider greenwashing to be an important emerging risk that is
likely to increase over time as we look to develop capabilities and
products to achieve our net zero commitments, and work with our
clients to help them transition to a low-carbon economy. To reflect
this, our climate risk approach has been updated to include
greenwashing risk, and guidance has been provided to the first and
second lines of defence on the key risk factors, and how it should be
managed.
Our ambition to achieve net zero in our financed emissions also
exposes us to potential reputational, compliance and legal risks if we
fail to effectively deliver on our ambition. Achieving this ambition is
dependent on a number of known and unknown factors including the
accuracy and reliability of data, emerging methodologies and the need
to develop new tools to accurately assess emissions reductions. We
have taken initial steps to develop our capabilities to monitor our
exposures and set risk appetites, although, operationalising our
ambition is dependent on data and methodologies maturing over
time, and requires us to continue developing our internal processes
and tools to help achieve our ambition.
The tables below provide an overview of the climate risk drivers
considered within HSBC’s climate risk framework. Primary risk drivers
refer to risk drivers aligned to the Financial Stability Board’s Task
Force on Climate-related Financial Disclosures (‘TCFD’), which sets a
framework to help public companies and other organisations disclose
climate-related risks and opportunities. Thematic risk drivers are
bespoke to our internal climate risk framework.
The following table provides an overview of the physical and transition climate risk drivers.
Climate risk – primary risk drivers
Details
Potential Impacts
Physical
Acute
Increased frequency and severity of weather events causing
disruption to business operations
• Decreased real estate values or stranded
assets
Chronic
Longer-term shifts in climate patterns (e.g. sustained higher
temperatures, sea level rise, shifting monsoons or chronic heat
waves)
Transition
Policy and legal Mandates on, and regulation of products and services and/or
Technology
End-demand
(market)
Reputational
policy support for low carbon alternatives. Litigation from parties
who have suffered loss and damage from climate impacts
Replacement of existing products with lower emissions options
Changing consumer demand from individuals and corporates
Increased scrutiny following a change in stakeholder perceptions
of climate-related action or inaction
• Decreased household income and wealth
• Increased costs of legal and compliance
• Increased public scrutiny
• Decreased profitability
• Lower asset performance
HSBC Holdings plc Annual Report and Accounts 2022
221
Risk review
Risk review
The table below provides an overview of the drivers of greenwashing risk, which is considered to be a thematic risk driver within HSBC’s
framework.
Climate risk – thematic risk drivers Details
Greenwashing
Firm
Product
Client
Failure to be accurate and transparent in communicating our progress against our net zero ambition
Not taking steps to ensure our ‘green’ and ‘sustainable’ products are developed and marketed appropriately
Failing to check our products are being used for ‘green’ and ‘sustainable’ business activity and assessing the
credibility of our customers’ climate commitments and/or progress against key performance indicators
In February 2022, we refreshed a high-level assessment of how
climate risk may impact HSBC taxonomy risk types over a 12-month
horizon, and we conducted an assessment to understand which parts
of our risk taxonomy could be impacted by greenwashing risk. The
table below summarises the results of these exercises. Assessments
were completed prior to year-end 2022 and do not take into account
all of the factors that were considered in our assessment of climate
risk impacts on the financial statements for the year ended 31
December 2022. The assessments will be refreshed annually, and,
results may change as our understanding of climate risk and how it
impacts HSBC evolves (for further details, see ‘Impact on reporting
and financial statements’ on page 46). In addition to these
assessments, we also consider climate risk in our emerging risk
process, which considers potential impacts across longer time
horizons (for further details, see ‘Top and emerging risks’ on
page 135).
Financial risk
Non-financial risk
Risk type
Wholesale credit risk
Retail credit risk
Treasury risk – insurance risk
Treasury risk – pension risk
Traded risk
Strategic business risk
Reputational risk
Regulatory compliance risk
Resilience risk
Model risk
Financial crime risk
Financial reporting risk
Legal risk
l Relevant risk driver
Climate risk management
Key developments in 2022
Our climate risk programme continues to support the development of
our climate risk management capabilities. The following outlines key
developments in 2022.
• We updated our climate risk management approach to cover all
risk types in our risk taxonomy.
• We expanded the scope of climate-related training for employees
to cover additional topics, such as greenwashing risk, and
increased the availability of training to the broader workforce.
• We developed new metrics to monitor physical climate risk
exposure in our mortgage portfolio in all our markets, based on
locally available data.
• We enhanced our transition and physical risk questionnaire and
scoring tool, which will help us improve our understanding of the
impact of transition and physical risk on corporate clients in high
climate transition risk sectors.
• We assessed transition plans for EU and OECD managed clients in
scope of our thermal coal phase-out policy.
• We developed our first internal climate scenario exercise, where
we used four scenarios that were designed to articulate our view
of the range of potential outcomes for global climate change. For
further details of our internal climate scenario analysis, see
page 226.
While we have made progress in developing our climate risk
framework, there remains significant work to fully integrate climate
risk, including the need to provide additional skills for our colleagues
and clients on climate risk topics, and develop further metrics to
understand how climate risk can impact our risk taxonomy. We also
need to continue to enhance our stress testing capabilities and
expand our greenwashing risk framework. We have a dependency on
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HSBC Holdings plc Annual Report and Accounts 2022
Relevant risk drivers
Primary risk drivers
Thematic risk drivers
Physical
Transition
Greenwashing
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
data and systems in order to achieve these aims, which continue to
be enhanced.
Governance and structure
The Board takes overall responsibility for our ESG strategy,
overseeing executive management in developing the approach,
execution and associated reporting.
The Group ESG Committee supports the development and delivery of
our ESG strategy, key policies and material commitments by providing
oversight, coordination and management of ESG commitments and
initiatives. It is co-chaired by the Group Company Secretary and Chief
Governance Officer, and Group Chief Sustainability Officer.
The Group Chief Risk and Compliance Officer is responsible for the
management of climate-related financial risks under the UK Senior
Managers Regime, which involves holding overall accountability for
the Group’s climate risk programme. The Climate Risk Oversight
Forum oversees risk activities relating to climate risk management
and the escalation of climate risks. It is supported by equivalent
forums at regional level.
The Group Reputational Risk Committee considers matters arising
from customers, transactions and third parties that either present a
serious potential reputational risk to the Group or merit a Group-led
decision to ensure a consistent risk management approach across the
regions, global businesses and global functions.
The Group Risk Management Meeting and the Group Risk Committee
receive regular updates on our climate risk profile and progress of our
climate risk programme.
For further details on the Group’s ESG governance structure, see
page 86.
Risk appetite
Management
In 2022, we updated our credit risk policy to require that relationship
managers comment on climate risk factors in credit applications for
new money requests. We continued using a climate risk scoring tool,
which provides a climate risk score for each customer based on
questionnaire responses. The climate risk score is used to inform
portfolio level management discussions, and are made available to
relationship management teams and credit risk management teams.
The scoring tool will be enhanced and refined over time as more data
becomes available.
In 2023, we aim to further embed climate risk considerations in our
credit risk management processes.
Aggregation and reporting
We report our exposure to the six high transition risk sectors in the
wholesale portfolio, as well as our related RWAs internally.
We also report the proportion of questionnaire responses that have a
board policy or management plan for transition risk. Our key
wholesale credit exposures are included as part of our broader ESG
management information dashboard, which is presented to the Group
Executive Committee each quarter. In addition, a representative from
the Wholesale Credit Risk Management function attends the Global
Climate Risk Oversight Forum to ensure there is consideration of this
risk type, and we report our exposure through the climate risk
management information dashboard at this meeting.
Since 2019, we have received responses from customers within the
six high transition risk sectors, which represent 59% of our exposure,
an increase in coverage of 7% since last year. The table below
presents a breakdown of our customer responses by sector.
The table below also captures our lending activity, including
environmentally responsible and sustainable finance activities, to
customers within the six high risk sectors. Green financing for large
companies that work in high transition sectors is also included. The
overall exposure has decreased to 17.7% (2021: 18.2%). We have
restated the 2021 comparatives to reflect the new 2022 sector
allocations and to remove certain off-balance sheet exposures that
were previously included following improvements in our data and
processes. For further details of how we designate counterparties as
high transition risk, see footnote 2.
Our climate risk appetite supports the oversight and management of
the financial and non-financial risks from climate change, and supports
the business to deliver our climate ambition in a safe and sustainable
way. Our initial risk appetite focused on the oversight and
management of climate risks in five priority areas, including exposure
to high transition risk sectors in our wholesale portfolio and physical
risk exposures in our retail portfolio. We have created metrics both at
global and regional levels, where appropriate, to help manage our risk
appetite. We continue to review our risk appetite regularly to capture
the most material climate risks and will enhance our metrics over
time, including to monitor risk exposures associated with our financed
emissions reduction targets.
Policies, processes and controls
We are integrating climate risk into the policies, processes and
controls across many areas of our organisation, and we will continue
to update these as our climate risk management capabilities mature
over time. In 2022, we incorporated climate considerations into our
UK mortgage origination process for our retail business, and new
money request process for our key wholesale businesses. We also
continued to enhance our climate risk scoring tool, which will enable
us to assess our customers’ exposures to climate risk. We also
published our updated energy policy, covering the broader energy
system, including upstream oil and gas, oil and gas power generation,
coal, hydrogen, renewables and hydropower, nuclear, biomass and
energy from waste, and we updated our thermal coal phase-out policy
after its initial publication in 2021. For further details of how we
manage climate risk across our global businesses, see page 64.
Wholesale credit risk
Identification and assessment
In 2019, we initially identified six key sectors where our wholesale
credit customers had the highest exposure to climate transition risk,
based on their carbon emissions, which were: automotive; chemicals;
construction and building materials; metals and mining; oil and gas;
and power and utilities. For a majority of customers in these sectors,
we use a transition and physical risk questionnaire to help assess and
improve our understanding of the impact of climate change on our
customers’ business models and any related transition strategies.
Relationship managers work with these customers to record
questionnaire responses and also help identify potential business
opportunities to support the transition. Since 2020, we have rolled out
the questionnaire so that it includes the majority of our largest
customers in the next highest climate transition risk sectors:
agriculture; industrials; real estate; and transportation. In 2022, we
continued to roll out the physical and transition risk questionnaire in
these sectors by adding new countries to the scope of the
questionnaire. Due to ongoing data and methodology challenges
across the industry, our risk appetite metrics remained limited in their
ability to monitor our risk profile.
In 2023, we intend to roll out the questionnaire to additional
customers and enhance our scoring model. We will also continue
engaging with peers and regulators to explore approaches for further
integration of climate in credit risk models. We continue to develop
processes and training to improve the quality and accuracy of the
questionnaire responses.
HSBC Holdings plc Annual Report and Accounts 2022
223
Risk review Risk review
Wholesale loan exposure to transition risk sectors and customer questionnaire responses at 31 December 20221
Wholesale loan exposure as % of total wholesale loans and
advances to customers and banks2,3,4
Proportion of sector for which questionnaires were completed5
Proportion of questionnaire responses that reported either having
a board policy or a management plan5
Sector weight as proportion of high transition risk sector5
Automotive Chemicals
%
≤ 3.0
63
69
16
%
≤ 3.3
49
81
19
Construction
and building
materials
Metals
and
mining
Oil and
gas
Power
and
utilities
%
%
%
%
Total
%
≤ 3.2
≤ 2.1
≤ 2.6
≤ 3.5
≤ 17.7
55
74
18
56
71
12
67
77
15
66
94
20
59
79
100
1 The 2022 numbers reflect the new 2022 sector allocations and remove certain off-balance sheet exposures that were previously included following
improvements in our data and processes. See the ESG Data Pack for comparative 2020 and 2021 data.
2 Amounts shown in the table also include green and other sustainable finance loans, which support the transition to the net zero economy. The
methodology for quantifying our exposure to high transition risk sectors and the transition risk metrics will evolve over time as more data becomes
available and is incorporated in our risk management systems and processes.
3 Counterparties are allocated to the high transition risk sectors via a two-step approach. Firstly, where the main business of a group of connected
counterparties is in a high transition risk sector, all lending to the group is included in one high transition risk sector irrespective of the sector of each
individual obligor within the group. Secondly, where the main business of a group of connected counterparties is not in a high transition risk sector,
only lending to individual obligors in the high transition risk sectors is included. From 2022, for Global Banking and Markets clients and Commercial
Banking clients, the main business of a group of connected counterparties is identified by the industry that generates the majority of revenue within a
group. Customer revenue data utilised during this allocation process is the most recent readily available and will not align to our own reporting period.
In prior periods for Global Banking and Markets clients, the main business of a group of connected counterparties was identified by the relationship
manager for the group. For Commercial Banking clients, the main business of a group of connected counterparties was identified based on the largest
industry of HSBC’s total lending limits to the group.
4 Total wholesale loans and advances to customers and banks amount to $658bn (2021: $662bn). Amounts include loans and advances that are held for
sale.
5 All percentages are weighted by exposure.
Retail credit risk
Identification and assessment
We continued to improve our identification and assessment of climate
risk within our retail mortgage portfolio. We increased our
investments in centrally available physical risk data and enhanced our
internal risk assessment capabilities and models, in order to
understand our physical risk exposure across a larger proportion of
our global portfolio. We have also started to identify and monitor
potential physical risk in the remainder of our global mortgage
markets, using locally available data.
In 2022, we undertook an internal climate scenario analysis exercise
to further our understanding and assessment of the potential impacts
that physical risk could have on our mortgage portfolios. We
completed detailed analysis for the UK, Hong Kong, Singapore and
Australia, which together represent 73.8% of balances of the global
mortgage portfolio. We also undertook a stress test for our portfolio in
Singapore at the behest of the Monetary Authority of Singapore, and
participated in the second round of the Bank of England’s climate
biennial exploratory scenario exercise, focusing on management
actions. For further details of our approach and results of our scenario
analysis, see the ‘Insights on climate scenario analysis’ section on
page 226.
Management
We continued to review and update our retail credit risk management
policies and processes to further embed climate risk, while
monitoring local regulatory developments to ensure compliance.
In the UK, which has our largest retail mortgage portfolio, we
integrated climate risk data into our decision-making framework as
part of the mortgage origination process. We are actively managing
our UK mortgage portfolio with a climate risk perspective, and in line
with our risk appetite, taking conduct considerations into account in
the lending decision-making process.
Our UK team is also proactively supporting customers by providing
information on our public website relating to how physical risk and
home energy efficiency ratings may impact their mortgage
applications. This gives customers more insight when considering
purchasing a property that may be susceptible to physical climate risk
or which may not be energy efficient.
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HSBC Holdings plc Annual Report and Accounts 2022
Aggregation and reporting
We manage and monitor the integration of climate risk in Wealth and
Personal Banking through the WPB Risk Management Meeting and
other senior leadership forums.
We assess the progress of the implementation of our strategic
climate risk plans, and ensure that we update operational processes
and risk management frameworks as our data and understanding of
climate risk evolves. A senior representative from WPB Risk attends
the Group Climate Risk Oversight Forum to ensure we maintain
alignment with the Group strategy.
Monitoring climate risk
In 2022, each of our retail mortgage businesses defined metrics and
began reporting on their potential balance sheet exposure to physical
climate risk. Locally relevant data sources were used to identify
properties or areas with potentially heightened climate risk. These
climate risk exposure metrics are in the early stages of development
and the underlying data and methodologies may require refinement in
the future, although they provide an indicative view.
We continue to measure climate risk using third-party data in our
most material mortgage market, which is the UK, where the primary
physical risk facing properties is flooding. Using a risk methodology
that considers a combination of the likelihood and severity of flood
hazard affecting individual properties, we estimate that on a total
value basis, and at present day risk levels, 3.5% of the UK retail
mortgage portfolio is at high risk of flooding, and 0.2% is at a very
high risk. This is based on approximately 93% coverage by value of
our portfolio at the end of September 2022, and is reliant on flood
data provided by Ambiental Risk Analytics.
In line with the UK government ambition to improve the energy
performance certificate (‘EPC’) ratings of housing stock, we continue
to identify the current and potential EPC ratings for individual
properties within the UK mortgage portfolio.
At the end of September, we had approximately 62% of properties by
value in our UK residential mortgage portfolio with a valid EPC
certificate dated within the last 10 years. While 37.7% of these, with
balances of $31.5bn, had a ‘current’ rating of A to C, 96.8% of them,
with balances of $81.1bn, had the potential to improve to that level.
We are working on improving the EPC data coverage, we currently do
not have EPC data for properties in Northern Ireland.
For both flood risk and EPC data, we disclose the end of September
position. This is due to the time required for the data to be processed
by a third party and our reliance on the government’s public EPC data.
Beyond the UK, we have strengthened our focus on the development
of initiatives to support customers with their transition to more energy
efficient homes.
The table below shows the maturity level of the UK retail mortgage
portfolio at the end of December 2022, split by tenor.
Tenor
<1 years
1–5 years
>5 years
Loan by residual maturity ($bn)
0.45
3.38
143.90
For further details of flood risk and the EPC breakdown of our UK
retail mortgage portfolio, see our ESG Data Pack at www.hsbc.com/
esg.
Resilience risk
Identification and assessment
Our Operational and Resilience Risk function is responsible for
overseeing the identification and assessment of physical and
transition climate risks that may impact on the organisation’s
operational and resilience capabilities.
We are developing a deeper understanding of the risks to which our
properties are subject, and assess the mitigants to ensure ongoing
operational resilience.
Management
Operational and Resilience Risk policies are reviewed and enhanced
periodically so they remain relevant to evolving risks, including those
linked to climate change. The capability of our colleagues is enhanced
through training, periodic communications and dedicated guidance.
Aggregation and reporting
With our ambition to achieve net zero in our own operations, we are
particularly focused on developing measures to facilitate proactive risk
management and assess progress against this strategic target.
Operational and Resilience Risk is represented at the Group’s Climate
Risk Oversight Forum.
Regulatory compliance risk
Identification and assessment
Compliance continues to prioritise the identification and assessment
of compliance risks that may arise from climate risk.
Throughout 2022, our focus remained on greenwashing risk,
particularly with regard to the development and ongoing governance
of new, changed or withdrawn climate and ESG products and
services, and ensuring sales practices and marketing materials were
clear, fair and not misleading.
To support the ongoing management and mitigation of greenwashing
risk, Regulatory Compliance worked across all business lines to
enhance our product controls. This improved our ability to identify,
assess and manage product-related greenwashing risks throughout
the product governance lifecycle. Examples of ongoing
enhancements include:
• integrating the consideration and mitigation of climate and ESG
risks within our existing product governance framework;
• enhancing our product templates and forms to ensure climate risk
is actively considered and documented by the business within
product review and creation; and
• clarifying and improving product governance policies, associated
guidance and key governance terms of reference to ensure new
climate and ESG products, as well as climate- and ESG-related
amendments to existing products, comply with both internal and
external standards, and are subject to robust governance.
Management
Our policies continue to set the Group-wide standards that are
required to manage the risk of breaches of our regulatory duty to
customers, including those related to climate risk, ensuring fair
customer outcomes are achieved. Our product and customer lifecycle
policies have been enhanced to ensure they take climate into
consideration. They are reviewed on a periodic basis to ensure they
remain relevant and up to date.
The Compliance function continues to focus on improving the
capability of colleagues through training, communications and
dedicated guidance, with a particular focus on ensuring colleagues
remain up to date with changes in the evolving regulatory landscape.
Aggregation and reporting
The Compliance function continues to operate an ESG and Climate
Risk Working Group to track and monitor the integration and
embedding of climate risk within the management of regulatory
compliance risks. The working group also continues to monitor
ongoing regulatory and legislative changes across the ESG and
climate risk agenda.
We have continued to develop our key climate risk-related metrics
and indicators, aligned to the broader focus on regulatory compliance
risks, to continually improve our risk monitoring capability. This has
included the development of a climate-specific risk profile, alongside
the introduction and improvement of existing metrics and indicators.
The Compliance function continues to be represented at the Group’s
Climate Risk Oversight Forums.
Reputational risk
Identification and assessment
We implement sustainability risk policies, including the Equator
Principles, as part of our broader reputational risk framework. We
focus on sensitive sectors that may have a high adverse impact on
people or the environment, and in which we have a significant
number of customers. A key area of focus is high-carbon sectors,
which include oil and gas, power generation, mining, agricultural
commodities and forestry. In 2022, we published our 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. We also
updated our thermal coal phase-out policy after its initial publication in
2021.
Management
As the primary point of contact for our customers, our relationship
managers are responsible for checking that our customers meet
policies aimed at reducing carbon impacts. Our global network of
more than 75 sustainability risk managers provides local policy
support and expertise to relationship managers. Risk Strategy
includes a team of reputational and sustainability risk specialists
that provides a higher level of guidance and is responsible for the
oversight of policy compliance and implementation over wholesale
banking activities.
For further details on our sustainability risk policies, see our ESG
review on page 65.
Aggregation and reporting
Our Sustainability Risk Oversight Forum provides a Group-wide forum
for senior members of our Group Risk and Compliance team and
global businesses. It also oversees the development and
implementation of sustainability risk policies. Cases involving complex
sustainability risk issues related to customers, transactions or third
parties are managed through the reputational risk and client selection
governance process. We report annually on our implementation of the
Equator Principles and the corporate loans, project-related bridge
loans and advisory mandates completed under the principles. For the
latest report, see: www.hsbc.com/who-we-are/esg-and-responsible-
business/esg-reporting-centre. A representative from Reputational
HSBC Holdings plc Annual Report and Accounts 2022
225
Risk review
Risk review
Risk attends the Group Climate Risk Forum to ensure consideration of
this risk type.
Other risks
The following section outlines key developments that we made to
embed climate considerations within other risk types in our risk
taxonomy. All risk functions, including those not referenced below,
performed a materiality assessment to determine the impact of
climate risk on their risk framework.
Treasury risk
We established a treasury risk-specific climate risk governance forum
to provide oversight over climate-related topics that may impact
Global Treasury. We updated relevant treasury risk policies to
strengthen our climate risk guidance and requirements pertaining to
treasury risk. We undertook an initial assessment to understand the
exposure of high transition risk sectors within our pension plans.
Traded risk
We established a climate stress testing-focused working group to
coordinate the implementation of climate stress testing, and support
the delivery of internal climate scenario analysis. As part of the annual
limit review in 2022, we developed a set of climate metrics for
Markets and Securities Services, which we plan to implement in
2023.
Insights from climate scenario
analysis
Scenario analysis supports our strategy by assessing our position
under a range of climate scenarios. It helps to build our awareness of
climate change, plan for the future and meet our growing regulatory
requirements.
Having run our first Group-wide climate change scenario analysis
exercise in 2021, we produced several climate stress tests for global
regulators in 2022, including the Monetary Authority of Singapore and
the European Central Bank. We also conducted our first internal
climate scenario analysis.
We continue to develop how we produce our climate scenario
analysis exercises so that we can have a more comprehensive
understanding of climate headwinds, risks and opportunities that will
support our strategic planning and actions.
In climate scenario analysis, we consider, jointly:
• transition risk arising from the process of moving to a net zero
economy, including changes in policy, technology, consumer
behaviour and stakeholder perception, which could each impact
borrowers’ operating income, financing requirements and asset
values; and
• physical risk arising from the increased frequency and severity of
weather events, such as hurricanes and floods, or chronic shifts in
weather patterns, which could each impact property values, repair
costs and lead to business interruptions.
We also analyse how these climate risks impact how we manage
other risks within our organisation, including credit and market risks,
and on an exploratory basis, operational, liquidity, insurance and
pension risks.
Our climate scenarios
In our 2022 internal climate scenario analysis exercise, we used four
scenarios that were designed to articulate our view of the range of
potential outcomes for global climate change. The analysis considered
the key regions in which we operate, and assessed the impact on our
balance sheet between the 2022 and 2050 time period. In the
following sections, the time horizons are considered to cover three
distinct time periods: short term is up to 2025; medium term is 2026
to 2035; and long term is 2036 to 2050. The timeframes chosen are
aligned to the Climate Action 100+ disclosure framework.
These internal scenarios were formed with reference to external
publicly available climate scenarios, including those produced by the
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HSBC Holdings plc Annual Report and Accounts 2022
Network for Greening the Financial System (‘NGFS’), the
Intergovernmental Panel on Climate Change and the International
Energy Agency. Using these external scenarios as a template, we
adapted them by incorporating our unique climate risks and
vulnerabilities to which our organisation and customers across
different business sectors and regions are exposed. This helped us
produce the scenarios, which varied by severity and probability, to
analyse how climate risks will impact our portfolios. Our scenarios
were:
• the Net Zero scenario, which aligns with our net zero strategy and
is consistent with the Paris Agreement, and which assumes that
there will be rapid and considerable climate action, limiting global
warming to no more than 1.5°C by 2100, when compared with
pre-industrial levels;
• the Current Commitments scenario, which assumes that climate
action is limited to the current governmental commitments and
pledges, leading to global temperature rises of 2.4°C by 2100;
• the Downside Transition Risk scenario, which assumes that
climate action is delayed until 2030, but will be rapid enough to
limit global temperature rises to 1.5°C by 2100; and
• the Downside Physical Risk scenario, which assumes climate
action is limited to current governmental policies, leading to
extreme global warming with global temperatures increasing by
3.1°C by 2100.
We have chosen these scenarios as they are designed to identify,
measure and assess our most material climate vulnerabilities through
considering our global presence, business activities and exposures.
Our scenarios reflect inputs from our businesses and experts, and
have been reviewed and approved through internal governance.
Our four scenarios reflect different levels of physical and transition
risks. The scenario assumptions include varying levels of
governmental climate policy changes, macroeconomic factors and
technological developments. However, these scenarios rely on the
development of technologies that are still unproven, such as global
hydrogen production to decarbonise aviation and shipping.
The nature of the scenarios, our developing capabilities, and
limitations of the analysis lead to outcomes that are indicative of
climate change headwinds, although they are not a direct forecast.
Developments in climate science, data, methodology and scenario
analysis techniques will help us shape our approach further. We
therefore expect this view to change over time.
For further details of our four internal climate scenarios, including a
table including their key underlying assumptions, see our ESG Data
Pack at www.hsbc.com/esg.
Our modelling approach
For our scenario analysis, we used models to assess how transition
and physical risks may impact our portfolios under different scenarios.
Our models incorporate a range of climate-specific metrics that will
have an impact on our customers, including expected production
volumes, revenue, unit costs and capital expenditure.
We also assess how these metrics interplay with economic factors
such as carbon prices, which represent the cost effect of climate-
related policies that aim to discourage carbon-emitting activities and
encourage low-carbon solutions. The expected result of higher carbon
prices is a reduction in emissions as high-emission activities become
uneconomical. We also assume carbon prices will vary from country
to country.
The models for our wholesale corporate lending portfolio consider
metrics across each climate scenario, and from 2022 also
incorporated our customers’ individual climate transition plans as part
of our climate scenario analysis. These results in turn feed into the
calculation of our risk-weighted assets and expected credit loss
projections. For our residential real estate portfolio models, we focus
on physical risk factors, including property locations, perils and
insurance coverage when assessing the overall credit risk impact to
the portfolio. The results were reviewed by our sector specialists
who, subject to our governance procedures, make bespoke
adjustments to our results based on their expert judgement when
relevant.
We continue to enhance our capabilities by incorporating lessons
learnt from previous exercises and feedback from key stakeholders,
including regulators.
For a broad overview of the models that we use for our climate
scenario analysis, as well as graphs that show how global carbon
prices and carbon emissions will differ under our climate scenarios,
see our ESG Data Pack at www.hsbc.com/esg.
Analysing the outputs of the climate
scenario analysis
Climate scenario analysis allows us to model how different potential
climate pathways may affect our customers and portfolios, particularly
in respect of credit losses. As the chart below shows, losses are
influenced by their exposure to a variety of climate risks under
different climate scenarios. Under the Current Commitments
scenario, we expect moderate levels of losses relating to transition
risks. However, the rise in global warming will lead to increasing
levels of physical risk losses in later years.
Modelled climate losses
How credit losses from climate risks have
been modelled under different scenarios.
)
n
b
$
(
s
t
n
e
m
r
i
a
p
m
i
<1.5x
>1.5x
e
v
i
t
a
l
u
m
u
C
2021
2025
2030
2035
2040
2045
2050
Net Zero
Current Commitments
Downside Transition Risk
Counterfactual
Net Zero2
Downside Transition Risk2
1 The counterfactual scenario is modelled on a scenario where there will
be no losses due to climate change.
2 The dotted lines in the chart show the impact of modelled expected
credit losses following our strategic responses to reduce the effect of
climate risks under the Net Zero and Downside Transition Risk
scenarios.
A gradual transition towards net zero, as shown in the Net Zero
scenario, still requires fundamental shifts in our customers’ business
models, and significant investments. This will have an impact on
profitability, leading to higher credit risk in the transition period. A
delayed transition will be even more disruptive due to lower levels of
innovation that limits the ability to decarbonise effectively, and rising
carbon prices that squeeze profit margins.
Overall, our scenario analysis shows that the level of potential credit
losses can be mitigated if we support our customers in enhancing
their climate transition plans.
In the following sections, we assess the impacts to our banking
portfolios under different climate scenarios.
How climate change is impacting our
wholesale lending portfolio
In our scenario analysis, we assessed the impact of climate-related
risks on our corporate counterparties under different climate
scenarios, which we measured by reviewing the modelled effect on
our expected credit losses (‘ECL’).
We focused our analysis on the 11 wholesale sectors that we expect
to be most impacted by climate risks. As at December 2021, these
portfolios represented 27% of our wholesale lending portfolio.
For each sector in each scenario, we calculated a peak ECL increase,
a metric showing the highest level of ECL modelled to be
experienced during the 2022 to 2050 period. The peak ECL increase
metric compares the multiplied levels of exposure in the scenario
against a counterfactual scenario that incorporates no climate change.
We use the sector’s exposure at default (‘EAD’), which represents
the relative size of our exposure to potential losses from customer
defaults. This helps to demonstrate which sectors are the most
material to us in terms of the impact of climate change.
Due to current limitations, we are unable to fully model the impact of
physical risks on our corporate customers’ supply chain. As a result,
we have not included the Downside Physical Risk scenario in the
following analysis, although we continue to develop our modelling
capabilities.
Impact of climate risk on wholesale lending portfolios under modelled
climate solutions
Relative size of exposures at default and increase in peak ECL under
each scenario compared with the counterfactual scenario (expressed
as a multiple).
Downside
Transition
Risk
>5x
Current
Commitments
<1.5x
Sector level
Exposure
at default
Conglomerates
Power and
utilities
Construction
and building
materials
and industrials ♦
♦
♦
♦
♦
♦
Automotive
Oil and gas
Chemicals
Land transport
and logistics
Aviation
Agriculture and
soft
commodities
Marine
Metals and
mining
♦
♦
♦
♦
♦
Net
Zero
<5x
<3x
<3x
<3x
<3x
<1.5x
<1.5x
<4x
<3x
<5x
<2x
<5x
<2x
<5x
<4x
<3x
>5x
<3x
<4x
<3x
>5x
<1.5x
<1.25x
<1.25x
<1.5x
<1.25x
<1.5x
<1.25x
<1.5x
<1.25x
<1.5x
As the table above illustrates, we expect our ECL to rise most under
the Net Zero or Downside Transition Risk scenarios. This is reflective
of the high transition risks to which these sectors are exposed, and
the potential impact of not having clear transition plans to mitigate
these risks.
For many sectors, the impact of rising carbon prices will lead to
increased credit losses. However, this will depend on individual
companies to determine how much of the additional costs associated
with carbon pricing will be absorbed by their suppliers or customers
and demand for more economically viable substitute products that
emerge.
The conglomerates and industrials sector, which includes large
companies with business activities in multiple business segments, is
the most impacted by climate change in each scenario. It also
represents our largest climate-related exposure, and would potentially
experience the highest increases in credit losses, largely due to the
transition risks predominantly within the high-emitting and lower-
profitability manufacturing segments.
Of our other largest and most impacted sectors, the power and
utilities, construction and building materials, and chemicals sectors
are subject to increased levels of transition risks due to their ongoing
exposure to higher carbon emitting activities.
HSBC Holdings plc Annual Report and Accounts 2022
227
Risk review
Risk review
Within the analysis, there is a range of geographical outcomes,
dictated by the varied pace of change in the transition to net zero,
such as in Asia, where the quality of our customers’ climate transition
plans within our high-risk sectors lags behind other regions.
We use the results of our climate scenario analysis, including how
different scenarios will impact on different sectors, to assess the
impact of climate change risk mitigation on our clients, including our
customers’ creditworthiness. It informs us about climate risks in our
wholesale portfolio, allowing us to identify and prioritise the sectors
and sub-sectors that require the greatest support to transition. This
also allow us to test the impact of actions that can support our
customers’ transition and our net zero ambition.
Our net zero ambition represents one of our four strategic pillars. For
further details of our net zero ambition, see the ‘Transition to net zero’
section of the ESG review on page 47, including how we are
supporting our customers transition to net zero on page 57.
How climate change is impacting our retail
mortgage portfolio
As part of our internal climate scenario analysis, we carried out a
detailed physical risk assessment of four of our retail mortgage
markets – the UK, Hong Kong, Singapore and Australia – which
represent 73.8% of balances in our retail mortgage portfolio.
We modelled defaults and losses under three physical risk scenarios.
Under the Net Zero and Current Commitments scenarios, we project
minimal losses over the modelled time horizon. However, under the
Downside Physical Risk scenario, the mortgage book is expected to
experience a moderate increase in defaults and losses, as the severity
of perils is expected to worsen, although overall losses are still low.
The modelling, data and methodology in relation to climate scenario
analysis is still evolving, so the results are not expected to be stable
or consistent in the short to medium term, and are meant to give an
indicative, directional assessment for strategic awareness only.
In our analysis of our retail mortgage portfolio, we assessed several
physical perils that could impact the value of properties, including
flooding, wildfire and windstorms. We also assessed the ability and
willingness of borrowers to service their debts.
In 2022, we enhanced the methodology to factor in the negative
impact on property valuations, as well as the impact of affordability
due to repair costs, following physical risk events. We also considered
the retail mortgage portfolio with and without insurance. The scenario
assumptions reflected whether or not properties within the portfolio
had buildings insurance coverage to pay for damage incurred from
physical events. In addition, we addressed geolocation data
deficiencies, implemented new models and incorporated more data,
although the data and models used to estimate defaults and losses
are still evolving.
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HSBC Holdings plc Annual Report and Accounts 2022
Losses as a proportion of global retail
mortgage book under tested scenarios1
5x
2020
2030
2040
2050
RCP2.6 Net Zero (with insurance)
RCP4.5 Current Commitments (with insurance)
RCP 8.5 Downside Physical Risk (with insurance)
1 Our internal climate scenarios are supported by the Intergovernmental
Panel on Climate Change’s Representative Concentration Pathways
(‘RCP’) and are used as inputs into physical risk modelling. The Net
Zero scenario is mostly aligned to the RCP 2.6 scenario; the Current
Commitments scenario is mostly aligned to the RCP 4.5 scenario; and
the Downside Physical Risk scenario is mostly aligned to the RCP 8.5
scenario.
The modelled impact on our portfolio projects losses will remain
negligible under the Net Zero and Current Commitments scenarios by
2050. Under the Downside Physical Risk (with insurance) scenario,
although losses are five times larger than under the Net Zero and
Current Commitments scenario, they remain at low levels. This
moderate increase is largely driven by the expected demise of Flood
Re in the UK in 2039. Flood Re is a UK government-backed insurance
scheme that ensures that properties at the highest risk of flooding
can obtain buildings insurance. Under this scenario, properties ceded
to the scheme become uninsurable post-2039. The proportion of our
properties that were reinsured by Flood Re was less than 4% of the
UK portfolio at December 2021. While overall modelled losses were
low, a large proportion of these were driven by such properties.
One of the outcomes from the exercise was that the non-availability
of insurance for impacted properties was a key contributor to losses.
It was assumed that properties that are insurable, or where insurance
is affordable, will largely maintain their insurance. We also assessed
the impact of enhanced EPC legislation, although it was deemed to
be immaterial.
In addition, we assessed the risk of tropical cyclones and related
storm surges as they were deemed material in Hong Kong. However,
defaults are expected to remain low through to 2050 due to buildings
being designed to withstand high wind speeds and investment into
sea defences. We also looked at wildfire in Australia, although the risk
and severity is limited given our mortgage portfolio is predominantly
located in metropolitan areas. Similarly, losses in Singapore were low
in all the scenarios due to its geographical location and strong sea
defences.
Projected peril risk
Flooding is usually localised to specific areas that are close to water
sources such as rivers or the coast, areas that are located in particular
valleys where surface water can ‘pool’, or urban areas with poor
drainage following flash floods.
As the ‘Exposure to flooding’ table below shows, the majority of
properties located in the four markets are predicted to experience
zero to low risk of flooding, with flood depths of less than 0.5 metres,
under a 1-in-100-year event in each of the scenarios, demonstrating
the resilience of our portfolio.
Exposure to flooding
Peak multiplier increase in ECL
Proportion of properties with projected flood depths in a 1-in-100-
year severity flood event (%)1
Relative size of exposures at default (‘EAD’) and increase in peak ECL
under each scenario compared with the counterfactual scenario
(expressed as a multiple)
Markets
UK
Hong Kong
Singapore
Australia
Scenarios
Flood depth
(metres)
Baseline
flood risk
Net Zero
Downside
Physical Risk
>1.5
0.5–1.5
0–0.5
>1.5
0.5–1.5
0–0.5
>1.5
0.5–1.5
0–0.5
>1.5
0.5–1.5
0–0.5
2022
0.2
0.7
99.1
0.7
1.2
98.1
0
2.8
97.2
0.6
1.2
98.2
2050
0.2
2.5
97.3
0.8
1.3
97.9
0
2.9
97.1
0.6
1.2
98.2
2050
0.4
3.7
95.9
1.2
30.4
68.4
0.1
7.4
92.5
0.7
2.6
96.7
1 Severe flood events include river and surface flooding and coastal
inundation. The table compares 2050 snapshots under the Net Zero
and Downside Physical Risk scenarios with a baseline view in 2022.
The most impacted market is Hong Kong, where over 30% of the
locations would be susceptible to flood depths greater than
0.5 metres under the Downside Physical Risk scenario in 2050. This is
primarily driven by higher coastal and storm surges. However, this did
not take into account building type and property floor level, which we
expect would reduce the impact of flooding for a large number of
individual properties, given the majority of buildings in Hong Kong are
high-rise apartments.
For the remainder of the markets, more than 90% of mortgage
locations within each market are expected to experience flood depths
of less than 0.5 metres in all scenarios, which would not be material.
How climate change is impacting our
commercial real estate portfolios
We assessed the impact of various perils to which our commercial
real estate customers could be vulnerable, including flooding and
windstorms. Our commercial real estate portfolio is globally
diversified with larger concentrations in Hong Kong, the UK and the
US.
The impact of exposures to these perils can lead to increased ECL,
largely due to the cost of repairs following damages caused by
physical risk events or property valuation impacts caused by the
increasing frequency of physical risk events.
The ‘Exposure to peril’ table below shows exposure of our
commercial real estate portfolio within our largest markets to specific
physical risk events. The ‘peak multiplier increase in ECL’ table shows
for our largest markets the peak ECL increase modelled to be
experienced during the 2022 to 2050 period. This is a metric which
compares the multiplied levels of exposure in the scenario against a
counterfactual scenario that incorporates no climate change. We use
the sector’s exposure at default, which represents the relative size of
our exposure to potential losses from customer defaults within each
jurisdiction.
Exposure to peril
Proportion of our portfolio exposed to main perils in key markets.
Coastal
inundation
Cyclone
wind
Surface water
flooding
Riverine
flooding
%
2
15
16
%
94
0
83
%
18
12
15
%
11
8
28
Hong
Kong
UK
US
Downside
Physical
Risk (with
insurance)
Downside
Physical
Risk
(without
insurance
)
Exposure
at default
in 2021
Current
Commit-
ments
Downside
Transition
Risk
Net
Zero
Hong
Kong ♦ <1.25x
UK
♦
<1.25x
<1.25x
US
♦
<1.25x
<1.25x
<1.25x
<1.25x
<1.25x
<1.25x
<1.25x
<1.25x
<1.5x
<1.25x
<1.5x
<1.5x
The tables show that despite a varying degree of exposure to perils
across our most significant markets, our portfolio continues to
maintain a strong level of resilience to physical climate risks out to the
long term. In addition, the impact of insurance coverage mitigates
some of the risks under the most severe Downside Physical Risk
climate scenario.
Our largest credit exposure is in Hong Kong, where our portfolio has
material exposure to tropical cyclone winds. However, the resulting
impact on prospective credit losses remains low in the medium to
long term due to high building standards.
In the UK, in line with our retail portfolio, the main perils that drive
potential credit losses relate to coastal, river and surface water
flooding, although the impacts from these perils are not expected to
cause significant damages. Around 20% of our financed properties
are in London, and most are protected by the Thames Barrier. Under
the Net Zero scenario, transition risks materialise from 2025 due to
the costs of retrofitting requirements, and these are expected to lead
to increased impairments.
In the US, the major perils are from coastal flooding, largely in the
north-east of the country and in Florida, and from hurricane impact,
including gust damage, heavy rainfall and storm surges. The intensity
of these events are expected to increase in the future with a greater
proportion of tropical cyclones falling within the highest categories.
These will not only affect the regions that are currently exposed, but
also new areas due to the projected poleward shift of future tropical
cyclones. Building resilience and the future availability and affordability
of insurance cover in these regions will be the key determinants of
climate risks.
Understanding the resilience of our critical
properties
Climate change poses a physical risk to the buildings that we occupy
as an organisation, including our offices, retail branches and data
centres, both in terms of loss and damage, and business interruption.
We measure the impacts of climate and weather events to our
buildings on an ongoing basis, using historical, current and scenario
modelled forecast data. In 2022, there were 38 major storms that had
no impact on the availability of our buildings.
We use stress testing to evaluate the potential for impact to our
owned or leased premises. Our scenario stress test, conducted in
2022, analysed how seven different climate change-related hazards –
comprising coastal inundation, extreme heat, extreme winds,
wildfires, riverine flooding, soil movement due to drought, and surface
water flooding – could impact 500 of our critical and important
buildings.
The 2022 stress test covered all 500 buildings and modelled climate
change with the NGFS’s Hot house scenario that projects that the rise
in the temperature of the world will likely exceed 4°C by 2100. It also
modelled a less severe scenario that projects that global warming will
likely be limited to 2°C, in line with the upper limit ambition of the
Paris Agreement.
HSBC Holdings plc Annual Report and Accounts 2022
229
Risk review
Risk review
Key findings from the 4°C or greater Hot house scenario included:
A key finding from the 2°C, less severe scenario showed:
• The total number of buildings at risk reduces from 146 to 98, with
the same 62 key facilities still at risk by 2050 from the same perils.
This forward-looking data will inform real estate planning. We will
continue to improve our understanding of how extreme weather
events impact our building portfolio as climate risk assessment tools
improve and evolve. Additionally, we buy insurance for property
damage and business interruption, and consider insurance as a loss
mitigation strategy depending on its availability and price.
We regularly review and enhance our building selection process and
global engineering standards, and will continue to assess historical
claims data to help ensure our building selection and design standards
reflect the potential impacts of climate change.
• By 2050, 62 of the 500 critical and important buildings will have a
high potential for impact due to climate change, with insurance-
related losses estimated to be in excess of 10% of the insured
value of our buildings.
• These included 40 locations that face the risk of coastal flooding
due to sea levels rising and storm surges associated with
typhoons and hurricanes. In addition, five locations face the risk of
fluvial flooding due to surface water run-off caused by heavy rain.
The remaining 17 locations are data centres where the
predominant risk emanate from a mixture of temperature
extremes and water stress, which could impact the mechanical
cooling equipment or drought for which the specific direct physical
impacts could be soil movement.
• A further 84 locations have the potential to be impacted by climate
change, albeit to a lesser extent, with insurance-related losses
estimated at between 5% and 10% of the insured value of our
buildings. The principal risks are coastal flooding, drought,
temperature extremes, and water stress.
Resilience risk
Overview
Resilience risk is the risk of sustained and significant business
disruption from execution, delivery, physical security or safety events,
causing the inability to provide critical services to our customers,
affiliates, and counterparties. Resilience risk arises from failures or
inadequacies in processes, people, systems or external events.
Resilience risk management
Key developments in 2022
The Operational and Resilience Risk sub-function provides robust risk
steward oversight of the management of resilience risk by the Group
businesses, functions and legal entities. This includes effective and
timely independent challenge and expert advice. During the year, we
carried out a number of initiatives to keep pace with geopolitical,
regulatory and technology changes and to strengthen the
management of resilience risk:
• We focused on enhancing our understanding of our risk and
control environment, by updating our risk taxonomy and control
libraries, and refreshing risk and control assessments.
• We implemented heightened monitoring and reporting of cyber,
third-party, business continuity and payment/sanctions risks
resulting from the Russia-Ukraine war, and enhanced controls and
key processes where needed.
management oversight while operating effectively as part of a
simplified non-financial risk structure. We view resilience risk across
nine sub-risk types related to: failure to manage third parties;
technology and cybersecurity; transaction processing; failure to
protect people and places from physical malevolent acts; business
interruption and incident risk; data risk; change execution risk; building
unavailability; and workplace safety.
Risk appetite and key escalations for resilience risk are reported to the
Non-Financial Risk Management Board, chaired by the Group Chief
Risk and Compliance Officer, with an escalation path to the Group
Risk Management Meeting and Group Risk Committee.
Key risk management processes
Operational resilience is our ability to anticipate, prevent, adapt,
respond to, recover and learn from operational disruption while
minimising customer and market impact. Resilience is determined by
assessing whether we are able to continue to provide our most
important services, within an agreed level. This is achieved via day-to-
day oversight and periodic and ongoing assurance, such as deep dive
reviews and controls testing, which may result in challenges being
raised to the business by risk stewards. Further challenge is also
raised in the form of quarterly risk steward opinion papers to formal
governance. We accept we will not be able to prevent all disruption
but we prioritise investment to continually improve the response and
recovery strategies for our most important business services.
• We provided analysis and easy-to-access risk and control
Business operations continuity
information and metrics to enable management to focus on non-
financial risks in their decision making and appetite setting.
• We further strengthened our non-financial risk governance and
senior leadership, and improved our coverage and risk steward
oversight for data privacy and change execution.
We prioritise our efforts on material risks and areas undergoing
strategic growth, aligning our location strategy to this need. We also
remotely provide oversight and stewardship, including support of
chief risk officers, in territories where we have no physical presence.
Governance and structure
The Operational and Resilience Risk target operating model provides a
globally consistent view across resilience risks, strengthening our risk
We continue to monitor the situation in Russia and Ukraine, and
remain ready to take measures to help ensure business continuity,
should the situation require. There has been no significant impact to
our services in nearby markets where the Group operates.
Publications from the UK government, EU Commission and energy
company National Grid, among others, advised on potential plans for
power cuts and energy restrictions across the UK and continental
Europe during the winter period. In light of potential disruption,
businesses and functions in these markets are reviewing existing
plans and responses to minimise the impact.
230
HSBC Holdings plc Annual Report and Accounts 2022
Regulatory compliance risk
Overview
Regulatory compliance risk is the risk associated with breaching our
duty to clients and other counterparties, inappropriate market conduct
and breaching related financial services regulatory standards.
Regulatory compliance risk arises from the failure to observe relevant
laws, codes, rules and regulations and can manifest itself in poor
market or customer outcomes and lead to fines, penalties and
reputational damage to our business.
Regulatory compliance risk management
Key developments in 2022
The dedicated programme to embed our updated purpose-led
conduct approach has concluded. Work to map applicable regulations
to our risks and controls continues in 2023 alongside the adoption of
new tooling to support enterprise-wide horizon scanning for new
regulatory obligations and manage our regulatory reporting
inventories. Climate risk has been integrated into regulatory
compliance policies and processes, with enhancements made to the
product governance framework and controls in order to ensure the
effective consideration of climate – and in particular greenwashing –
risks.
Governance and structure
The structure of the Compliance function is substantively unchanged
and the Group Regulatory Conduct capability and Group Financial
Financial crime risk
Overview
Financial crime risk is the risk that HSBC’s products and services will
be exploited for criminal activity. This includes fraud, bribery and
corruption, tax evasion, sanctions and export control violations,
money laundering, terrorist financing and proliferation financing.
Financial crime risk arises from day-to-day banking operations
involving customers, third parties and employees.
Financial crime risk management
Key developments in 2022
We regularly review the effectiveness of our financial crime risk
management framework, which includes consideration of the
complex and dynamic nature of sanctions compliance risk. In 2022,
we adapted our policies, procedures and controls to respond to the
unprecedented volume and diverse set of sanctions and trade
restrictions imposed against Russia following its invasion of Ukraine.
We also continued to make progress with several key financial crime
risk management initiatives, including:
• We enhanced our screening and non-screening controls to aid the
identification of potential sanctions risk related to Russia, as well
as risk arising from export control restrictions.
• We deployed a key component of our intelligence-led, dynamic
risk assessment capability for customer account monitoring in
additional UK entities, Mexico and Singapore, and have expanded
coverage to include monitoring of customer credit card activity in
the UK. Furthermore we have deployed a next generation
capability for the monitoring of correspondent banking activity in
Hong Kong and the UK.
• We reconfigured our transaction screening capability to be ready
for the global change to payment systems formatting under
ISO20022 requirements, and enhanced transaction screening
capabilities by implementing automated alert discounting.
• We strengthened the first-party lending fraud framework,
Crime capability both continue to work closely with the regional chief
compliance officers and their respective teams to help them identify
and manage regulatory and financial crime compliance risks across
the Group.
They also work together and with all relevant stakeholders to achieve
good conduct outcomes and provide enterprise-wide support on the
compliance risk agenda in collaboration with the Group’s Risk
function.
Key risk management processes
The Group Regulatory Conduct capability is responsible for setting
global policies, standards and risk appetite to guide the Group’s
management of regulatory compliance risk. It also devises the
required frameworks, support processes and tooling to protect
against regulatory compliance risks. The Group capability provides
oversight, review and challenge to the regional chief compliance
officers and their teams to help them identify, assess and mitigate
regulatory compliance risks, where required. The Group’s regulatory
compliance risk policies are regularly reviewed. Global policies and
procedures require the identification and escalation of any actual or
potential regulatory breaches, and relevant reportable events are
escalated to the Group’s Non-Financial Risk Management Board, the
Group Risk Management Meeting and Group Risk Committee, as
appropriate. The Group Head of Compliance reports to the Group
Chief Risk and Compliance Officer and attends the Risk and
Compliance Executive Committee, the Group Risk Management
Meeting and the Group Risk Committee.
Governance and structure
The structure of the Financial Crime function remained substantively
unchanged in 2022, although we continued to review the
effectiveness of our governance framework to manage financial crime
risk. The Group Head of Financial Crime and Group Money Laundering
Reporting Officer continues to report to the Group Chief Risk and
Compliance Officer, while the Group Risk Committee retains
oversight of matters relating to fraud, bribery and corruption, tax
evasion, sanctions and export control breaches, money laundering,
terrorist financing and proliferation financing.
Key risk management processes
We will not tolerate knowingly conducting business with individuals or
entities believed to be engaged in criminal activity. We require
everybody in HSBC to play their role in maintaining effective systems
and controls to prevent and detect financial crime. Where we believe
we have identified suspected criminal activity or vulnerabilities in our
control framework, we will take appropriate mitigating action.
We manage financial crime risk because it is the right thing to do to
protect our customers, shareholders, staff, the communities in which
we operate, as well as the integrity of the financial system on which
we all rely. We operate in a highly regulated industry in which these
same policy goals are codified in law and regulation.
We are committed to complying with the laws and regulations of all
the markets in which we operate and applying a consistently high
financial crime standard globally.
We continue to assess the effectiveness of our end-to-end financial
crime risk management framework, and invest in enhancing our
operational control capabilities and technology solutions to deter and
detect criminal activity. We have simplified our framework by
streamlining and de-duplicating policy requirements. We also
strengthened our financial crime risk taxonomy and control libraries
and our investigative and monitoring capabilities through technology
deployments. We developed more targeted metrics, and have also
enhanced our governance and reporting.
reviewed and published an updated fraud policy and associated
control library, and continued to develop fraud detection tools.
We are committed to working in partnership with the wider industry
and the public sector in managing financial crime risk and we
HSBC Holdings plc Annual Report and Accounts 2022
231
Risk review Independent Reviews
In August 2022, the Board of Governors of the Federal Reserve
System terminated its 2012 cease-and-desist order, with immediate
effect. This order was the final remaining regulatory enforcement
action that HSBC had entered into in 2012. In June 2021, the UK
Financial Conduct Authority had already determined that no further
skilled person work was required under section 166 of the Financial
Services and Markets Act. The Group Risk Committee retains
oversight of matters relating to financial crime, including any
remaining remedial activity not yet completed as part of previous
recommendations.
• We have completed independent validations of a suite of newly
developed models for the forthcoming IFRS17 accounting
standards for insurance.
• We have enhanced our model risk teams with specialist skills to
manage the increased model risk in areas such as climate risk and
models using advanced analytics and machine learning, as they
become critical areas of focus that will grow in importance in 2023
and beyond.
Governance and structure
Model risk governance committees at the Group, business and
functional levels provide oversight of model risk. The committees
include senior leaders from the three global businesses and the Group
Risk and Compliance function, and focus on model-related concerns
and are supported by key model risk metrics. We also have Model
Risk Committees in our geographical regions focused on local delivery
and requirements. The Group-level Model Risk Committee is chaired
by the Group Chief Risk and Compliance Officer, and the heads of key
businesses participate in these meetings.
Key risk management processes
We use a variety of modelling approaches, including regression,
simulation, sampling, machine learning and judgemental scorecards
for a range of business applications. These activities include customer
selection, product pricing, financial crime transaction monitoring,
creditworthiness evaluation and financial reporting. Global
responsibility for managing model risk is delegated from the Board to
the Group Chief Risk and Compliance Officer, who authorises the
Group Model Risk Committee. This committee regularly reviews our
model risk management policies and procedures, and requires the
first line of defence to demonstrate comprehensive and effective
controls based on a library of model risk controls provided by Model
Risk Management. Model Risk Management also reports on model
risk to senior management and the Group Risk Committee on a
regular basis through the use of the risk map, risk appetite metrics
and top and emerging risks.
We regularly review the effectiveness of these processes, including
the model oversight committee structure, to help ensure appropriate
understanding and ownership of model risk is embedded in the
businesses and functions.
Risk review
participate in numerous public-private partnerships and information
sharing initiatives around the world. In 2022, our focus remained on
measures to improve the overall effectiveness of the global financial
crime framework, notably by providing input into legislative and
regulatory reform activities. We did this by contributing to the
development of responses to consultation papers focused on how
financial crime risk management frameworks can deliver more
effective outcomes in detecting and deterring criminal activity,
including tackling evolving criminal behaviours such as fraud. Through
our work with the Wolfsberg Group and the Institute of International
Finance, we supported the efforts of the global standard setter, the
Financial Action Task Force. In addition, we participated in a number
of public events related to tackling forestry crimes, wildlife trafficking
and human trafficking.
Model risk
Overview
Model risk is the risk of inappropriate or incorrect business decisions
arising from the use of models that have been inadequately designed,
implemented or used, or from models that do not perform in line with
expectations and predictions.
Model risk arises in both financial and non-financial contexts
whenever business decision making includes reliance on models.
Key developments in 2022
In 2022, we continued to make improvements in our model risk
management processes amid regulatory changes in model
requirements.
Initiatives during the year included:
• In response to regulatory capital changes, we redeveloped,
independently validated and submitted to the PRA and other local
regulators our models for the internal ratings-based (‘IRB’)
approach for credit risk, internal model method (‘IMM’) for
counterparty credit risk and internal model approach (‘IMA’) for
market risk. These new models have been built to enhanced
standards using improved data as a result of investment in
processes and systems.
• We redeveloped and validated models impacted by the changes to
the alternative rate setting mechanisms due to the Ibor transition.
• We embedded changes to address gaps in the control framework
that emerged as a result of increases in adjustments and overlays
that were applied to compensate for the impact of the Covid-19
pandemic, and the subsequent volatility due to the effects of the
rise in global interest rates on the ECL models.
• We have increased the involvement of first line colleagues in
businesses and functions in the development and management of
models. We also put an enhanced focus on key model risk drivers
such as data quality and model methodology.
• We have sought to enhance the reporting that supports the model
risk appetite measures, to support our businesses and functions in
managing model risk more effectively.
• We continued the transformation of the Model Risk Management
team, with further enhancements to the independent model
validation processes, including new systems and working
practices. Key senior hires were made during the year to lead the
business areas and regions to strengthen oversight and expertise
within the function.
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HSBC Holdings plc Annual Report and Accounts 2022
Insurance manufacturing operations risk
Contents
233
233
Overview
Insurance manufacturing operations risk management
Insurance manufacturing operations risk in 2022
235
235 Measurement
Key risk types
237
237
238
238
238
– Market risk
– Credit risk
– Liquidity risk
– Insurance underwriting risk
Overview
The key risks for our insurance manufacturing operations are market
risk, in particular interest rate and equity, credit risk and insurance
underwriting risk. These have a direct impact on the financial results
and capital positions of the insurance operations. Liquidity risk, while
significant in other parts of the Group, is relatively minor for our
insurance operations.
HSBC’s insurance business
We sell insurance products through a range of channels including our
branches, insurance salesforces, direct channels and third-party
distributors. The majority of sales are through an integrated
bancassurance model that provides insurance products principally for
customers with whom we have a banking relationship, although the
proportion of sales through other sources such as independent
financial advisers, tied agents and digital is increasing.
For the insurance products we manufacture, the majority of sales are
savings, universal life and protection contracts.
We choose to manufacture these insurance products in HSBC
subsidiaries based on an assessment of operational scale and risk
appetite. Manufacturing insurance allows us to retain the risks and
rewards associated with writing insurance contracts by keeping part
of the underwriting profit and investment income within the Group.
We have life insurance manufacturing subsidiaries in eight markets,
which are Hong Kong, Singapore, mainland China, France, the UK,
Malta, Mexico and Argentina. We also have a life insurance
manufacturing associate in India.
Where we do not have the risk appetite or operational scale to be an
effective insurance manufacturer, we engage with a small number of
leading external insurance companies in order to provide insurance
products to our customers. These arrangements are generally
structured with our exclusive strategic partners and earn the Group a
combination of commissions, fees and a share of profits. We
distribute insurance products in all of our geographical regions.
This section focuses only on the risks relating to the insurance
products we manufacture.
Insurance manufacturing operations
risk management
Key developments in 2022
The insurance manufacturing subsidiaries follow the Group’s risk
management framework. In addition, there are specific policies and
practices relating to the risk management of insurance contracts,
which have not changed materially over 2022. During the year, there
was continued market volatility observed across interest rates, equity
markets and foreign exchange rates. This was predominantly driven
by geopolitical factors and wider inflationary concerns. One area of
key risk management focus was the implementation of the new
accounting standard, IFRS17 ‘Insurance Contracts’. Given the
fundamental nature of the impact of the accounting standard on
insurance accounting, this presents additional financial reporting and
model risks for the Group. Another area of focus was the acquisition
early in 2022 of an insurance business in Singapore and the
subsequent integration of that business into the Group’s risk
management framework.
Governance and structure
(Audited)
Insurance manufacturing risks are managed to a defined risk appetite,
which is aligned to the Group’s risk appetite and risk management
framework, including its three lines of defence model. For details of
the Group’s governance framework, see page 133. The Global
Insurance Risk Management Meeting oversees the control
framework globally and is accountable to the WPB Risk Management
Meeting on risk matters relating to the insurance business.
The monitoring of the risks within our insurance operations is carried
out by Insurance Risk teams. The Group’s risk stewardship functions
support the Insurance Risk teams in their respective areas of
expertise.
Stress and scenario testing
(Audited)
Stress testing forms a key part of the risk management framework for
the insurance business. We participate in local and Group-wide
regulatory stress tests, as well as internally developed stress and
scenario tests, including Group internal stress test exercises.
The results of these stress tests and the adequacy of management
action plans to mitigate these risks are considered in the Group’s
ICAAP and the entities’ regulatory Own Risk and Solvency
Assessments (‘ORSAs’), which are produced by all material entities.
Key risk management processes
Market risk
(Audited)
All our insurance manufacturing subsidiaries have market risk
mandates and limits that specify the investment instruments in which
they are permitted to invest and the maximum quantum of market
risk that they may retain. They manage market risk by using, among
others, some or all of the techniques listed below, depending on the
nature of the contracts written:
• We are able to adjust bonus rates to manage the liabilities to
policyholders for products with discretionary participating features
(‘DPF’). The effect is that a significant proportion of the market risk
is borne by the policyholder.
• We use asset and liability matching where asset portfolios are
structured to support projected liability cash flows. The Group
manages its assets using an approach that considers asset quality,
diversification, cash flow matching, liquidity, volatility and target
investment return. We use models to assess the effect of a range
of future scenarios on the values of financial assets and associated
liabilities, and ALCOs employ the outcomes in determining how
best to structure asset holdings to support liabilities.
• We use derivatives to protect against adverse market movements.
• We design new products to mitigate market risk, such as changing
the investment return sharing proportion between policyholders
and the shareholder.
HSBC Holdings plc Annual Report and Accounts 2022
233
Risk review Risk review
Credit risk
(Audited)
Our insurance manufacturing subsidiaries also have credit risk
mandates and limits within which they are permitted to operate,
which consider the credit risk exposure, quality and performance of
their investment portfolios. Our assessment of the creditworthiness
of issuers and counterparties is based primarily upon internationally
recognised credit ratings and other publicly available information.
Stress testing is performed on investment credit exposures using
credit spread sensitivities and default probabilities.
We use a number of tools to manage and monitor credit risk. These
include a credit report containing a watch-list of investments with
current credit concerns, primarily investments that may be at risk of
future impairment or where high concentrations to counterparties are
present in the investment portfolio. Sensitivities to credit spread risk
are assessed and monitored regularly.
Capital and liquidity risk
(Audited)
Capital risk for our insurance manufacturing subsidiaries is assessed
in the Group’s ICAAP based on their financial capacity to support the
risks to which they are exposed. Capital adequacy is assessed on
both the Group’s economic capital basis, and the relevant local
insurance regulatory basis.
Risk appetite buffers are set to ensure that the operations are able to
remain solvent, allowing for business-as-usual volatility and extreme
but plausible stress events. In certain cases, entities use reinsurance
to manage capital risk.
Liquidity risk is relatively minor for the insurance business. It is
managed by cash flow matching and maintaining sufficient cash
resources, investing in high credit-quality investments with deep and
liquid markets, monitoring investment concentrations and restricting
them where appropriate, and establishing committed contingency
borrowing facilities.
Insurance manufacturing subsidiaries complete quarterly liquidity risk
reports and an annual review of the liquidity risks to which they are
exposed.
Insurance underwriting risk
Our insurance manufacturing subsidiaries primarily use the following
frameworks and processes to manage and mitigate insurance
underwriting risks:
• a formal approval process for launching new products or making
changes to products;
• a product pricing and profitability framework, which requires initial
and ongoing assessment of the adequacy of premiums charged on
new insurance contracts to meet the risks associated with them;
• a framework for customer underwriting;
• reinsurance, which cedes risks to third-party reinsurers to keep
risks within risk appetite, reduce volatility and improve capital
efficiency; and
• oversight of expense and reserve risks by entity Financial
Reporting Committees.
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HSBC Holdings plc Annual Report and Accounts 2022
Insurance manufacturing operations risk in 2022
Measurement
The following tables show the composition of assets and liabilities by contract type and by geographical region.
Balance sheet of insurance manufacturing subsidiaries by type of contract1
(Audited)
Financial assets
– financial assets designated and otherwise mandatorily measured at fair value
through profit or loss
– derivatives
– financial investments at amortised cost
– financial investments at fair value through other comprehensive income
– other financial assets3
Reinsurance assets
PVIF4
Other assets and investment properties
Total assets
Liabilities under investment contracts designated at fair value
Liabilities under insurance contracts
Deferred tax5
Other liabilities
Total liabilities
Total equity
Total liabilities and equity at 31 Dec 2022
Financial assets
– financial assets designated and otherwise mandatorily measured at fair value
through profit or loss
– derivatives
– financial investments at amortised cost
– financial investments at fair value through other comprehensive income
– other financial assets3
Reinsurance assets
PVIF4
Other assets and investment properties
Total assets
Liabilities under investment contracts designated at fair value
Liabilities under insurance contracts
Deferred tax5
Other liabilities
Total liabilities
Total equity
Total liabilities and equity at 31 Dec 2021
With
DPF Unit-linked
$m
89,907
30,950
418
46,142
8,349
4,048
2,945
—
2,521
95,373
—
91,948
227
—
92,175
—
92,175
$m
8,144
7,992
—
43
—
109
50
—
2
8,196
2,084
5,438
6
—
7,528
—
7,528
Other
contracts2
$m
21,467
Shareholder
assets and
liabilities
$m
9,086
Total
$m
128,604
3,899
30
16,114
486
938
1,724
—
225
23,416
3,296
17,521
22
—
20,839
—
20,839
1,543
44,384
15
4,805
1,920
803
2
9,900
957
19,945
—
—
1,495
7,212
8,707
17,681
26,388
463
67,104
10,755
5,898
4,721
9,900
3,705
146,930
5,380
114,907
1,750
7,212
129,249
17,681
146,930
88,969
8,881
19,856
9,951
127,657
30,669
129
42,001
10,858
5,312
2,180
—
2,558
93,707
—
89,492
179
—
89,671
—
89,671
8,605
1
61
—
214
72
—
1
8,954
2,297
6,558
9
—
8,864
—
8,864
3,581
15
14,622
459
1,179
1,666
—
206
21,728
3,641
16,757
24
—
20,422
—
20,422
1,827
2
4,909
1,951
1,262
3
9,453
820
20,227
—
—
1,418
7,269
8,687
16,972
25,659
44,682
147
61,593
13,268
7,967
3,921
9,453
3,585
144,616
5,938
112,807
1,630
7,269
127,644
16,972
144,616
1 Balance sheet of insurance manufacturing operations is shown before elimination of inter-company transactions with HSBC non-insurance operations.
2 ‘Other contracts’ includes term insurance, credit life insurance, universal life insurance and investment contracts not included in the ‘Unit-linked’ or
‘With DPF’ columns.
3 Comprise mainly loans and advances to banks, cash and inter-company balances with other non-insurance legal entities.
4 Present value of in-force long-term insurance business.
5 ‘Deferred tax’ includes the deferred tax liabilities arising on recognition of PVIF.
HSBC Holdings plc Annual Report and Accounts 2022
235
Risk review
Risk review
Balance sheet of insurance manufacturing subsidiaries by geographical region1,2
(Audited)
Financial assets
– financial assets designated and otherwise mandatorily measured at fair value through profit or
loss
– derivatives
– financial investments – at amortised cost
– financial investments – at fair value through other comprehensive income
– other financial assets3
Reinsurance assets
PVIF4
Other assets and investment properties
Total assets
Liabilities under investment contracts designated at fair value
Liabilities under insurance contracts
Deferred tax5
Other liabilities
Total liabilities
Total equity
Total liabilities and equity at 31 Dec 2022
Europe
$m
27,407
15,858
292
383
9,505
1,369
183
1,296
958
29,844
1,143
24,076
288
2,166
27,673
2,171
29,844
Asia
$m
100,224
28,030
171
66,674
861
4,488
4,533
8,407
2,687
115,851
4,237
89,904
1,440
4,992
100,573
15,278
115,851
Latin
America
$m
973
496
—
47
389
41
5
197
60
1,235
—
927
22
54
1,003
232
1,235
Total
$m
128,604
44,384
463
67,104
10,755
5,898
4,721
9,900
3,705
146,930
5,380
114,907
1,750
7,212
129,249
17,681
146,930
Financial assets
– financial assets designated and otherwise mandatorily measured at fair value through profit or
34,264
92,535
858
127,657
loss
– derivatives
– financial investments – at amortised cost
– financial investments – at fair value through other comprehensive income
– other financial assets3
Reinsurance assets
PVIF4
Other assets and investment properties
Total assets
Liabilities under investment contracts designated at fair value
Liabilities under insurance contracts
Deferred tax5
Other liabilities
Total liabilities
Total equity
Total liabilities and equity at 31 Dec 2021
19,030
65
1,161
12,073
1,935
213
1,098
1,091
36,666
1,396
30,131
250
2,711
34,488
2,178
36,666
25,248
82
60,389
817
5,999
3,703
8,177
2,431
106,846
4,542
81,840
1,357
4,523
92,262
14,584
106,846
404
—
43
378
33
5
178
63
1,104
—
836
23
35
894
210
1,104
44,682
147
61,593
13,268
7,967
3,921
9,453
3,585
144,616
5,938
112,807
1,630
7,269
127,644
16,972
144,616
1 HSBC has no insurance manufacturing subsidiaries in the Middle East and North Africa or North America.
2 Balance sheet of insurance manufacturing operations is shown before elimination of inter-company transactions with HSBC non-insurance operations.
3 Comprise mainly loans and advances to banks, cash and inter-company balances with other non-insurance legal entities.
4 Present value of in-force long-term insurance business.
5 ‘Deferred tax’ includes the deferred tax liabilities arising on recognition of PVIF.
236
HSBC Holdings plc Annual Report and Accounts 2022
Key risk types
Market risk
(Audited)
Description and exposure
Market risk is the risk of changes in market factors affecting HSBC’s
capital or profit. Market factors include interest rates, equity and
growth assets and foreign exchange rates.
Our exposure varies depending on the type of contract issued.
Our most significant life insurance products are contracts with
discretionary participating features (‘DPF’). These products typically
include some form of capital guarantee or guaranteed return on the
sums invested by the policyholders, to which discretionary bonuses
are added if allowed by the overall performance of the funds. These
funds are primarily invested in fixed interest, with a proportion
allocated to other asset classes to provide customers with the
potential for enhanced returns.
DPF products expose HSBC to the risk of variation in asset returns,
which will impact our participation in the investment performance.
Financial return guarantees
(Audited)
In addition, in some scenarios the asset returns can become
insufficient to cover the policyholders’ financial guarantees, in which
case the shortfall has to be met by HSBC. Amounts are held against
the cost of such guarantees, calculated by stochastic modelling in the
larger entities.
The cost of such guarantees is accounted for as a deduction from the
present value of in-force (‘PVIF‘) asset, unless the cost of such
guarantees is already explicitly allowed for within the insurance
contract liabilities.
The following table shows the total reserve held for the cost of
guarantees, the range of investment returns on assets supporting
these products and the implied investment return that would enable
the business to meet the guarantees.
The cost of guarantees decreased to $745m (2021: $938m), primarily
due increases in interest rates during 2022.
For unit-linked contracts, market risk is substantially borne by the
policyholder, but some market risk exposure typically remains, as fees
earned are related to the market value of the linked assets.
2022
Long-term
investment
returns on
relevant
portfolios
%
1.6-5.1
3.6-6.8
2.0-5.5
2.0-4.2
Investment
returns
implied by
guarantee
%
—
0.1-1.9
2.0-3.9
4.0-5.0
Cost of
guarantees
$m
47
548
109
41
745
2021
Long-term
investment
returns on
relevant
portfolios
%
0.7-2.3
2.7-6.4
2.2-4.1
2.2-4.2
Investment
returns
implied by
guarantee
%
—
0.1-1.9
2.0-3.9
4.0-5.0
Cost of
guarantees
$m
220
423
183
112
938
Capital
Nominal annual return
Nominal annual return
Nominal annual return
At 31 Dec
Sensitivities
Changes in financial market factors, from the economic assumptions
in place at the start of the year, had a negative impact on reported
profit before tax of $988m (2021: $516m). The following table
illustrates the effects of selected interest rate, equity price and
foreign exchange rate scenarios on our profit for the year and the total
equity of our insurance manufacturing subsidiaries. These sensitivities
are prepared in accordance with current IFRSs, which will change
following the adoption of IFRS 17 ‘Insurance Contracts’, effective
from 1 January 2023. Further information about the adoption of
IFRS 17 is provided on page 335.
Where appropriate, the effects of the sensitivity tests on profit after
tax and equity incorporate the impact of the stress on the PVIF.
Due in part to the impact of the cost of guarantees and hedging
strategies, which may be in place, the relationship between the profit
and total equity and the risk factors is non-linear, particularly in a low
interest-rate environment. Therefore, the results disclosed should not
be extrapolated to measure sensitivities to different levels of stress.
For the same reason, the impact of the stress is not necessarily
symmetrical on the upside and downside. The sensitivities are stated
before allowance for management actions, which may mitigate the
effect of changes in the market environment. The sensitivities
presented allow for adverse changes in policyholder behaviour that
may arise in response to changes in market rates. The differences
between the impacts on profit after tax and equity are driven by the
changes in value of the bonds measured at fair value through other
comprehensive income, which are only accounted for in equity. The
increased upward sensitivity and reduced downward sensitivity of
profit after tax to a parallel shift in yield curves is driven by rising
interest rates having reduced the sensitivity impact associated with
the cost of guarantees in France.
Sensitivity of HSBC’s insurance manufacturing subsidiaries to market risk factors
(Audited)
+100 basis point parallel shift in yield curves
-100 basis point parallel shift in yield curves
10% increase in equity prices
10% decrease in equity prices
10% increase in US dollar exchange rate compared with all currencies
10% decrease in US dollar exchange rate compared with all currencies
2022
Effect on
profit after
tax
$m
(100)
35
391
(419)
98
(98)
2021
Effect on
total equity
Effect on
profit after tax
Effect on
total equity
$m
(236)
177
391
(419)
98
(98)
$m
(2)
(154)
369
(377)
80
(80)
$m
(142)
(9)
369
(377)
80
(80)
HSBC Holdings plc Annual Report and Accounts 2022
237
Risk review
Risk review
Credit risk
(Audited)
Description and exposure
Credit risk is the risk of financial loss if a customer or counterparty
fails to meet their obligation under a contract. It arises in two main
areas for our insurance manufacturers:
• risk associated with credit spread volatility and default by debt
security counterparties after investing premiums to generate a
return for policyholders and shareholders; and
• risk of default by reinsurance counterparties and non-
reimbursement for claims made after ceding insurance risk.
The amounts outstanding at the balance sheet date in respect
of these items are shown in the table on page 235.
The credit quality of the reinsurers’ share of liabilities under insurance
contracts is assessed as ‘satisfactory’ or higher (as defined on
page 146), with 100% of the exposure being neither past due nor
impaired (2021: 100%).
Credit risk on assets supporting unit-linked liabilities is predominantly
borne by the policyholders. Therefore, our exposure is primarily
related to liabilities under non-linked insurance and investment
Expected maturity of insurance contract liabilities
(Audited)
contracts and shareholders’ funds. The credit quality of insurance
financial assets is included in the table on page 165.
The risk associated with credit spread volatility is to a large extent
mitigated by holding debt securities to maturity, and sharing a degree
of credit spread experience with policyholders.
Liquidity risk
(Audited)
Description and exposure
Liquidity risk is the risk that an insurance operation, though solvent,
either does not have sufficient financial resources available to meet
its obligations when they fall due, or can secure them only at
excessive cost. Liquidity risk may be able to be shared with
policyholders for products with DPF.
The following table shows the expected undiscounted cash flows for
insurance liabilities at 31 December 2022.
The profile of the expected maturity of insurance contracts at
31 December 2022 remained comparable with 2021.
The remaining contractual maturity of investment contract liabilities is
included in Note 30 on page 396.
Unit-linked
With DPF and Other contracts
At 31 Dec 2022
Unit-linked
With DPF and Other contracts
At 31 Dec 2021
Insurance underwriting risk
Description and exposure
Within 1 year
$m
801
8,637
9,438
Expected cash flows (undiscounted)
1–5 years
$m
1,732
31,290
33,022
5–15 years Over 15 years
$m
2,355
135,002
137,357
$m
2,522
55,157
57,679
1,346
8,803
10,149
2,605
31,334
33,939
3,159
51,891
55,050
2,293
94,168
96,461
Sensitivities
(Audited)
Total
$m
7,410
230,086
237,496
9,403
186,196
195,599
Insurance underwriting risk is the risk of loss through adverse
experience, in either timing or amount, of insurance underwriting
parameters (non-economic assumptions). These parameters include
mortality, morbidity, longevity, lapse and expense rates. Lapse risk
exposure on products with premium financing increased over the year
as rising interest rates led to an increase in the cost of financing for
customers.
The following table shows the sensitivity of profit and total equity to
reasonably possible changes in non-economic assumptions across all
our insurance manufacturing subsidiaries. These sensitivities are
prepared in accordance with current IFRSs, which will change
following the adoption of IFRS 17 ‘Insurance Contracts’, effective
from 1 January 2023. Further information about the adoption of
IFRS 17 is provided on page 335.
The principal risk we face is that, over time, the cost of the contract,
including claims and benefits, may exceed the total amount of
premiums and investment income received.
Mortality and morbidity risk is typically associated with life insurance
contracts. The effect on profit of an increase in mortality or morbidity
depends on the type of business being written.
The tables on pages 235 and 236 analyse our life insurance risk
exposures by type of contract and by geographical region.
The insurance risk profile and related exposures remain largely
consistent with those observed at 31 December 2021.
Sensitivity to lapse rates depends on the type of contracts
being written. An increase in lapse rates typically has a negative
effect on profit due to the loss of future income on the lapsed
policies. However, some contract lapses have a positive effect on
profit due to the existence of policy surrender charges.
Expense rate risk is the exposure to a change in the allocated cost
of administering insurance contracts. To the extent that increased
expenses cannot be passed on to policyholders, an increase in
expense rates will have a negative effect on our profits. This risk is
generally greatest for our smaller entities.
Sensitivity analysis
(Audited)
Effect on profit after tax and total equity at 31 Dec
Effect on profit after tax and total equity at 10% increase in mortality and/or morbidity rates
Effect on profit after tax and total equity at 10% decrease in mortality and/or morbidity rates
Effect on profit after tax and total equity at 10% increase in lapse rates
Effect on profit after tax and total equity at 10% decrease in lapse rates
Effect on profit after tax and total equity at 10% increase in expense rates
Effect on profit after tax and total equity at 10% decrease in expense rates
238
HSBC Holdings plc Annual Report and Accounts 2022
2022
$m
(105)
109
(121)
124
(89)
89
2021
$m
(112)
115
(115)
129
(108)
107
Corporate
governance
report
HSBC continues to enhance its corporate
governance practices and procedures to
support the Board's ambition of world-class
governance.
The corporate governance report gives
details of our Board of Directors, senior
management, and Board committees.
It outlines key aspects of our approach
to corporate governance, including
internal control.
It also includes the Directors’ remuneration
report, which explains our policies on
remuneration and their application.
240 The Board
244 Senior management
248 How we are governed
255 Board activities during 2022
257 Board and committee effectiveness,
performance and accountability
259 Board committees
276 Directors' remuneration report
301 Share capital and other related disclosures
306
Internal control
308 Employees
310 Statement of compliance
311 Directors' responsibility statement
We have a comprehensive range of policies and systems
in place designed to help ensure that the Group is well
managed, with effective oversight and control.
HSBC Holdings plc Annual Report and Accounts 2022
239
Report of the Directors | Corporate governance report
The Board
The Board, which seeks to promote the Group’s long-term
success, deliver sustainable value to shareholders and
promote a culture of openness and debate, comprises
diverse, high-calibre members who have experience in
our global markets.
Chairman and executive Directors
Mark E Tucker (65)
Group Chairman
Appointed to the Board: September 2017
Group Chairman since: October 2017
Noel Quinn (61)
Group Chief Executive
Appointed to the Board: August 2019
Group Chief Executive since: March 2020
Skills and experience: With over 35 years of
experience in financial services in Asia, Africa,
the US, the EU and the UK, including 30 years
living and working in Hong Kong, Mark has a
deep understanding of the industry and markets
in which we operate.
Career: Mark was previously Chairman, Group
Chief Executive and President of AIA Group Limited
(‘AIA’), and prior to AIA he was Group Chief
Executive of Prudential plc.
Mark previously served as a non-executive Director
of the Court of the Bank of England and as an
independent non-executive Director of Goldman
Sachs Group.
Other appointments:
– Non-executive Chairman of Discovery Limited
– Supporting Chair of Chapter Zero
– Member of the UK Investment Council
– Member of the Advisory Group on Trade Finance
Skills and experience: Having qualified as an
accountant in 1987, Noel has more than 30 years
of banking and financial services experience,
both in the UK and Asia.
Career: Noel was appointed Group Chief Executive
in March 2020, having held the role on an interim
basis since August 2019. Since joining HSBC and its
constituent companies in 1987, Noel has held a
variety of roles including Chief Executive Officer,
Global Commercial Banking; Regional Head of
Commercial Banking for Asia-Pacific; Head of
Commercial Banking UK; and Head of Commercial
Finance Europe.
Other appointments:
– Chair of the Financial Services Task Force of the
Sustainable Markets Initiative
– Member of the Advisory Council of the Sustainable
Markets Initiative
– Founding member of CNBC ESG Council
– Member of the Advisory Board of the China
to the International Chamber of Commerce
Children Development Fund
Georges Elhedery (48)
Group Chief Financial Officer
Appointed to the Board: January 2023
Skills and experience: Georges has 25 years of
experience in the banking industry across Europe,
the Middle East and Asia, and has held a number of
executive roles at both a regional and global
business level.
Career: Georges was appointed Group Chief
Financial Officer and executive Director with effect
from 1 January 2023. He is also responsible for the
oversight of the Group’s transformation programme
and corporate development activities. Georges was
previously co-Chief Executive Officer, Global
Banking and Markets and also Head of the Markets
and Securities Services division of the business.
Georges joined HSBC in 2005 with extensive trading
experience in London, Paris and Tokyo. He has since
held a number of senior leadership roles, including
Head of Global Banking and Markets, Middle East
and North Africa; Chief Executive Officer for HSBC,
Middle East, North Africa and Türkiye; and Global
Head of Markets based in London.
– Principal member of the Glasgow Financial
Alliance for Net Zero
– Member of the World Economic Forum’s
International Business Council
– Member of the Trade Advisory Group on Financial
Services to the UK Government’s Department for
International Trade
– Member of the Asia Business Council
– Chairman of the Multinational Chairman’s Group
– Co-Chair of the Indian B20 Taskforce on Financial
Inclusion for Economic Empowerment
– Director, Peterson Institute for International
Economics
– Director, Institute of International Finance
– Asia Society Board of Trustees
Board committee membership key
Committee Chair
Group Audit Committee
Group Risk Committee
Group Remuneration Committee
Nomination & Corporate Governance Committee
For full biographical details of our Board
members, see www.hsbc.com/who-we-are/
leadership-and-governance.
240
HSBC Holdings plc Annual Report and Accounts 2022
Independent non-executive Directors
Geraldine Buckingham (45)
Independent non-executive
Director
Appointed to the Board: May 2022
Skills and experience: Geraldine is
an experienced executive within the
global financial services industry,
with significant leadership experience
in Asia.
Career: Geraldine is the former Chair
and Head of Asia-Pacific at BlackRock,
where she was responsible for all
business activities across Hong Kong,
mainland China, Japan, Australia,
Singapore, India and Korea. After
stepping down from this role, she
acted as senior adviser to the
Chairman and Chief Executive Officer
of BlackRock. She earlier served as
BlackRock’s Global Head of Corporate
Strategy, and previously was a partner
within McKinsey & Company’s
financial services practice.
Other appointments:
– Independent non-executive Director
of Brunswick Group Partnership Ltd
Rachel Duan (52)
Independent non-executive
Director
Appointed to the Board:
September 2021
Dame Carolyn Fairbairn (62)
Independent non-executive
Director
Appointed to the Board:
September 2021
Skills and experience: Rachel is
an experienced business leader with
exceptional international experience in
the US, Japan, mainland China and
Hong Kong.
Career: Rachel spent 24 years at
General Electric (‘GE’), where she
held positions including Senior Vice
President of GE, and President and
Chief Executive Officer of GE’s Global
Markets where she was responsible
for driving GE’s growth in Asia-Pacific,
the Middle East, Africa, Latin America,
Russia and the Commonwealth
of Independent States. She also
previously served as President
and Chief Executive Officer of GE
Advanced Materials China and then
of the Asia-Pacific; President and
CEO of GE Healthcare China; and
President and CEO of GE China.
Skills and experience: Carolyn has
significant experience across the
media, government and finance
sectors, and a deep understanding
of the macroeconomic, regulatory,
and political environment.
Career: An economist by training,
Carolyn has served as a partner at
McKinsey & Company, Director-
General of the Confederation of British
Industry, and held senior executive
positions at BBC and ITV plc. She has
extensive board experience, having
previously served as non-executive
Director of Lloyds Banking Group plc,
The Vitec Group plc, Capita plc and
BAE Systems plc. She has also served
as a non-executive Director of the UK
Competition and Markets Authority
and the Financial Services Authority.
Other appointments:
– Honorary Fellow of Gonville and
Caius College, Cambridge
– Honorary Fellow of Nuffield
– Member of the Advisory Board of
ClimateWorks Centre Australia
Other appointments:
– Independent non-executive Director
of Sanofi S.A.
– Independent non-executive Director
College, Oxford
of AXA S.A.
– Chair of Trustees at Royal Mencap
– Independent non-executive Director
Society
of the Adecco Group AG
HSBC Holdings plc Annual Report and Accounts 2022
241
Corporate governance
Report of the Directors | Corporate governance report
James Forese (59)
Independent non-executive Director
Appointed to the Board: May 2020
Steven Guggenheimer (57)
Independent non-executive Director
Appointed to the Board: May 2020
Skills and experience: James has
over 30 years of international business
and management experience in the
finance industry working in areas
including global markets, investment
and private banking.
Skills and experience: Steven brings
extensive insight into technologies
ranging from artificial intelligence
to Cloud computing, through his
experience advising businesses
on digital transformation.
Career: James formerly served
as President of Citigroup. He began
his career in securities trading with
Salomon Brothers, one of Citigroup’s
predecessor companies, in 1985.
In addition to his most recent role
as Citigroup’s President, he was
Chief Executive Officer of Citigroup’s
Institutional Clients Group. He has held
the positions of Chief Executive of its
Securities and Banking division and
Head of its Global Markets business.
Career: Steven has more than 25
years of experience at Microsoft,
where he held a variety of senior
leadership roles. These included:
Corporate Vice President, Artificial
Intelligence and Independent Software
Vendor Engagement; and Corporate
Vice President, Original Equipment
Manufacturer.
Other appointments:
– Independent non-executive Director
of BT Group plc
Other appointments:
– Non-executive Chair of HSBC North
– Independent non-executive Director
of Leupold & Stevens, Inc
America Holdings Inc
– Independent non-executive Director
– Non-executive Chairman of Global
of Forrit Holdings Limited
Dr José Antonio Meade Kuribreña
(53)
Independent non-executive Director
Appointed to the Board: March 2019
Workforce engagement non-executive
Director since: June 2022
Skills and experience: José has
extensive experience in public
administration, banking and
financial policy.
Career: José has held Cabinet-level
positions in the federal government
of Mexico, including as Secretary of
Finance and Public Credit, Secretary
of Social Development, Secretary
of Foreign Affairs and Secretary of
Energy. Prior to his appointment to the
Cabinet, he served as Undersecretary
and as Chief of Staff in the Ministry of
Finance and Public Credit. José is also
a former Director General of Banking
and Savings at the Ministry of Finance
and Public Credit, and served as Chief
Executive Officer of the National Bank
for Rural Credit.
Bamboo Technologies
– Trustee of Colby College
– Independent non-executive Director
of Software Acquisition Group
Other appointments:
– Independent non-executive Director
of Alfa S.A.B. de C.V.
– Independent non-executive Director
of Grupo Comercial Chedraui, S.A.B.
de C.V.
– Board member of The Global Center
on Adaptation
– Member of the Advisory Board of
the University of California, Centre
for US Mexican Studies
– Member of the UNICEF Mexico
Advisory Board
242
HSBC Holdings plc Annual Report and Accounts 2022
Aileen Taylor (50)
Group Company Secretary and
Chief Governance Officer
Appointed: November 2019
Skills and experience: Aileen
is a solicitor with significant
governance and regulatory
experience across various roles
in the banking industry. She is a
member of the European Corporate
Governance Council, the GC100
and the Financial Conduct
Authority’s Listing Authority
Advisory Panel.
Career: Prior to joining HSBC,
Aileen spent 19 years at the Royal
Bank of Scotland Group, holding
various legal, risk and compliance
roles. She was appointed Group
Secretary in 2010 and subsequently
Chief Governance Officer and
Board Counsel.
David Nish (62)
Independent non-executive Director
Appointed to the Board: May 2016
Senior Independent non-executive
Director since: February 2020
Skills and experience: David has
international experience in financial
services, corporate governance,
strategy, financial reporting, and
operational transformation.
Career: David served as Group Chief
Executive Officer of Standard Life plc
between 2010 and 2015, having joined
the company in 2006 as Group
Finance Director. He is also a former
Group Finance Director of Scottish
Power plc and was a partner at Price
Waterhouse. David has also previously
served as a non-executive Director of
HDFC Life (India), Northern Foods plc,
Thus plc, London Stock Exchange
Group plc, the UK Green Investment
Bank plc and Zurich Insurance Group.
Other appointments:
– Independent non-executive Director
of Vodafone Group plc
– Honorary Professor of University
of Dundee Business School
Eileen Murray (64)
Independent non-executive Director
Appointed to the Board: July 2020
Skills and experience: Eileen has
extensive knowledge in financial
services, technology and corporate
strategy from a career spanning
more than 40 years.
Career: Eileen previously served
as co-Chief Executive Officer of
Bridgewater Associates, LP. Before
this, she was Chief Executive Officer
for Investment Risk Management LLC,
and President and co-Chief Executive
Officer of Duff Capital Advisors.
Eileen started her professional career
at Morgan Stanley, where she held
positions including Controller,
Treasurer, and Global Head of
Technology and Operations, as
well as Chief Operating Officer for
its Institutional Securities Group. She
was also Head of Global Technology,
Operations and Product Control at
Credit Suisse.
Other appointments:
– Independent non-executive Director
of Guardian Life Insurance Company
of America
– Independent non-executive Director
of Broadridge Financial Solutions, Inc
– Independent non-executive Director
and Chair of Carbon Arc
– Strategic Adviser of Invisible Urban
Charging
– Adviser of ConsenSys
Jackson Tai (72)
Independent non-executive Director
Appointed to the Board: September 2016
Skills and experience: Jackson has
held senior operating and governance
roles across Asia, North America
and Europe.
Career: Jackson was Vice Chairman
and Chief Executive Officer of DBS
Group and DBS Bank Ltd, having
previously served as Chief Financial
Officer and President and Chief
Operating Officer. He worked for
25 years in the investment banking
division of J.P. Morgan & Co.
Incorporated, holding roles as
Chairman of the Asia-Pacific
Management Committee and Head
of Japan Capital Markets. Former
non-executive Director appointments
included Canada Pension Plan
Investment Board, Royal Philips N.V.,
Bank of China Limited, Singapore
Airlines, NYSE Euronext, ING Groep
N.V., CapitaLand Ltd, SingTel Ltd.
and Jones Lang LaSalle Inc. He also
served as Vice Chairman of Islamic
Bank of Asia.
Other appointments:
– Independent non-executive Director
of Eli Lilly and Company
– Independent non-executive Director
of MasterCard Incorporated
– Member of the Advisory Panel of the
Russell Reynolds Associates Board
and CEO Advisory Group
– Member of the Board of Trustees of
the Rensselaer Polytechnic Institute
– Member of the Association of the
Metropolitan Opera Board
Former Directors who served during the year
Irene Lee
Irene Lee retired from the Board on 29 April 2022
Pauline van der Meer Mohr
Pauline van der Meer Mohr retired from the Board
on 29 April 2022
Ewen Stevenson
Ewen Stevenson resigned from the Board on
31 December 2022
For full biographical details of our Board members,
see www.hsbc.com/who-we-are/leadership-and-governance.
HSBC Holdings plc Annual Report and Accounts 2022
243
Corporate governance
Report of the Directors | Corporate governance report
Senior management
Senior management, which includes
the Group Executive Committee,
supports the Group Chief Executive
in the day-to-day management of
the business and the implementation
of strategy.
244
HSBC Holdings plc Annual Report and Accounts 2022
Elaine Arden (54)
Group Chief Human
Resources Officer
Colin Bell (55)
Chief Executive Officer,
HSBC Bank plc and HSBC Europe
Elaine joined HSBC as Group Chief
Human Resources Officer in June
2017. Prior to joining HSBC, she was
Group Human Resources Director at
Royal Bank of Scotland Group for six
years. She has held a number of human
resources and employee relations roles
throughout her career in financial
services, including with Clydesdale
Bank and Direct Line Group. Elaine is
a member of the Chartered Institute
of Personnel and Development, and
a Fellow of the Chartered Institute of
Banking in Scotland.
Colin joined HSBC in July 2016 and
was appointed Chief Executive Officer,
HSBC Bank plc and HSBC Europe in
February 2021. He previously held
the role of Group Chief Compliance
Officer. Before HSBC, Colin worked at
UBS as Global Head of Compliance
and Operational Risk Control. He
served for 16 years in the British Army,
where he held a variety of command
and staff positions, including within
operational tours of Iraq and Northern
Ireland, and roles in the Ministry of
Defence and NATO.
Jonathan Calvert-Davies (54)
Group Head of Internal Audit
Jonathan is a standing attendee
of the Group Executive Committee,
having joined HSBC as Group Head
of Internal Audit in October 2019. He
has 30 years of experience providing
assurance, audit and advisory
services to the banking and securities
industries in the UK, the US and
Europe. Jonathan’s previous roles
included leading KPMG UK’s financial
services internal audit services
practice and PwC’s UK internal audit
services practice. He also previously
served as interim Group Head of
Internal Audit at the Royal Bank of
Scotland Group.
Greg Guyett (59)
Chief Executive Officer,
Global Banking and Markets
Greg joined HSBC in October 2018 as
Head of Global Banking and became
co-Chief Executive Officer of Global
Banking and Markets in March 2020,
before assuming sole responsibility in
October 2022. Before joining HSBC,
he was President and Chief Operating
Officer of East West Bank. Greg began
his career as an investment banker at
J.P. Morgan, where positions included:
Chief Executive Officer for Greater
China; Chief Executive Officer, Global
Corporate Bank; Head of Investment
Banking for Asia-Pacific; and Co-Head
of Banking for Asia-Pacific.
Dr Celine Herweijer (45)
Group Chief Sustainability Officer
John Hinshaw (52)
Group Chief Operating Officer
Bob Hoyt (58)
Group Chief Legal Officer
Celine joined HSBC as Group Chief
Sustainability Officer in July 2021, and
is responsible for the Group’s execution
of its sustainability strategy. She is also
co-chair of the Group’s ESG Committee.
She was previously a partner at PwC for
over a decade, where she held global
leadership roles including acting as its
global innovation and sustainability
leader. Before joining PwC in 2009,
Celine worked as Director of Climate
Change and Consulting for Risk
Management Solutions. She is a World
Economic Forum Young Global Leader,
a co-chair of the We Mean Business
Coalition, a PhD climate scientist and
NASA Fellow.
John became Group Chief Operating
Officer in February 2020, having joined
HSBC in December 2019. He has
extensive background in transforming
and digitising organisations across a
range of industries. John was previously
Executive Vice President of Technology
and Operations and Chief Customer
Officer at Hewlett Packard and Hewlett
Packard Enterprise, and has held senior
executive positions at Verizon and
Boeing. John serves on the boards of
Sysco Corporation and Illumio, Inc., and
has previously served on the boards of
BNY Mellon, DocuSign and the National
Academy Foundation.
Bob joined HSBC as Group Chief
Legal Officer in January 2021. He was
previously Group General Counsel at
Barclays from 2013 to 2020. Prior to
that, he was General Counsel and
Chief Regulatory Affairs Officer for
PNC Financial Services Group. Bob
has served as General Counsel and
Senior Policy Adviser to the US
Department of the Treasury under
Secretary Henry M. Paulson Jr, and
as Special Assistant and Associate
Counsel to the White House under
President George W. Bush.
Steve John (49)
Group Chief Communications and
Brand Officer
Pam Kaur (59)
Group Chief Risk and
Compliance Officer
Steve joined HSBC in December
2019 and was appointed to the
Group Executive Committee in
April 2021. He has a wealth of senior
communications, public policy
and leadership experience acquired
across a number of multinational and
charitable organisations. Steve was
previously a partner and Global
Director of Communications at
McKinsey & Company from 2014 to
2019. He has also held roles with Bupa
as Global Director of Corporate Affairs
and PepsiCo as Director of Corporate
Affairs for their UK and Ireland
franchises.
Pam was appointed Group Chief Risk
and Compliance Officer in 2021,
having held the position of Group
Chief Risk Officer since 2020. Since
joining HSBC in 2013, her roles
included Group Head of Internal Audit
and Head of Wholesale Market and
Credit Risk. Pam has also held a
variety of audit, compliance, finance
and operations roles in the banking
industry, including with Deutsche
Bank, Royal Bank of Scotland Group,
Lloyds TSB and Citigroup. She serves
as a non-executive Director of abrdn
plc, and was previously a non-
executive Director of Centrica plc.
David Liao (50)
Co-Chief Executive Officer,
Asia-Pacific – The Hongkong
and Shanghai Banking
Corporation Limited
David was appointed co-Chief
Executive Officer of the Asia-Pacific
region in 2021. He is a Director of the
Hongkong and Shanghai Banking
Corporation Limited, Bank of
Communications Co., Limited, and
Hang Seng Bank Limited. David joined
HSBC in 1997, with previous roles
including: Head of Global Banking
Coverage for Asia-Pacific; President
and Chief Executive of HSBC China;
Head of Global Banking and Markets,
HSBC China; and Treasurer and Head
of Global Markets, HSBC China.
HSBC Holdings plc Annual Report and Accounts 2022
245
Corporate governance Additional members of the
Group Executive Committee
Noel Quinn
Georges Elhedery
Aileen Taylor
Biographies are provided on pages
240 and 243.
Report of the Directors | Corporate governance report
Nuno Matos (55)
Chief Executive Officer, Wealth
and Personal Banking
Nuno was appointed Chief Executive
Officer of Wealth and Personal
Banking in 2021. Since joining HSBC
in 2015 from Santander Group, he has
held various roles, most recently as
Chief Executive Officer of HSBC Bank
plc and HSBC Europe. He has also
held the positions of Chief Executive
Officer of HSBC Mexico and Regional
Head of Retail Banking and Wealth
Management for Latin America. He is
currently a Director of HSBC Global
Asset Management Limited.
Stephen Moss (56)
Regional Chief Executive Officer –
Middle East, North Africa and
Türkiye
Barry O’Byrne (47)
Chief Executive Officer,
Global Commercial Banking
Barry was appointed Chief Executive
of Global Commercial Banking in
2020, having served in the role on
an interim basis since August 2019.
He joined HSBC in 2017 as Chief
Operating Officer for Commercial
Banking. Before joining HSBC, Barry
worked at GE Capital for 19 years
where he held a number of senior
leadership roles, including Chief
Executive Officer and Chief Operating
Officer for GE Capital International.
Stephen was appointed Regional Chief
Executive Officer for the Middle East,
North Africa and Türkiye in 2021. He
has held a series of roles in Asia, the
UK and the Middle East since joining
HSBC in 1992, including as Chief of
Staff to the Group Chief Executive
and overseeing the Group’s mergers
and acquisitions, and strategy and
planning activities. Stephen is a
Director of HSBC Bank Middle East
Limited, HSBC Middle East Holdings
B.V, HSBC Bank Egypt S.A.E.,
HSBC Saudi Arabia and The Saudi
British Bank.
Michael Roberts (62)
Chief Executive Officer,
HSBC USA and Americas
Michael was appointed Chief
Executive Officer of HSBC USA
when he joined HSBC in 2019. He
became Chief Executive Officer of the
Americas with oversight responsibility
for Canada and Latin America in 2021.
He is a Director of HSBC Bank Canada;
Director, President and Chief Executive
Officer of HSBC North America
Holdings Inc.; and Chairman of HSBC
Bank USA, N.A., HSBC USA Inc and
HSBC Latin America Holdings (UK)
Limited. Previously, Michael spent
over 30 years at Citigroup in a number
of senior leadership roles, most
recently as Global Head of Corporate
Banking and Capital Management
and Chief Lending Officer.
Surendra Rosha (54)
Co-Chief Executive Officer,
Asia-Pacific – The Hongkong
and Shanghai Banking
Corporation Limited
John David Stuart
(known as Ian Stuart) (59)
Chief Executive Officer,
HSBC UK Bank plc
Surendra was appointed co-Chief
Executive Officer of the Asia-Pacific
region in 2021. He is a Director of The
Hongkong and Shanghai Banking
Corporation Limited, HSBC Global
Asset Management Limited and HSBC
Bank Malaysia Berhad. Surendra
joined HSBC in 1991 and has held
several senior positions within Global
Banking and Markets, including Head
of Global Markets in Indonesia and
Head of Institutional Sales, Asia-
Pacific. He previously held the position
of Chief Executive for HSBC India and
Head of HSBC’s financial institutions
group for Asia-Pacific.
Ian has been Chief Executive Officer of
HSBC UK Bank plc since 2017 and has
worked in financial services for over
four decades. He joined HSBC as
Head of Commercial Banking in
the UK and Europe in 2014, having
previously led the corporate and
business banking businesses at
Barclays. He has also held various
roles at the Royal Bank of Scotland
Group, and started his career at
Bank of Scotland. Ian is a business
ambassador for Meningitis Now,
and a member of the Economic Crime
Strategic Board and UK Finance Board.
246
HSBC Holdings plc Annual Report and Accounts 2022
Board and senior management diversity
We value difference
Diversity and inclusion are embedded within the culture of HSBC. The Board remains
committed to having an inclusive culture that recognises the importance of
gender, social and ethnic diversity, and the benefits gained from different perspectives.
This section outlines the key diversity and inclusion metrics for Board members and executive management as at 31 December 2022.
This includes tenure, age, skills and experience, gender and ethnic representation.
Gender and ethnic diversity
Board
Board
The Financial Conduct Authority, in its capacity as the UK Listing Authority, introduced new rules
during 2022 that require listed companies to publish information on female and ethnic heritage
representation on the Board and in senior management within the Annual Report and Accounts
2023. The tables below outline the current gender and ethnic diversity of the HSBC Holdings
Board and executive management in advance of these requirements becoming applicable.
Male
Female
Board composition,
tenure and age
10
2
White British or other
White (including
minority-White groups)
Asian/Asian British
Executive
Other ethnic groups,
Directors
including Arab
Non-executive
Directors
Age
Gender
Board
Board
Male
Female
Executive management Executive management
Tenure
Balance of executive Directors
and non executive Directors
Male
White British or other
Female
White (including
minority-White groups)
Asian/Asian British
Other ethnic groups,
including Arab
Non executive
Directors 10
Executive
Directors 2
White British or other White
(including minority-White groups)
Mixed/multiple ethnic groups
Asian/Asian British
Other ethnic group, including Arab
Not specified/prefer not to say
0–2 years
2–4 years
5–7 years
45–49
50–54
55–59
60–64
Over 65
Executive management Executive management
Tenure
%
Balance of executive Directors
and non executive Directors
Board
Board
Number
Number of
senior positions1
Number
Board members
Executive management2
Male
Female
Other
Not specified/prefer not to say
Male
Female
8
Male
Non executive
Female
4
Directors 10
Executive
Directors 2
–
–
4
67
33
White British or other White
(including minority-White groups)
Mixed/multiple ethnic groups
Asian/Asian British
Other ethnic group, including Arab
Not specified/prefer not to say
0–2 years
17
White British or other
2–4 years
White (including
4
5–7 years
minority-White groups)
–
Asian/Asian British
Other ethnic groups,
including Arab
0
–
–
–
–
–
Age
%
81
19
–
–
45–49
50–54
55–59
60–64
Over 65
Board
Ethnic diversity
Board
Executive management Executive management
Male
Female
Male
White British or other
Female
White (including
minority-White groups)
Asian/Asian British
Other ethnic groups,
including Arab
White British or other White
(including minority-White groups)
Mixed/multiple ethnic groups
Asian/Asian British
Other ethnic group, including Arab
Not specified/prefer not to say
Executive management Executive management
Board members
Male
Female
White British or other White
(including minority-White groups)
Mixed/multiple ethnic groups
Number
White British or other White
(including minority-White groups)
Mixed/multiple ethnic groups
Asian/Asian British
Other ethnic group, including Arab
Not specified/prefer not to say
9
–
2
Asian/Asian British
Black/African/Caribbean/
Black British
Other ethnic group,
including Arab
Not specified/prefer not to say
–
1
–
%
75
–
17
8
Executive management2
Number of
senior positions1
Number
14
1
4
–
1
1
%
66
5
19
–
5
5
4
–
–
–
–
–
Skills and experience
The Board, through its Nomination &
Corporate Governance Committee, regularly
reviews the skills and experience it requires
to effectively discharge its responsibilities.
A skills matrix, which is a key tool used by
the Board to inform its succession planning
discussions, is reviewed at least annually
by the Board. An extract of the skills matrix,
showing a selection of the current skills and
experience of the non-executive Directors,
is shown below.
Banking
Finance
Risk
Customer
Technology/digital
Corporate social responsibility/ESG
Direct Asia market experience
1 Senior positions on the Board comprise the Group Chairman, Group Chief Executive, Group Chief Financial
Officer and Senior Independent non-executive Director.
Male
Global business experience
2 Executive management comprises the Group Chief Executive, his direct reports, and the Group Company
Secretary and Chief Governance Officer.
HSBC Holdings plc Annual Report and Accounts 2022
247
9
7
8
5
4
3
4
7
Corporate governance Report of the Directors | Corporate governance report
Operation of the Board
The Board is ordinarily scheduled to meet at least seven times a year.
In 2022, the Board held 15 meetings. For further details on
attendance at those meetings, see page 250. The Board agenda is
agreed by the Group Chairman, working with both the Group Chief
Executive and the Group Company Secretary and Chief Governance
Officer. For further information, see ’Board activities during 2022’ on
page 255.
The Group Company Secretary and Chief Governance Officer, the
Group Chief Risk and Compliance Officer, the Group Chief Legal
Officer and the non-executive Chairman of The Hongkong and
Shanghai Banking Corporation Limited are all regular attendees at
Board meetings. Other senior executives attend Board meetings for
specific items as required.
In addition to formal Board meetings, the Board Oversight Sub-Group
met in advance of each Board meeting during 2022. Such meetings
were established following the appointment of Noel Quinn as Group
Chief Executive and changes to the senior management team as an
informal mechanism for a smaller group of Board members and
management to discuss emerging issues and upcoming Board
matters. Standing attendees comprise the Group Chairman, the Chair
of the Group Audit Committee (who is also the Senior Independent
Director), the Chair of the Group Risk Committee, the Chair of the
Group Remuneration Committee, the Group Chief Executive, the
Group Chief Financial Officer, the Group Chief Risk and Compliance
Officer, and the Group Company Secretary and Chief Governance
Officer. Other non-executive Directors and senior management are
invited on an ad hoc basis, depending on the subject matter to be
discussed. The forum is not decision making but provides regular
opportunities for Board members to communicate with senior
management to deepen their understanding of, and provide input into,
key issues facing the Group. Following a review by the Group
Chairman and Group Chief Executive of the role of the Board
Oversight Sub-Group, it was agreed that it would only be used on an
ad hoc basis where necessary going forward.
Relationship between the Board and senior
management
The Board delegates day-to-day management of the business and
implementation of strategy to the Group Chief Executive. The Group
Chief Executive is supported in his management of the Group by
recommendations and advice from the Group Executive Committee
(’GEC’), an executive forum comprising members of senior
management that include chief executive officers of the global
businesses, regional chief executive officers and functional heads. For
further details of the senior management team, see page 244.
The Directors are encouraged to have contact with management at all
levels, and have full access to all relevant information. Non-executive
Directors are encouraged to visit local business operations and meet
local management when they attend Board meetings in different
locations, and when travelling for other reasons. Board and senior
management travel resumed in 2022, which allowed for more
opportunities for Board members to meet together in person and with
key stakeholders. As Covid-19 restrictions remained in place for some
markets, and with the safety of colleagues and customers a priority,
several virtual meetings with senior executives continued to take
place, which included business meetings, induction meetings and
subject matter ’deep dives’.
How we are governed
We are committed to high standards of corporate governance. The
Group has a comprehensive range of policies and procedures in place
designed to help ensure that it is well managed, with effective
oversight and controls. We comply with the UK Corporate
Governance Code and the applicable requirements of the Hong Kong
Corporate Governance Code.
Board’s role, Directors’
responsibilities and meeting
attendance
The Board, led by the Group Chairman, is responsible among other
matters for:
• promoting the Group’s long-term success and delivering
sustainable value to shareholders;
• establishing and approving the Group’s strategy and objectives,
and monitoring the alignment of the Group’s purpose, strategy and
values with the desired culture;
• setting the Group’s risk appetite and monitoring the Group’s risk
profile;
• approving and monitoring capital and financial resource plans for
achieving strategic objectives, including material transactions;
• considering and approving the Group’s technology and
environmental, social and governance strategies;
• approving the appointment and remuneration of Directors,
including Board roles; and
• reviewing the Group’s overall corporate governance arrangements.
The Board’s responsibilities are set out in a schedule of matters
reserved within its terms of reference, which are available on our
website at www.hsbc.com/who-we-are/leadership-and-governance/
board-responsibilities. The Board’s powers are subject to relevant
laws, regulations and HSBC’s articles of association.
The role of the independent non-executive Directors is to support the
development of strategy, oversee risk, hold management to account
and ensure the executive Directors are discharging their
responsibilities properly, while creating the right culture to encourage
constructive challenge. Further details on the independence of the
Board can be found in the Nomination & Corporate Governance
Committee report on page 259. Non-executive Directors also review
the performance of management in meeting agreed goals and
objectives. The Group Chairman meets with the non-executive
Directors without the executive Directors in attendance after Board
meetings and otherwise, as necessary.
The roles of Group Chairman and Group Chief Executive are separate.
There is a clear division of responsibilities between the leadership of
the Board by the Group Chairman, and the executive responsibility for
day-to-day management of HSBC’s business, which is undertaken by
the Group Chief Executive.
The majority of Board members are independent non-executive
Directors. At 31 December 2022, the Board comprised the Group
Chairman, nine non-executive Directors, and two executive Directors
who are the Group Chief Executive and the Group Chief Financial
Officer. One non-executive Director will not stand for re-election at
the AGM in May 2023.
For further details of Board members' career backgrounds, skills,
experience and external appointments, see their biographies on
page 240, and for a breakdown of the diversity and skills of the Board
and senior management, see page 247.
248
HSBC Holdings plc Annual Report and Accounts 2022
Executive governance
The Group’s executive governance is underpinned by the Group
operating rhythm, which helps facilitate end-to-end governance
between senior leadership and the Board, and sets out the Board and
executive engagement schedule.
The Group operating rhythm has the following three pillars:
• The GEC normally meets every week to discuss current and
emerging issues.
• On a monthly basis, the GEC reviews the performance of each of
the global businesses in principal geographical areas and legal
entities. These performance reviews are supplemented by
operating unit performance review meetings between the Group
Chief Financial Officer and each of the chief executive officers of
the respective global businesses, regions and principal
subsidiaries. The Group Chief Risk and Compliance Officer usually
attends these meetings.
• The GEC holds a strategy and governance meeting two weeks in
advance of each Board meeting.
In addition, during the year, the Group Chief Executive independently
conducts several business reviews on focus areas such as costs and
the financial reporting plan.
Separate committees have been established to provide specialist
oversight for matters delegated to the Group Chief Executive and
senior management. For further details of these committees, see
page 251.
To further support our senior management, we have dedicated
corporate governance officers supporting our global businesses and
global functions to assist in effective end-to-end governance,
consistency and connectivity.
Subsidiary governance
We are committed to maintaining high standards of corporate
governance throughout the Group. All subsidiary boards and their
respective businesses are required to have in place effective
governance arrangements with regard to the businesses’ nature, size,
locations and the sectors in which they operate.
Certain subsidiaries are designated formally as principal subsidiaries
by approval of the Board. In addition to their obligations under their
respective local laws and regulation, principal subsidiaries, supported
by regional company secretaries, perform an important role in
supporting effective and high standards of governance across the
Group.
The designated principal subsidiaries are:
Principal subsidiary
The Hongkong and Shanghai
Banking Corporation Limited
HSBC Bank plc
HSBC UK Bank plc
HSBC Middle East Holdings BV
HSBC North America Holdings Inc.
HSBC Latin America Holdings (UK)
Limited
HSBC Bank Canada1
Oversight responsibility
Asia-Pacific
Europe, Bermuda (excluding
Switzerland and UK ring-fenced
activities)
UK ring-fenced bank and its
subsidiaries
Middle East, North Africa and
Türkiye
US
Mexico and Latin America
Canada
1 On 29 November 2022 HSBC announced it had entered into an
agreement to sell HSBC Bank Canada, subject to regulatory and
governmental approvals. The sale is expected to complete in late 2023.
Principal subsidiaries play a critical role in overseeing the
implementation of the subsidiary accountability framework in the
regions for which they are responsible. The subsidiary accountability
framework, refreshed by the Board in 2021, aims to provide
subsidiaries with a shared understanding and a consistent approach
towards the Group’s strategic objectives, culture and values, and
ensure that corporate governance best practice is applied throughout.
The framework sets clear overarching principles for subsidiaries to
follow to improve communications and connectivity within the Group.
It also focuses on ensuring that each subsidiary is led by an effective
board with an appropriate balance of skills, diversity, experience and
knowledge, having regard to the nature of the subsidiary's business
and any local legal and regulatory requirements. Board composition of
the Group's subsidiaries is kept under review as part of succession
planning.
The framework is subject to periodic review by the Board and/or its
Nomination & Corporate Governance Committee and is updated to
ensure that there is clarity for the directors and officers of their
respective roles and responsibilities.
Since the revised framework was implemented in 2021, there has
been a notable improvement in the diversity of subsidiary board
composition.
To continue this progress, HSBC in 2022 launched a Bank Director
Programme to develop and equip internal talent to undertake non-
executive employee director roles on subsidiary boards. This
programme is delivered in partnership with an external business
school, and provides certified qualifications to its participants in
becoming highly skilled and knowledgeable subsidiary director
candidates.
The Group Chairman interacts regularly with the chairs of the principal
subsidiaries, including through the Chairman’s Forum, which brings
together the chairs of the principal subsidiaries and the chairs of the
Group’s audit, risk and remuneration committees, and depending on
the topic for discussion, also the Group Chief Executive, non-
executive Directors and relevant executive management, advisers
and/or external experts. In 2022, the Chairman’s Forum covered
strategic business considerations, geopolitics, global public health,
liability pricing, shareholder engagements, ESG insights, delegations
of authority, employee engagement and financial performance. The
Non-Executive Director Summits, hosted by the Group Chairman, are
also effective subsidiary directors’ engagement events.
During 2022, the Group Chairman hosted two virtual Non-Executive
Director Summits in March and September, where approximately 180
independent non-executive directors from the Group’s subsidiaries
attended along with HSBC Holdings Board Directors. The summits
provide a platform for sharing key messages across subsidiaries, as
well as facilitating greater connectivity and helping to build a sense of
community among our subsidiaries’ non-executive directors. In 2022,
the non-executive directors received updates on Group-wide matters
including strategy, ESG issues, technology and governance.
The annual Remuneration Committee Chairs’ Forum took place in
November, and provided the principal subsidiary chairs with an
opportunity to discuss the Group’s performance and the Group
Remuneration Committee’s priorities. A follow-up forum was held in
late November to provide transparency around pay outcomes and
allocation, with feedback from the discussion used to shape the final
pay proposals, which were considered and approved by the Group
Remuneration Committee.
Board members attend principal subsidiary meetings as guests from
time to time. Similarly, principal subsidiary directors are invited to
attend committee meetings at Group level, where relevant. The chairs
of the principal subsidiary risk committees are regular attendees at
the Group Risk Committee. Similarly, the Group Audit Committee
Chair meets regularly with the principal subsidiary audit committee
chairs to promote the sharing of information and best practices.
These Group Board committees received escalated reports and
certifications from the principal subsidiary risk and audit committees
through the year.
HSBC Holdings plc Annual Report and Accounts 2022
249
Corporate governance Report of the Directors | Corporate governance report
Board roles, responsibilities and meeting attendance
The table below sets out the Board members’ respective roles, responsibilities and attendance at Board meetings and the AGM in 2022. For a
full description of key Board members’ responsibilities, see www.hsbc.com/who-we-are/leadership-and-governance/board-responsibilities.
Roles
Group Chairman
Mark E Tucker1,2
Executive Director
Group Chief Executive
Noel Quinn2
Executive Director
Group Chief Financial Officer
Ewen Stevenson2,4,6
Non-executive Director
Senior Independent Director
David Nish2,3
15/15
9/9
15/15
15/15
14/15
14/15
6/6
15/15
14/15
15/15
4/6
Non-executive Directors
Geraldine Buckingham3,5
Rachel Duan2,3
Dame Carolyn Fairbairn2,3
James Forese2,3,6
Steven Guggenheimer2,3
Irene Lee2,4
Dr José Antonio Meade
Kuribreña2,3
Eileen Murray2,3,6
Jackson Tai2,3
Pauline van der Meer
Mohr2,3,4,6
Group Company Secretary
and Chief Governance
Officer
Aileen Taylor
Board
attendance in
2022
Responsibilities
15/15
• Provides effective leadership of the Board and promotes the highest standards of corporate governance
practices.
• Leads the Board in providing strong strategic oversight and setting the Board’s agenda, culture and values.
• Leads the Board in challenging management’s thinking and proposals, and fosters open and constructive
debate among Directors.
• Maintains internal and external relationships with key stakeholders, and communicates investors’ views to the
Board.
• Organises periodic monitoring and evaluation, including externally facilitated evaluation, of the performance of
the Board, its committees and individual Directors.
• Leads on succession planning for the Board and its committees, ensuring appointments reflect diverse
cultures, skills and experiences.
15/15
• Leads and directs the implementation of the Group’s business strategy, embedding the organisation’s culture
and values.
• Leads the Group Executive Committee with responsibility for the day-to-day operations of the Group, under
authority delegated to him from the Board.
• Maintains relationships with key internal and external stakeholders including the Group Chairman, the Board,
customers, regulators, governments and investors.
• Maintains responsibility and accountability for the Group’s and its employees’ compliance with applicable
laws, codes, rules and regulations, good market practice and HSBC’s own standards.
14/15
• Supports the Group Chief Executive in developing and implementing the Group strategy and recommends the
annual budget and long-term strategic and financial resource plan.
• Leads the Finance function and is responsible for effective financial reporting, including the effectiveness of
the processes and controls, to ensure the financial control framework is robust and fit for purpose.
• Maintains relationships with key stakeholders including shareholders.
• Supports the Group Chairman, acting as intermediary for non-executive Directors when necessary.
• Leads the non-executive Directors in the oversight of the Group Chairman, supporting the clear division of
responsibility between the Group Chairman and the Group Chief Executive.
• Listens to shareholders’ views if they have concerns that cannot be resolved through the normal channels.
• Develop and approve the Group strategy.
• Challenge and oversee the performance of management.
• Approve the Group’s risk appetite and review risk profile and performance.
• Contribute to the assessment and monitoring of culture.
• Maintain internal and external relationships with the Group’s key stakeholders.
• Maintains strong and consistent governance practices at Board level and throughout the Group.
• Supports the Group Chairman in ensuring effective functioning of the Board and its committees, and
transparent engagement between senior management and non-executive Directors.
• Facilitates induction and professional development of non-executive Directors.
• Advises and supports the Board and management in ensuring effective end-to-end governance and decision
making across the Group.
1 The non-executive Group Chairman was considered to be independent on appointment.
2 Attended the AGM on 29 April 2022.
3
Independent non-executive Director. All of the non-executive Directors are considered to be independent of HSBC. There are no relationships or
circumstances that are likely to affect any individual non-executive Director’s judgement. All non-executive Directors have confirmed their
independence during the year.
Irene Lee and Pauline van der Meer Mohr retired from the Board on 29 April 2022. Ewen Stevenson retired from the Board on 31 December 2022.
4
5 Geraldine Buckingham joined the Board effective 1 May 2022.
6 Due to prior commitments Eileen Murray and Pauline van der Meer Mohr were not able to attend on 28 March 2022 and Steven Guggenheimer on
2 November 2022. Meetings held on 10 February 2022 and 25 November 2022 were ad hoc meetings called at short notice, and due to prior
commitments, James Forese and Pauline van der Meer Mohr were unable to attend on 10 February 2022 and Ewen Stevenson was unable to attend
on 25 November 2022.
250
HSBC Holdings plc Annual Report and Accounts 2022
Board committees and working groups
The Board delegates oversight of certain audit, risk, remuneration,
nomination and governance matters to its committees. Each standing
Board committee is chaired by a non-executive Board member and
has a remit to cover specific topics in accordance with their
respective terms of reference. Only the Group Chairman and the
independent non-executive Directors are members of Board
committees. Details of the work carried out by each of the Board
committees can be found in the respective committee reports from
page 259.
The Chairman’s Committee provides the Board with the opportunity
to consider ad hoc and routine matters between scheduled Board
meetings. All Board members are invited to attend Chairman’s
Committee meetings.
In addition to Board committees, working groups have been
established to enhance Board governance, when appropriate,
including the Board Oversight Sub-Group and the Technology
Governance Working Group, which were first convened in 2019 and
2021, respectively. For further details of these committees, see
page 248 and the box below.
The Group Executive Committee has established a number of
committees to provide specialist oversight for matters delegated to
the Group Chief Executive and senior management, which help fulfil
their responsibilities under the Senior Managers and Certification
Regime.
These committees support the Group Chief Executive and senior
management in areas such as capital and liquidity, risk management,
disclosure and financial reporting, restructuring and investment
considerations, transformation oversight, ESG matters and talent and
development.
Board
Chair: Mark Tucker
Group Audit
Committee
Group Risk
Committee
Chairman’s
Committee
Nomination &
Corporate
Governance
Committee
Chair: Mark Tucker
Chair: Mark Tucker
Chair: David Nish
Chair: Jackson Tai
Group
Remuneration
Committee
Informal governance
Board Oversight Sub-
Group
Chair: Dame Carolyn
Fairbairn
Chair: Mark Tucker
See page 259
See page 262
See page 271
See page 276
Technology
Governance Working
Group
Co-Chairs:
Eileen Murray and
Steven Guggenheimer
Group Executive Committee
Chair: Noel Quinn
Acquisitions and
Disposals
Committee
Disclosure and
Controls
Committee
Chair: Noel
Quinn
Chair: Ewen
Stevenson1
Environmental,
Social and
Governance
Committee
Co-Chairs:
Celine Herweijer
and Aileen Taylor
1 Georges Elhedery took over as chair from 1 January 2023.
Group People
Committee
Group Risk
Management
Meeting
Holdings Asset
and Liability
Committee
Transformation
Oversight
Executive
Committee
Chair: Elaine Arden Chair: Pam Kaur
Chair: Ewen
Stevenson1
Chair: Ewen
Stevenson1
ESG governance
Technology governance
With ESG issues rising up the global agenda, including with the
transition to a sustainable economy, we understood the need to
embed ESG considerations more deeply into our governance
processes. In February 2021, the Board approved the establishment
of an executive level ESG committee to support senior management
in the delivery of the Group’s ESG strategy and development of key
policies. The ESG Committee also aims to track the Group's
progress against material commitments by providing holistic
oversight, coordination and management of ESG activities. The ESG
Committee is jointly chaired by the Group Chief Sustainability Officer
and the Group Company Secretary and Chief Governance Officer.
The committee oversees all areas of environmental, social and
governance issues, with support from accountable senior
management in relation to their particular areas of responsibilities.
Key representatives from the functions and global businesses
attend to provide insights on the implementation of the ESG
strategy across the Group, allowing the ESG Committee to make
recommendations to the Board in respect of ESG matters.
The Technology Governance Working Group was established by the
Board in early 2021 to enhance its oversight of technology strategy,
governance and emerging risks, as well as to strengthen
connectivity with the principal subsidiaries. The role of the working
group is regularly reviewed by the Board. It was agreed in January
2022 that it should continue as an informal committee of the Board
for the duration of 2022, and it was extended for a further 12
months in January 2023. The working group continues to be jointly
chaired by two of the Board’s non-executive Directors, Eileen
Murray and Steven Guggenheimer, and members include the Group
Risk Committee chair and other non-executive Directors
representing our US, UK, European and Asian principal subsidiaries.
The working group met formally six times in 2022. These meetings
included deep dives on key strategic business initiatives, as well as
updates on technology strategy implementation and cybersecurity
matters, with attendance from key technology and business
stakeholders. There were a number of joint sessions between the
working group, the Group Audit Committee and the Group Risk
Committee. For further details of these sessions, see pages 262
and 271.
HSBC Holdings plc Annual Report and Accounts 2022
251
Corporate governance
Report of the Directors | Corporate governance report
Board induction and training
The Group Company Secretary and Chief Governance Officer works
with the Group Chairman to ensure that all Board members receive
appropriate training, both individually and collectively, throughout their
time on the Board. On appointment, new Directors are provided with
tailored and comprehensive induction programmes to fit with their
individual experiences and needs, including the process for managing
conflicts.
During 2022, we welcomed one new non-executive Director,
Geraldine Buckingham, to our Board. In October, we also announced
that Ewen Stevenson would be stepping down as Group Chief
Financial Officer on 31 December 2022 and be replaced by Georges
Elhedery. Georges Elhedery’s induction programme commenced
upon announcement of his proposed appointment, which included a
detailed handover prepared by the Group Chief Financial Officer prior
to Georges commencing the role from 1 January 2023.
The induction programme is delivered through formal briefings and
introductory sessions with other Board members, senior
management, legal counsel, auditors, tax advisers and regulators, as
appropriate. Topics covered in the induction programme include, but
are not limited to: purpose and values; culture and leadership;
governance and stakeholder management; Directors’ legal and
regulatory duties; recovery and resolution planning; anti-money
laundering and anti-bribery; technical and business briefings; and
strategy.
Where possible, the induction process is initiated before appointment
to allow each new Board member to contribute meaningfully from
appointment. The structure of the induction supports good
information flows within the Board and its committees, as well as
between senior management and non-executive Directors, providing
a clear understanding of our culture and way of operating.
Directors’ induction and ongoing development in 2022
For illustrations of typical induction modules, see the ’Directors’
induction and ongoing development in 2022’ table below.
Directors undertook routine training during 2022 in subject matters
that included: the risk management framework; financial crime; and
health, safety and well-being. They were provided training by external
counsel on their obligations when handling confidential and sensitive
information. The Directors also participated in ’deep dive’ sessions
into specific areas of the Group’s strategic priorities, risk appetite,
approach to managing certain risks, climate-aligned finance and
market abuse regulations. These training sessions included external
consultants who provided insights into geopolitical matters,
macroeconomics and investor sentiments. Other topics of focus
included: operations and technology strategy; the resolvability
assessment framework; and climate change and sustainability.
Non-executive Directors also discussed individual development areas
with the Group Chairman during performance reviews and in
conversations with the Group Company Secretary and Chief
Governance Officer. The Group Company Secretary and Chief
Governance Officer makes appropriate arrangements for any
additional training needs identified using internal resources, or
otherwise, at HSBC’s expense.
Members of Board committees receive relevant training as
appropriate. Directors may take independent professional advice at
HSBC’s expense.
Board Directors who serve on principal subsidiary boards receive
training that is pertinent to circumstances and context relevant to
those boards. Opportunities exist for the principal subsidiary
committee chairs to share their understanding in specific areas with
the Board Directors as part of the Chairman’s Forum.
Director
Geraldine Buckingham
Rachel Duan
Dame Carolyn Fairbairn
James Forese
Steven Guggenheimer
José Antonio Meade Kuribreña
Eileen Murray
David Nish
Noel Quinn
Ewen Stevenson
Jackson Tai
Mark Tucker
Induction1
l
ô
ô
ô
ô
ô
ô
ô
ô
ô
ô
ô
Strategy and
business
briefings2
l
l
l
l
l
l
l
l
l
l
l
l
Risk and
control3
l
l
l
l
l
l
l
l
l
l
l
l
Corporate
governance,
ESG and other
reporting
matters4
l
l
l
l
l
l
l
l
l
l
l
l
Board global
mandatory
training5
l
l
l
l
l
l
l
l
l
l
l
l
Chair and
subsidiary non-
executive
Director
forums6
l
l
l
l
l
l
l
l
l
l
l
l
l Matter considered
ô Matter not considered
1 The induction programme was delivered through formal briefings and introductory sessions with Board members, senior management, legal counsel,
auditors, tax advisers and regulators, as appropriate. Topics covered included, but were not limited to: purpose and values; culture and leadership;
governance and stakeholder management; Directors’ legal and regulatory duties; recovery and resolution risk; anti-money laundering and anti-bribery;
technical and business briefings; and strategy.
2 Directors participated in business strategy, market development and business briefings, which are global, regional and/or market-specific. Examples of
specific sessions held in 2022 included: ’Sustainability operating model’, ’Implications from the Russia-Ukraine conflict’ and ’Strategy execution of Asia
wealth’.
3 Directors received risk and control training and briefings. Examples of specific sessions held in 2022 included: ’Interest rate risk of the banking book
strategy’ and ’ICAAP/ILAAP’.
4 All Directors received training on topics such as: ’Resolvability assessment framework’, ’Climate-aligned finance’, ’Data literacy’ and ’Cyber
ransomware’.
5 Global mandatory training, issued to all Directors, mirrored training undertaken by all employees, including senior management. This included:
management of risk under the risk management framework; cybersecurity risk; health, safety and well-being; sustainability; financial crime, including
understanding money laundering, terrorist financing, tax, sanctions, fraud and bribery and corruption risks; our values, including workplace harassment;
and data privacy and the protection of data of our customers and colleagues.
6 These included the Chairman’s Forum, Remuneration Committee Chairs’ Forum and the Non-Executive Director Summits.
252
HSBC Holdings plc Annual Report and Accounts 2022
Board stakeholder engagement
during 2022
The Board is committed to engaging with key stakeholders, including
colleagues, and welcomed the increased focus on bringing the
employee voice into the boardroom, as envisaged by the revisions
made to the UK Corporate Governance Code in 2018.
The Board had previously decided that, given HSBC’s size, scale and
geographical spread, the ’alternative arrangements’ approach for
workforce engagement under the UK Corporate Governance Code
was the suitable option. The Board reviews this annually, and in light
of the challenges facing the organisation and colleagues from factors
outside of HSBC’s control, including the Covid-19 pandemic, decided
to strengthen its practices through the introduction of a non-executive
Director with designated responsibility for workforce engagement. It
was agreed by the Board’s Nomination & Corporate Governance
Committee in May 2022 to appoint José Meade to the new role of
dedicated workforce engagement non-executive Director. This
approach assists with the employee voice being heard in Board
discussions and helps inform decision making.
The appointment of a designated workforce engagement non-
executive Director does not restrict other Board members from
engaging with the workforce, particularly as it is not possible for one
person to represent the diversity of views across the entirety of the
Group. It remains the responsibility of all Directors to consider
stakeholder views, including employees.
The programme of workforce engagement for 2022 continued to be
delivered through a variety of interaction styles, both in person and
virtually, to accommodate the breadth of experience, geographical
spread and range of seniority of our employees. Such activities
included bespoke sessions with smaller groups, formal presentations
and Q&A opportunities. These engagements were designed to
promote and deliver open dialogue and two-way discussions between
Directors and colleagues, allowing the Board to gain valuable insight
on employee perspectives. This in turn informed Directors’
deliberations and decision making in Board and committee meetings.
To help inform the Board of employee initiatives and sentiment and
allow the Board to plan for future engagement activities, Directors
received regular workforce engagement papers at Board meetings.
The Board’s agenda also regularly included non-executive Director
workforce and other stakeholder engagement updates. These
updates were addressed in the Group Chief Executive’s Board report
and the Group Chief Human Resources Officer's report on employee
views and sentiment, particularly around employee Snapshot surveys.
The Chairman’s Forum meetings also discussed employee feedback
from the Group's subsidiaries and received workforce engagement
updates from each of the principal subsidiary chairs.
Engagement activity between the Board and the wider workforce
included meetings and events between representatives of the eight
employee resource groups and the non-executive Directors who have
been designated to support them. These included:
• a virtual Nurture event with working parents and carers, which
reflected on the HSBC colleague survey and how more relevant
data could be captured and actioned;
• two Pride events with our LGBTQ+ colleagues, during which
participants shared their thoughts, explored what Pride had
achieved, discussed future opportunities and considered how
Directors could advocate and support the work of Pride; and
• an in-person event with employee resource group leaders based in
Hong Kong to discuss what motivates them to be employee
resource group leaders, share achievements and discuss
opportunities to align outcomes across the Group.
For more examples of how the Board has engaged with the
workforce and other stakeholders see ‘Board decision making and
engagement with stakeholders’ on page 20.
Workforce engagement non-executive
Director
“I was pleased when the Board took the decision to create
this role and asked me to assume the position of workforce
engagement non-executive Director. Our colleagues, and the
culture we promote, are key to our success in achieving our
purpose of opening up a world of opportunity.
My role and responsibilities, summarised in the chart below,
are clear, but I appreciate that given the scale of our
organisation, and the newness of this responsibility, it is
critical that I execute this role with focus and intent to
understand the employee voice, and communicate this to the
Board. Notwithstanding the challenges, I am dedicated to do
what I can to meet and speak with a broad spectrum of our
people, across global businesses, regions and functions.
With the easing of Covid-19 restrictions in 2022, and as the
Board resumed travel for meetings, I used these opportunities
to connect with employees on a number of topics. Each
experience has been enlightening and I am encouraged to see
how common themes and reflections are being addressed.
While I cannot represent and hear every employee voice, I will
endeavour to listen to what our colleagues are saying around
the world. With a dedicated plan of action for 2023, I see this
role evolving such that I will be able to add value to – and help
drive more in-depth Board discussions on – topics that affect
our people.
I look forward to reporting in the future on the progress
made.”
Dr José Antonio Meade Kuribreña
Workforce engagement non-executive Director
Lunch with graduates
Mexico City, HSBC Tower
July 2022
HSBC Holdings plc Annual Report and Accounts 2022
253
Corporate governance
Report of the Directors | Corporate governance report
Role of the workforce engagement non-executive Director at a glance
Headline responsibilities:
• Engages, understands, represents colleagues globally.
• Receives employee perspectives through formal and informal engagement.
• Represents the employee voice at Board meetings for consideration during decision making.
Feedback given
and considered
Holdings Board
↑
Workforce engagement
non-executive Director
↑
Means of
engagement
Surveys/
Snapshot
Employee
jams
Audits
Data
Chairs of
principal
subsidiaries
Direct engagement
Virtual 'field' trips
Geographical
visits
Direct
engagement
↑
Reach
Global
↑
↑
Likely issues/
topics
Purpose,
culture values
Strategy and
growth
↑
Pay
Global
Sample
Regional
Specific interest groups
↑
↑
↑
↑
Performance
management
Working
conditions/
future of work
Diversity and
inclusion
Change and
transformation
Climate/ESG
Activities during 2022
José Meade’s appointment was announced to the workforce jointly
by the Group Chairman and Group Chief Executive on 1 June 2022.
This was positively received by colleagues, several of whom reached
out directly to José with engagement ideas.
Since his appointment, José has undertaken a variety of
engagements in his role including:
Employee views – Mexico, US, India, UK, Hong Kong,
Argentina, Brazil, Chile and Uruguay
In the weeks immediately following his appointment, José had 25
meetings with colleagues in nine countries, in person and virtually,
across most areas of the Group. Topics discussed included: the
need for continued focus on areas such as well-being, and diversity
and inclusion; and enhancement of technology. Following such
discussions, several suggestions were made, including
strengthening employee retention strategies, increasing career
ownership within teams and improving information gathering
analysis and dissemination following exit interviews to relevant
colleagues in the Group.
Graduates – Mexico, US
During the year, José met with Mexican graduates in person and US
graduates virtually to share experiences of HSBC’s graduate
programme.
GBM – UK
José participated in an in-person meeting with a diverse group of
Global Banking colleagues in London to share experiences and
views on people matters, women in finance, diversity and inclusion,
and career development.
Visit to Global Service Centre, Mexico City, Tecnoparque
October 2022
Engagement highlights
65
1,500+
Sessions attended by executive
and/or non-executive Directors
Number of employees engaged
38
600+
Sessions attended by workforce
engagement non-executive
Director
Number of employees engaged
by workforce engagement non-
executive Director
Global Service Centre – Mexico
José joined colleagues for a meeting with Global Service Centre
employees to understand their perspective on working life.
12+
Employee resource groups – Global
Countries of engagement
73%
Highest employee engagement
survey response
José participated in the virtual annual employee resource group
summit and heard about the groups' leaders' successes and
challenges. He connected with representatives in the UK, Mexico,
India, Dubai, Hong Kong, Singapore and the US.
Employee resource groups – Dubai
José joined an in-person meeting with the chapter leads of the five
employee resource groups active in MENA (Ability, Balance,
Embrace, Generations and Nurture).
254
HSBC Holdings plc Annual Report and Accounts 2022
Priorities for 2023
• Review opportunities with Human Resources to ensure the right
insight is being gained from employees to support and better
inform the Board when taking decisions.
• Attend six larger-scale employee engagement events aligned to
Board meeting agenda items to foster debate and discussion.
• Plan further international employee engagement opportunities in
addition to the Board travel plans.
Board activities during 2022
During 2022, the Board remained focused on HSBC’s strategic
direction, overseeing performance, and risk. It considered
performance against financial and other strategic objectives, key
business challenges, emerging risks, business development, investor
relations and the Group’s relationships with its stakeholders. The end-
to-end governance framework facilitated discussion on strategy and
performance by each of the global businesses and across the principal
geographical areas, which enabled the Board to support executive
management with its delivery of the Group’s strategy.
The Board’s key areas of focus in 2022 are set out by theme below.
Strategy and business performance
The Group’s strategy remains focused on increasing returns for
investors, creating capacity for future investment and building a
sustainable platform for growth. In 2022, each Board meeting
featured the Group's strategic performance on its agenda, facilitating
opportunities to track its delivery throughout the year, and providing
opportunity to shape how it was developed. The Board reviewed
progress within the Group’s global businesses and regions, as well as
against its four strategic pillars of: focus on our strengths, digitise at
scale, energise for growth and transition to net zero.
The Group’s strategic transformation programme came to a formal
conclusion in December 2022, having delivered against its objectives
to reshape underperforming businesses, simplify the organisation,
reduce costs and reallocate risk-weighted assets. Transformation
remains a key business focus as it is embedded throughout the
organisation and its operations.
Environmental, social and governance
In 2020, the Group announced a climate ambition to align its financed
emissions to net zero by 2050, and to become net zero in its own
operations and supply chain by 2030. The Group aims to achieve this
by supporting clients’ transition to a net zero carbon economy and
focusing on sustainable finance opportunities, as well as by reducing
the carbon emissions in its own operations.
The Board takes overall responsibility for ESG strategy, overseeing
executive management in developing the approach, execution and
associated reporting. The Board considered whether to establish a
Board committee dedicated to ESG issues, but instead decided that
the best way to support the oversight and delivery of the Group’s
climate ambition and ESG strategy was to retain governance at Board
level. The Group Executive Committee enhanced its governance
model of ESG matters with the introduction of a dedicated ESG
Committee and supporting forums. These support senior
management in the delivery of the Group’s ESG strategy, key policies
and material commitments by providing oversight over – and
management and coordination of – ESG commitments and initiatives.
In 2022, the Board oversaw the implementation of ESG strategy
through regular dashboard reports and detailed updates including:
reviews of net zero policies, financed emissions target setting and
climate-aligned financing initiatives.
Financial decisions
The Board and its dedicated committees approved key financial
decisions throughout the year, including the Annual Report and
Accounts 2021, the Interim Report 2022 and the first quarter and the
third quarter Earnings Releases.
At the end of 2021, the Board approved the 2022 financial resourcing
plan. The Board monitored the Group’s performance against the
approved plan, as well as the plans of each of the global businesses.
The Board also approved the renewal of the debt issuance
programme. In December 2022, the Board approved the financial
resourcing plan for 2023.
The Board adopted a dividend policy designed to provide sustainable
cash dividends, while retaining the flexibility to invest and grow the
business in the future, supplemented by additional shareholder
distributions, if appropriate. For the financial year 2022, we achieved a
dividend payout ratio within our 2022 target range of between 40%
and 55% of reported earnings per ordinary share (’EPS’). As
previously communicated, given our current returns trajectory, we are
establishing a dividend payout ratio of 50% of reported earnings per
share for 2023 and 2024, excluding material significant items
(including the planned sale of our retail banking operations in France
and the planned sale of our banking business in Canada).
On 22 February 2022, we announced an interim dividend of $0.18 per
share for the 2021 full-year, and on 1 August 2022 we announced an
interim dividend of $0.09 per share for the 2022 half-year. For further
details of dividend payments, see page 418.
Risk, regulatory and legal
considerations
The Board, advised by the Group Risk Committee, promotes a strong
risk governance culture that shapes the Group’s risk appetite and
supports the maintenance of a strong risk management framework,
giving consideration to the measurement, evaluation, acceptance and
management of risks, including emerging risks.
The Board considered the Group’s approach to risk including its
regulatory obligations. A number of key frameworks, control
documents, core processes and legal responsibilities were also
reviewed and approved as required by the Board and/or its relevant
committees. These included:
• the Group’s risk appetite framework and risk appetite statement;
• the individual liquidity adequacy assessment process;
• the individual capital adequacy assessment process;
• the Group’s obligations under the Modern Slavery Act and
approval of the Modern Slavery and Human Trafficking Statement;
• stress testing and capabilities required to meet the PRA’s
resolvability assessment framework;
• the revised terms of reference for the Board and Board
committees; and
• the Group's revised delegation of authority policy.
The Board also reviewed and monitored the implications of
geopolitical and macroeconomic developments during the year.
Technology
Throughout the year, the Board received regular updates on
technology from the Group Chief Operating Officer, including on the
implementation of the technology strategy and key strategic business
initiatives. As technology is crucial to help deliver the Group’s
strategic objectives, including the strategic pillar ’Digitise at scale’,
strategy papers covered technology issues throughout the year. In
December, the Board discussed a digital technology map, a new tool
that could help simplify, prioritise and drive change in the Group’s
technology estate. For further details, see ’Principal decisions’ on
page 22.
The Technology Governance Working Group continued to oversee
and enhance the Group's governance of technology. For further
details of this working group, see page 251.
People and culture
The Board continued to dedicate time in its meetings to discuss
people-related and culture-related topics, to help raise its awareness
of employee and other stakeholder perspectives. The Board is
committed to setting the right cultural tone, with each Board meeting
beginning with a ’culture moment’, which includes observations of
behaviours within the Group aligned to its purpose and values.
Group subsidiary directors’ approaches to workforce engagement
were presented by each of the chairs from the principal subsidiaries
to the Chairman's Forum, where they discussed their respective
board engagement activities with the workforce, as well as what they
learned as part of such engagements and other cultural insights. The
HSBC Holdings plc Annual Report and Accounts 2022
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Corporate governance Report of the Directors | Corporate governance report
Board also receives insights from the all-employee Snapshot survey,
which measures employee sentiment. A culture insights report,
developed in 2021, provides the Board with key data indicators, such
as behaviours, sentiment, business outcomes and people to allow it
to monitor culture across the Group.
Board engagement with management and the wider workforce
continued to remain a strong area of attention, particularly with the
appointment of a dedicated workforce engagement non-executive
Director. For further details of the work of the workforce engagement
non-executive Director, see page 253.
Governance
The Board continued to oversee the governance, smooth operation
and oversight of the Group and its principal and material subsidiaries.
The Board and senior management supported improvements to
governance initiatives to encourage simplification and promote
effective decision making in the business. Such improvements
included making refinements to Board and committee paper
templates, and reducing unnecessary committee meetings to free
management time and encourage individual accountability and
decision taking.
During the year, Pauline van der Meer Mohr and Irene Lee retired as
independent non-executive Directors, and Ewen Stevenson resigned
as Group Chief Financial Officer. The Board appointed Geraldine
Buckingham as an independent non-executive Director in May 2022,
and Georges Elhedery as Group Chief Financial Officer from 1 January
2023. The Board, supported by the Nomination & Corporate
Governance Committee, reviews the skills and experience of the
Board on an ongoing basis. This ensures that the Board and its
committees comprise the necessary skills, diversity, experience and
competencies to discharge their responsibilities effectively. For
further details of the review and changes to the Board, see the
Nomination & Corporate Governance report on page 259. For further
details of diversity of the Board, see page 247.
The Board monitored its compliance with the UK Corporate
Governance Code, the Hong Kong Corporate Governance Code and
the Companies Act 2006 throughout the year.
Board engagements with
shareholders
In 2022, Board members remained responsive to shareholder
requests to engage, and certain of the Board met with key investors
including Ping An Asset Management Co. Ltd. The Group Chairman
and the Senior Independent Director, often with the Group Company
Secretary and Chief Governance Officer, engaged with a number of
our large institutional investors in 19 meetings. The Group Chief
Executive and the Group Chief Financial Officer, together and
separately, attended over 100 meetings with investors. Key topics
included our financial performance, updates on strategy and market
presence, geopolitical risks and the macroeconomic outlook in key
geographies.
The Group Remuneration Committee Chair also met with key
investors and proxy advisory firms during the fourth quarter of 2022.
These sessions provided useful insight into investor views on key
areas of decision making for the Group Remuneration Committee,
including our approach to the 2022 pay review for executive Directors
and the wider workforce. For further details of the Group
Remuneration Committee report, see page 276.
Board activities in 2022
Main topic
Sub-topic
Strategy
Group strategy
Regional strategy/global business strategy
Environmental, social, governance
Business and
financial
performance
Region/global business
Financial performance
Financial
Results and accounts
Dividends
Group financial resource planning
Risk
Risk function
Risk appetite
Regulatory
External
Technology
People and
culture
Governance
Capital and liquidity adequacy
Regulatory and legal matters2
Regulatory matters with regulators in attendance3
External insights
Strategic and operational
Purpose, values and engagement
Subsidiary governance framework
Policies and terms of reference
Board/committee effectiveness
Appointment and succession
AGM and resolutions
l Matter considered
ô Matter not considered
Jan
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Meetings at which topics were discussed1
Apr May
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Dec
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1 No Board meetings were held during August and October 2022.
2
Includes resolvability assessment framework, modern slavery and human trafficking, statement of business principles and code of conduct, regional
updates and listing renewals.
3 Meeting attended by members of the Prudential Regulation Authority.
256
HSBC Holdings plc Annual Report and Accounts 2022
Board and committee effectiveness, performance and
accountability
The Board and its committees are committed to regular, independent
evaluation of their effectiveness at least once every three years. The
Board intends to conduct an independent evaluation in 2023.
For 2022, the Nomination & Corporate Governance Committee
agreed that the evaluation of the Board and its committees would
again be conducted internally. The process included the completion of
a questionnaire, issued by Lintstock, an independent service provider
with no other connection to the Group or any individual Director. The
questions were designed by the Group Company Secretary and Chief
Governance Officer, some based on themes from the 2021 evaluation
findings. A summary of the effectiveness reviews of the Board and
the Board committees can be found on page 258 and in the
respective committee reports from page 259.
To gather qualitative feedback, the Group Company Secretary and
Chief Governance Officer, together with the Deputy Group Secretary,
conducted interviews with each questionnaire respondent, including
all the Board Directors, regular attendees of the relevant meetings
and key advisers. The Group Chairman and committee chairs also
participated in additional discussions following the consolidation of
feedback in respect of the individual committees.
Overall, the work of the Board was rated highly and it was viewed as
operating effectively. In general, there were consistent findings
across the Board and committee reviews. These included:
• a positive view of the effectiveness of the Chairs of the Board and
committees and the participation of its members;
• a greater desire to be even more forward looking;
Board and Committee evaluation process
• a need for continued focus on the quality of meeting materials to
ensure that content remains focused, clear and precise; and
• continued collaboration between the Board committees.
At its January 2023 meeting, the Group Chairman led a discussion
with the Board and considered the findings. The following areas of
focus were discussed and actions agreed: a revised approach to
tracking strategy execution; continued development of the timeline of
sustainability and technology deliverables; simplification and
prioritisation of deliverables and interdependencies; and enhanced
focus on customer stakeholder engagement.
Actions will be monitored and addressed on an ongoing basis. Similar
discussions were led by each of the committee chairs in their
respective January meetings. Progress against these actions will be
included in the Annual Report and Accounts 2023.
During 2022, a review of the Group Chairman’s performance was led
by the Senior Independent Director in consultation with the other
independent non-executive Directors, management and key
stakeholders. Non-executive Directors also undergo regular individual
reviews with the Group Chairman. These reviews confirmed that the
performance of the Group Chairman and each Director was effective
and that each had met their time commitments during the year.
The review of executive Directors’ performance, which helps
determine their pay outcomes each year, is contained in the
Directors’ remuneration report on page 276.
Agree
approach
Complete
questionnaires
Conduct
interviews
Evaluate
findings
Agree action plan for
2023 and disclosures
in the ARA
Report
findings to the
Board
Share findings
with
Committee
Chairs
The Board made good progress against all of the action points
identified during the 2021 evaluation. In particular, the Board:
• devoted time to the consideration of key areas of focus, including
digital opportunities and threats, ESG and strategic risk;
• enhanced its composition with the appointment of Geraldine
• continued to monitor compliance with the subsidiary accountability
Buckingham, which brought significant Asia leadership experience;
framework; and
• maintained a focus on succession planning, with a view to
strengthening its expertise in banking and improving its
representation from Asia;
• strengthened workforce engagement, with the appointment of
José Antonio Meade Kuribreña as designated non-executive
Director for workforce engagement;
• enhanced coordination and collaboration between its committees,
with combined meetings of the Group Audit Committee, Group
Risk Committee and Technology Governance Working Group held
during the year.
HSBC Holdings plc Annual Report and Accounts 2022
257
Corporate governance Report of the Directors | Corporate governance report | Board committees
Summary of 2022 Board effectiveness findings and recommendations for action:
Findings from the evaluation
Recommendations for action
Strategy,
execution and
deliverables
• The Board’s strategic oversight was rated positively
overall, although the consistency of management’s
articulation, tracking and execution of progress against
the Group’s strategy could be strengthened. It was
recommended to increase the use of metrics to show
comparable progress against key deliverables.
• The Board’s approach to the oversight of the Group’s
sustainability strategy was rated positively, although the
monitoring of sustainability-related key targets required
greater clarity.
• The Board’s oversight of technology strategy was
considered strong and it was suggested that the Board
required a more detailed plan of digital deliverables to
enable continuous monitoring and performance tracking.
• The Group Chief Executive should develop a revised set of
metrics related to performance, execution and risk management,
as well as other key value drivers, as appropriate.
• The Group Chief Executive and relevant accountable executives
should develop a timeline of ESG and technology deliverables and
milestones.
Simplification and
prioritisation
• The importance of devoting sufficient time to
• A Board session should be held annually on organisational
challenging management’s progress on simplification
and prioritisation was highlighted. It was suggested that
the Board provide greater oversight of management
prioritisation of key projects and strategic deliverables.
simplification and prioritisation of deliverables and
interdependencies.
Stakeholder
engagement
• Engagement with stakeholders was strong, including
the focus on the employees, in the year. The Board
asked that further enhancements be considered, in
particular customers given the current macroeconomic
headwinds.
• The Board’s stakeholder engagement plan should be reviewed to
ensure that all members of the Board have sufficient opportunity
to engage with, and understand the views, of the Group’s key
stakeholders.
Meeting materials •
It was recognised that meeting materials had improved
considerably over recent years, but it was emphasised
there was opportunity for further improvement around
consistency, comparability and ownership. Stakeholder
considerations could be better incorporated in Board
papers to support decision making.
• Training and/or guidance should be provided to all paper authors in
2023.
258
HSBC Holdings plc Annual Report and Accounts 2022
Nomination & Corporate Governance Committee
Membership
Mark Tucker (Chair)
Geraldine Buckingham1
Rachel Duan2
Dame Carolyn Fairbairn
James Forese
Steven Guggenheimer
Irene Lee3
José Antonio Meade
Kuribreña
Eileen Murray2
David Nish
Jackson Tai
Pauline van der Meer Mohr3
Member since
Meeting
attendance in 2022
Oct 2017
May 2022
Sep 2021
Sep 2021
May 2020
May 2020
Apr 2018
Apr 2019
Jul 2020
Apr 2018
Apr 2018
Apr 2016
7/7
4/4
6/7
7/7
7/7
7/7
3/3
7/7
5/7
7/7
7/7
3/3
1 Geraldine Buckingham was appointed to the Board and joined the
Committee on 1 May 2022.
2 Rachel Duan was unable to attend the July committee meeting due to
a pre-existing engagement. Eileen Murray was unable to attend the
April and September meetings for personal health reasons.
Irene Lee and Pauline van der Meer Mohr stepped down from the
Board and the Committee following the conclusion of the AGM on
29 April 2022.
3
The Committee’s role in overseeing these changes is outlined on the
following pages.
As we look ahead to 2023, the Committee will consider the changes
to the UK audit, governance and regulatory regimes, including
updates to the UK Corporate Governance Code, and the steps needed
to ensure the Group continues to operate in line with best practice.
Mark E Tucker
Chair
Nomination & Corporate Governance Committee
21 February 2023
Key responsibilities
The Committee’s key responsibilities include:
• leading the process for identifying and nominating candidates for
appointment to the Board and its committees;
• overseeing succession planning and development for the Group
Executive Committee and other senior executives; and
• overseeing and monitoring the corporate governance framework
of the Group and ensuring that this is consistent with best
practice.
Committee governance
The Group Chief Executive, the Group Chief Human Resources
Officer, and the Group Head of Talent routinely and selectively
attended Committee meetings. The Group Company Secretary and
Chief Governance Officer attends all Committee meetings and
supports the Group Chairman in ensuring that the Committee has
fulfilled its governance responsibilities.
Russell Reynolds Associates, which supported the Committee and
the management team in relation to Board and senior management
succession planning, regularly and selectively attended meetings
during the year. It has no other connection with the Group or
members of the Board.
HSBC Holdings plc Annual Report and Accounts 2022
259
"Developing our skills and experience, and diversity
and inclusion ambitions remains a priority and the
Committee will continue to oversee and enhance the
succession pipeline at Board and senior leadership
level.”
Dear Shareholder
I am pleased to present the Nomination & Corporate Governance
Committee report, which provides an overview of the work of the
Committee and its activities during the year.
During 2022, the Committee continued to review the Board’s
composition, succession planning, skills, experience and diversity, to
ensure that the Group operated in line with its ambition of world class
governance.
On behalf of the Board, the Committee oversaw a number of changes
to Board composition, including the retirements of Pauline van der
Meer Mohr and Irene Lee, and the appointment of Geraldine
Buckingham. The Committee also closely monitored executive
succession planning, in particular the transition of the Group Chief
Financial Officer, with Georges Elhedery succeeding Ewen Stevenson
from 1 January 2023. Ewen leaves with our sincere thanks for the
significant contribution that he has made to the Board and to the
broader Group over the past four years.
Jackson Tai will retire from the Board at the conclusion of our 2023
AGM in May and will be succeeded as Chair of the Group Risk
Committee by James Forese. On behalf of the Board, I wish to thank
Jackson for his outstanding dedication and the significant contribution
he has made to the success of the Group, in particular the
improvement in our oversight and governance of risk and conduct.
James' significant banking and risk experience will be invaluable in
the leadership of the Group Risk Committee as the Group continues
to deliver on its transformation and growth strategy, in a safe and
sustainable manner.
On 1 March 2023, Kalpana Morparia will join the Board, strengthening
both its collective Asia business and banking knowledge and
experience, and diversity.
Developing our skills and experience, and diversity and inclusion
ambitions of the Board and senior management, remains a priority
and the Committee will continue to oversee and enhance the
succession pipeline at Board and senior leadership level through
2023. This will build on the revised gender and ethnic representation
targets introduced within the diversity and inclusion policy, and the
work led by management on developing successors for senior
leadership roles and under the Asia Talent programme. Our Board
diversity and inclusion policy, which contains our revised targets, can
be found on hsbc.com.
During 2022, we also took the decision to establish a new Board role
designated with responsibility for ensuring that the employee voice is
strengthened within the Board’s deliberations. The creation of the role
was a natural evolution of the work already undertaken to enhance
stakeholder engagement within Board decision making. In this role,
José Meade will lead our workforce engagement on behalf of the
Board, supported by the Corporate Governance and Secretariat and
Human Resource functions. Further details on the role and initial
areas of focus can be found on page 253.
Corporate governance
Report of the Directors | Corporate governance report | Board committees
Board composition and succession
The Committee continued its focus on ensuring that the Board and its
members, both collectively and individually, possess the skills,
knowledge and experience necessary to oversee, challenge and
support management in the achievement of the Group’s strategic and
business objectives.
In addition to the retirements of Irene Lee and Pauline van der Meer
Mohr, the Board welcomed Geraldine Buckingham, who most
recently held the position of Head of Asia-Pacific at BlackRock. She
was appointed to the Board with effect from 1 May 2022.
In October, the Group announced the appointment of Georges
Elhedery as an executive Director and Group Chief Financial Officer
with effect from 1 January 2023. This decision followed a review by
the Committee of the composition of the Group Executive Committee
with a particular focus on long-term succession planning. It was
concluded, based on the recommendation of the Group Chief
Executive, that Georges, who was previously co-Chief Executive
Officer of Global Banking and Markets, should replace Ewen, who
stepped down from the Board at the end of 2022. Georges, who has
a track record of driving growth and managing change and who brings
a strong focus on execution, will help the Group to accelerate delivery
of improved financial performance and shareholder returns.
In advance of taking up the role, Georges spent significant time with
Ewen to ensure an orderly handover of responsibilities. The Board has
put in place a tailored development and support plan for Georges as
he transitions to his new role, which will be overseen by the
Committee.
The Committee expects that non-executive Directors serve two three-
year terms, with any appointments beyond this to be determined on
an annual basis with reference to the needs of the Board and the
performance and contribution of the individual. In view of the
importance of continuity for key roles on the Board, particularly given
the current economic and geopolitical environment, the Committee
agreed that David Nish’s appointment should be extended for a
further year to the 2024 AGM, subject to his re-election by
shareholders. In taking this decision, the Committee considered the
need for an effective transition in relation to the Senior Independent
Director and Chair of the Group Audit Committee roles, both of which
David currently holds. It is the Board’s strong belief that this
extension of David’s appointment, given his performance and
contribution to the Board during 2022, is in the best interests of the
Group and all of its stakeholders.
As referenced in our 2021 report, the Committee agreed to prioritise
in future appointments significant previous executive experience in
banking, as well as with deep business and cultural expertise across
Hong Kong and mainland China, and south-east Asia. A number of
potential candidates meeting the desired skills and experiences were
identified, a shortlist of which were considered and discussed by the
Committee. Following meetings between various members of the
Committee and priority candidates to understand their respective
interests and capacities, the Board accepted the Committee’s
recommendations and approved the appointments of Geraldine
Buckingham with effect from 1 May 2022 and Kalpana Morparia with
effect from 1 March 2023.
Strengthening the Board’s collective experience in these areas
remains a priority, and the Committee will continue to discuss broader
succession planning for key roles on the Board and committees
through 2023, and beyond. In addition, succession planning will have
regard to diversity and inclusion targets and expectations. The
Committee is focused on identifying candidates with the following
skills and experience for future appointments to the Board:
• significant executive experience in banking;
• deep business and cultural expertise across Asia, in particular
Hong Kong and mainland China, and the Middle East, given the
geographical mix of the Group’s business and the importance of
these regions to the strategy and future growth; and
• previous public company leadership experience.
260
HSBC Holdings plc Annual Report and Accounts 2022
The Committee will continue to monitor the market for potential
candidates for appointment to the Board in both the short and
medium term, to ensure that the Board has a pipeline of credible
successors and continues to be equipped to effectively discharge its
responsibilities.
Board diversity
The Board recognises the importance of gender, social and ethnic
diversity, and the strengths diversity brings to Board effectiveness.
Diversity is taken into account in its broadest sense when considering
succession plans and appointments at both Board and senior
management level, as well as more broadly across the Group.
Over the past 12 months, there has been significant focus on
diversity at Board level, including as a result of the updated guidance
and targets issued by the FTSE Women Leaders Review (formerly the
Hampton-Alexander review) and the UK Listing Authority. The Board
is supportive of the proposals and, in line with the Board diversity and
inclusion policy, remains committed to increasing diversity at Board
and senior levels to ensure we reflect the markets and societies we
serve. This policy, which was updated in 2022 to incorporate new
targets on female representation, details our approach to achieving
our diversity ambitions, and ensures that diversity and inclusion
factors are considered in succession planning. The revised Board
diversity and inclusion policy is available at www.hsbc.com/who-we-
are/leadership-and-governance/board-responsibilities.
At the end of 2022, the Board had 33% female representation, with
four female Board members out of 12. Following our recent
announcement in relation to Kalpana Morparia and Jackson Tai, this
leaves us on track to meet our aspirational target of at least 40%
female representation on the Board by the end of 2023, ahead of the
end of 2025 expectations set by the FTSE Women Leaders Review
for gender representation on Boards.
The FTSE Women Leaders Review also published revised gender
representation targets, specifically the expectation that a woman
holds at least one of the senior Board positions of Chair, Chief
Executive Officer, Senior Independent Director or Chief Financial
Officer by the end of 2025. The Committee considers succession for
these key Board roles on an ongoing basis and will take into account
the need for greater diversity when considering candidates for
appointment to these roles in future. At the end of 2022, all those
holding these senior Board positions at the Group were male. The
Board is committed to achieving this target by the review’s end of
2025 deadline.
The Board continued to exceed the Parker Review target of having at
least one Director of diverse ethnic heritage, with three members of
our Board self-identifying in line with the ethnicity/ethnic definition set
by the Parker Review. Given the global and international nature of our
business, including our strong presence and heritage in Asia, the
Committee considers that the Board should comprise a greater
proportion of diverse ethnic heritage Directors than anticipated by the
Parker Review. The Board’s targets were revised to reflect this
commitment and therefore to maintain or improve the current
representation of directors from a diverse ethnic heritage.
Further details on activities to improve diversity across senior
management and the wider workforce, together with representation
statistics, can be found on page 308.
Diversity of our principal subsidiary boards has also improved as a
result of the Committee’s focus on succession planning and regular
refreshment of subsidiary boards, with gender representation
improving across all seven of our principal subsidiaries. The HSBC
Bank Director Programme, delivered in partnership with IMD
Business School during the first half of 2022, has also helped to
prepare senior talent for roles on our subsidiary boards. A number of
the graduates who participated in the programme have been provided
with opportunities on subsidiary boards, enhancing the skills,
experience and diversity of our subsidiary boards. This programme
will operate regularly with the next cohort scheduled to take place in
2024.
Independence
Independence is a critical component of good corporate governance,
and is a principle that is applied consistently at both Holdings and
subsidiary level. The Committee has delegated authority from the
Board in relation to the assessment of the independence of non-
executive Directors. In accordance with the UK and Hong Kong
Corporate Governance Codes, the Committee has reviewed and
confirmed that all non-executive Directors who have submitted
themselves for election and re-election at the AGM are considered to
be independent. This conclusion was reached after consideration of
all relevant circumstances that are likely to impair, or could appear to
impair, independence.
In line with the requirements of the Hong Kong Corporate
Governance Code, the Committee also reviewed and considered the
mechanisms in place to ensure independent views and input are
available to the Board. These mechanisms include:
• having the appropriate Board and Committee structure in place,
including rules on the appointment and tenure of non-executive
Directors;
• facilitating the option of having brokers and external industry
experts in attendance at Board meetings during 2022, as well as
having representatives from the Group’s key regulators attend
Board meetings in relation to specific regulatory items;
• ensuring non-executive Directors are entitled to obtain
independent professional advice relating to their personal
responsibilities as a Director at the Group’s expense;
• having terms of reference for each Committee and the Board
provide authority to engage independent professional advisers;
and
• holding annual Board and Committee effectiveness reviews, with
feedback sought from members on the quality of, and access to,
independent external advice.
Senior executive succession and
development
The outputs from the annual capability review, including updated
succession plans for the Group Executive Committee members, were
considered and approved by the Committee in December 2022.
These reflected continued efforts to support the development and
progression of diverse talent and promote the long-term success of
the Group, with the gender diversity and proportion of Asian heritage
successors improving year on year. This included future internal and
external succession options for the Group Chief Executive, to ensure
that the Committee has a robust and actionable succession plan
when required.
The Committee also continued to receive updates on the
development of our talent programme within the Asia-Pacific region.
Matters considered during 2022
Since its launch in 2020, significant progress has been made towards
ensuring that we have a deeper and more diverse leadership bench-
strength. Succession plans are more robust, with greater diversity and
good succession fulfilment outcomes.
Committee evaluation
The annual review of the effectiveness of the Committee was
internally facilitated in 2022. The review concluded that, overall, the
Committee continued to operate effectively and in line with regulatory
requirements. However, a number of areas for enhancement were
identified, including the need for a continued focus on succession
planning for the Group Chief Executive, the Committee Chair, the
Senior Independent Director and future non-executive Directors,
ensuring plans supporting the Board’s objectives in relation to
diversity and stakeholder needs. Other areas of focus included the
continued identification of both internal and external talent, training
requirements and the retention strategy for high performing
individuals. Certain priority areas of focus for the Committee across
2023 were suggested, including the continued monitoring of progress
of governance within material and principal subsidiaries (as defined in
the subsidiary accountability framework), and the need to review the
external advisers supporting the Committee. The outcomes of the
evaluation have been reported to the Board, and the Committee will
track the progress in implementing recommendations during 2023. In
line with the UK Corporate Governance Code, the 2023 Board and
Committee performance review will be externally facilitated.
The Committee has initiated the process for the selection of the
independent board evaluator, with a decision on the evaluator to be
taken within the first half of the year to allow the review to
commence in the second half of 2023. A report on the process,
findings and recommendations will be disclosed in the Annual Report
and Accounts 2023.
The Committee was kept updated on progress on actions agreed
following its 2021 evaluation, which were all completed.
Subsidiary governance
In line with the subsidiary accountability framework introduced in
2021, the Committee continued to oversee the corporate governance
and succession arrangements across the principal and material
subsidiary portfolio. Where appropriate and subject to strong
rationale, the Committee approved exceptions from strict compliance
with the framework, including to reflect local law and regulation, as
well as market practice. The Committee has reinforced its
expectations that subsidiaries take steps to achieve full compliance
with the framework, with any exception requests subject to thorough
review and consideration by the Group Company Secretary and Chief
Governance Officer in advance of consideration by the Committee.
Board composition and succession
Board composition, including succession planning and skills
matrices
Approval of diversity and inclusion policy
Executive talent and development
Senior executive succession
Approval of executive succession plans
Talent programmes
Governance
Board and committee evaluation
Subsidiary governance
Subsidiary and executive appointments
l Matter considered
ô Matter not considered
Jan
Feb
Apr
May
Jul
Sep
Dec
l
ô
ô
ô
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HSBC Holdings plc Annual Report and Accounts 2022
261
Corporate governance
Report of the Directors | Corporate governance report | Board committees
Group Audit Committee
Membership
David Nish (Chair)
Rachel Duan2
James Forese3
Eileen Murray4
Jackson Tai
Pauline van der Meer Mohr5
Member since
May 2016
Apr 2022
May 2020
Jun 2022
Dec 2018
Apr 2020
Meeting
attendance
in 20221
13/13
6/8
5/5
6/8
13/13
5/5
1 These included four joint meetings with the Group Risk Committee
(‘GRC’) and the Technology Governance Working Group.
2 Rachel Duan was unable to join two meetings due to prior
commitments made before becoming a GAC member.
3 James Forese stepped down from the GAC on 1 June 2022.
4 Eileen Murray rejoined the GAC on 1 June 2022, and was unable to
attend two meetings due to personal circumstances.
5 Pauline van der Meer Mohr retired from the Board on 29 April 2022.
Key responsibilities
The Committee’s key responsibilities include:
• monitoring and assessing the integrity of the financial statements,
formal announcements and regulatory information in relation to the
Group’s financial performance, as well as significant accounting
judgements;
• reviewing the effectiveness of, and ensuring that management
has appropriate internal controls over, financial reporting;
• reviewing management’s arrangements for compliance with
prudential regulatory financial reporting;
• reviewing and monitoring the relationship with the external auditor
and overseeing its appointment, tenure, rotation, remuneration,
independence and engagement for non-audit services;
• overseeing the Group’s policies, procedures and arrangements for
capturing and responding to whistleblower concerns and ensuring
they are operating effectively; and
• overseeing the work of Global Internal Audit and monitoring and
assessing the effectiveness, performance, resourcing,
independence and standing of the function.
Committee governance
The Committee keeps the Board informed and advises on matters
concerning the Group’s financial reporting requirements to ensure
that the Board has exercised oversight of the work carried out by
management, Global Internal Audit and the external auditor.
Committee meetings usually take place a couple of days before Board
meetings to allow the Committee to report its findings and
recommendations in a timely and orderly manner. The Board also
receives copies of the Committee agendas and minutes of meetings.
The Group Chief Executive, Group Chief Financial Officer, Group Head
of Finance, Global Financial Controller, Group Head of Internal Audit,
Group Chief Risk and Compliance Officer, Group Company Secretary
and Chief Governance Officer and other members of senior
management routinely attended meetings of the GAC. The external
auditor attended all meetings.
The Chair held regular meetings with management, Global Internal
Audit and the external auditor to discuss agenda planning and specific
issues as they arose during the year outside the formal Committee
process. The Committee also regularly met separately with the
internal and external auditors and other senior management to
discuss matters in private.
The Committee Secretary regularly met with the Chair to ensure the
Committee fulfilled its governance responsibilities, and to consider
input from stakeholders when finalising meeting agendas, tracking
progress on actions and Committee priorities.
"The Committee reviewed management's
arrangements for compliance and assurance over
regulatory reporting processes, and progress of
HSBC-specific reviews of regulatory reporting."
Dear Shareholder
I am pleased to introduce the Group Audit Committee (‘GAC’) report
setting out the key matters and issues considered in 2022.
We welcomed Eileen Murray, who rejoined the GAC in 2022, and
Rachel Duan, who was appointed to the Committee in April 2022.
Pauline van der Meer Mohr stepped down from the Board and James
Forese stepped down from the GAC to assume new Board
responsibilities. I would like to thank them both for their support and
insightful contributions to the work of the GAC.
The GAC continued to provide oversight of change and transformation
programmes to enhance the Group’s internal controls over financial
reporting. We challenged management on its forecasts and
confidence in the delivery of externally communicated targets in an
uncertain external environment. The Committee also reviewed
management's arrangements for compliance and assurance over
regulatory reporting processes, and progress of HSBC-specific
reviews of regulatory reporting.
We continued to strengthen our relationships and understanding of
issues at the local level through regular information sharing with the
principal subsidiary audit committee chairs. This was supplemented
with regular meetings with the principal subsidiary audit committee
chairs to discuss key issues, and through their attendance at GAC
meetings. I also joined a number of principal subsidiary audit
committee meetings throughout the Group.
The Group’s whistleblowing arrangements continue to satisfy
regulatory obligations and I regularly met the whistleblowing team to
discuss material whistleblowing cases. Efforts were made in 2022 to
drive continuous operational improvements and to provide deeper
insights to support our purpose, values and conduct approach.
Actions were also taken to make use of best practices across
investigative functions and to enhance the experiences of colleagues
when they report concerns at HSBC.
The Committee oversaw the retendering for statutory audit services
for the 2025 year-end. This process included detailed qualification
activities, thorough evaluation of firms, consideration of evolving UK
legislation and guidelines, and engagement with regulators. The GAC
recommended to the Board that PwC be reappointed for a further
term of 10 years commencing 1 January 2025.
The Committee implemented all the actions from the 2022 evaluation
and the 2023 review determined that the GAC continued to operate
effectively.
David Nish
Chair
Group Audit Committee
21 February 2023
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HSBC Holdings plc Annual Report and Accounts 2022
Matters considered during 2022
Reporting
Financial reporting matters including:
– review of financial statements, ensuring that disclosures are fair, balanced and understandable
– significant accounting judgements
– going concern assumptions and viability statement
– supplementary regulatory information
ESG and climate reporting
Regulatory reporting-related matters
Certificates from principal subsidiary audit committees
Control environment
Control enhancement programmes
Group transformation
Review of deficiencies and effectiveness of internal financial controls
Internal audit
Reports from Global Internal Audit
Audit plan updates, independence and effectiveness
External audit
Reports from external audit, including external audit plan
Appointment, remuneration, non-audit services and effectiveness
Audit tender
Compliance
Accounting standards and critical accounting policies
Corporate governance codes and listing rules
Whistleblowing
Whistleblowing arrangements and effectiveness
l Matter considered
ô Matter not considered
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Compliance with regulatory requirements
The Board has confirmed that each member of the Committee is
independent according to the criteria from the US Securities and
Exchange Commission, and the Committee continues to have
competence relevant to the sector in which the Group operates. The
Board has determined that David Nish, Jackson Tai and Eileen Murray
are ‘financial experts’ for the purposes of section 407 of the
Sarbanes-Oxley Act and have recent and relevant financial experience
for the purposes of the UK and Hong Kong Corporate Governance
Codes.
The GAC Chair continued to engage with regulators, including the
UK’s PRA and the Financial Reporting Council. These included
trilateral meetings involving the Group’s external auditor, PwC.
The Committee assessed the adequacy of resources of the
accounting, internal audit, financial reporting and ESG performance
and reporting functions. It also monitored the legal and regulatory
environment relevant to its responsibilities.
How the Committee discharged its
responsibilities
Connectivity with principal subsidiary audit committees
The GAC strengthened its working relationship with the principal
subsidiary audit committees through formal and informal channels.
The GAC Chair regularly met the chairs of the principal subsidiary
audit committees to enable close links and deeper understanding on
judgements around key issues. The GAC Chair attended a number of
the principal subsidiary audit committee meetings and certain chairs
of the principal subsidiary audit committees also joined meetings of
the GAC during the year.
This continuous engagement supported effective information sharing
and targeted collaboration between audit committee chairs and
management to ensure there was appropriate focus on the local
implementation of programmes. Subsidiary audit committee chairs
were also able to directly share local challenges, including regulatory
expectations with Group management and the GAC Chair.
On a half-year basis, principal subsidiary audit committees provided
certifications to the GAC that regarded the preparation of their
financial statements, adherence to Group policies and escalation of
any issues that required the attention of the GAC. These certifications
also included information regarding the governance, review and
assurance activities undertaken by principal subsidiary audit
committees in relation to prudential regulatory reporting.
Internal controls
The Committee devoted significant time in understanding the effect
on financial reporting risk from high-impact programmes aimed at
enhancing and enabling the transformation of the control environment
to support financial, prudential regulatory and other regulatory
reporting. The GAC provided detailed feedback and challenge to
management on a number of aspects, including requesting external
assurance, replanning and mobilisation of programme workstreams,
resourcing and engagement throughout the Group and with
regulators. Common themes from these discussions included the
need to improve understanding and accountability for data capture,
improve data quality from the implementation and embedding of data
policies while ensuring there was a stronger appreciation throughout
the Group of the downstream impact on financial and regulatory
reporting. The oversight and implementation of these programmes
and their component parts will remain a key focus for the Committee
in 2023.
The GAC received regular updates and confirmations that
management had taken, or was taking, the necessary actions to
remediate any failings or weaknesses identified through the operation
of the Group’s framework of internal financial controls. These updates
included the Group’s work on compliance with section 404 of the
Sarbanes-Oxley Act. Based on this work, the GAC recommended that
the Board support its assessment of the internal controls over
financial reporting.
For further details on how the Board reviewed the effectiveness of
key aspects of internal control, see page 306.
Financial reporting
The Committee is responsible for reviewing the Group’s financial
reporting during the year, including the Annual Report and Accounts,
Interim Report, quarterly earnings releases, analyst presentations and,
where material, Pillar 3 disclosures and other items arising from the
review of the Group Disclosure and Controls Committee. As part of
its review, the GAC:
• evaluated management’s application of critical accounting policies
and material areas in which significant accounting judgements
were applied;
HSBC Holdings plc Annual Report and Accounts 2022
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Report of the Directors | Corporate governance report | Board committees
• gave particular regard to the analysis and measurement of IFRS 9
expected credit losses (‘ECL’), including the key judgements and
management adjustments made in relation to the forward
economic guidance, underlying economic scenarios and
reasonableness of the weightings;
• focused on compliance with disclosure requirements to ensure
these were consistent, appropriate and acceptable under the
relevant financial and governance reporting requirements;
• provided advice to the Board on the form and basis underlying the
long-term viability statement; and
• gave careful consideration to the key performance metrics related
to strategic priorities and ensured that the performance and
outlook statements were fair, balanced and reflected the risks and
uncertainties appropriately.
In conjunction with the Group Risk Committee (‘GRC’), the GAC
considered the current position of the Group, along with the emerging
and principal risks, and carried out a robust assessment of the
Group’s prospects, before making a recommendation to the Board on
the Group’s long-term viability. The GAC also undertook a detailed
review before recommending to the Board that the Group continues
to adopt the going concern basis in preparing the annual and interim
financial statements. Further details can be found on page 42.
Fair, balanced and understandable
Following review and challenge of the disclosures, the Committee
recommended to the Board that the financial statements, taken as a
whole, were fair, balanced and understandable. The financial
statements provided the shareholders with the necessary information
to assess the Group’s position and performance, business model,
strategy and risks facing the business, including in relation to the
increasingly important ESG considerations.
The Committee reviewed the draft Annual Report and Accounts 2022
and results announcements to enable input and comment. It was
supported by the work of the Group Disclosure and Controls
Committee, which also reviewed and assessed the Annual Report
and Accounts 2022 and investor communications.
This work enabled the GAC to provide positive assurance to the Board
to assist them in making the statement required in compliance with
the UK and Hong Kong Corporate Governance Codes.
Key financial metrics and strategic priorities
The Committee assessed management’s assurance and preparation
over external financial reporting disclosures, in particular the
monitoring and tracking of key financial metrics and strategic
priorities. In the second quarter of 2022, the Committee was involved
at all stages in overseeing and challenging management on the
revised financial targets.
The GAC challenged management on the forecasting, analysis and
additional assurance work undertaken to support the revised financial
targets in light of geopolitical risks, deteriorating outlook, ongoing
impact of the Covid-19 pandemic in certain jurisdictions and a rising
interest rate environment.
Further details can be found in the ‘Principal activities and significant
issues considered during 2022‘ table on page 266.
ESG and climate reporting
The GAC, supported by the executive-level ESG Committee and
Group Disclosure and Controls Committee, provided close oversight
of the disclosure risks in relation to ESG and climate reporting, amid
rising stakeholder expectations.
The GAC tracked and monitored developments from a number of
prominent consultations and considered them when reviewing the
strategy and scope of ESG and climate disclosures in 2022. In
particular, the Committee asked management to provide further
details on the pipeline of mandatory regulatory and externally
committed ESG and climate-related disclosures over the next 12 to 24
months, including the delivery status. This allowed the Committee to
consider management’s development of methodologies, tools and
data solutions holistically to fulfil external disclosure requirements and
commitments.
ESG reporting is fast evolving with few globally consistent reporting
standards and a high reliance on external data. The Committee
focused on internal and external assurance in this area in line with
wider market developments. Management updated the Committee
on the verification and assurance framework to ensure that ESG and
climate disclosures were materially accurate, consistent, fair and
balanced. The GAC discussed the roles and work of the three lines of
defence as part of this framework, discussed the nature and root
cause of issues identified through the increased assurance work, as
well as proposals for further limited third-party assurance to be
performed over specific ESG-related metrics.
Regulatory reporting
The Committee continued to focus heavily on the quality and reliability
of regulatory reporting and oversight of key programmes to
strengthen the end-to-end processes to meet regulatory expectations.
Management provided updates on the status of ongoing HSBC-
specific external reviews, and discussed the issues and themes
identified from the increased assurance work and focus on regulatory
reporting. They also discussed root cause themes, remediation of
known issues and new issues identified through the increased
assurance work and focus on regulatory reporting. The GAC was
instrumental in the initiation of a global programme designed to
deliver consistent control frameworks for our regulatory reporting
globally over the next few years. The Committee challenged
management on remediation plans, to ensure there was a sustainable
reduction in issues and that dependencies with other key
programmes were well understood. The Committee Chair invited
certain principal subsidiary audit committee chairs to GAC meetings
to participate in discussions to ensure alignment and understanding of
key issues and ongoing regulatory engagement.
UK audit reform
In May 2022, the UK government published its response to the
consultation paper, ‘Restoring Trust in Audit and Corporate
Governance’, on strengthening the UK’s audit, corporate reporting
and corporate governance systems. This summarised the responses
received to the consultation and set out the next steps towards
implementation.
One of the key changes proposed is for large public interest entities,
such as HSBC, to develop and publish an audit and assurance policy
every three years, setting out the approach to assurance of
information beyond the financial statements. The government will
also introduce a new statutory resilience statement.
The Committee received updates on the outcome of the consultation
and reviewed management’s proposed actions to support the future
requirement for disclosure of an audit and assurance policy. This
includes the work towards designing an integrated internal assurance
approach across the three lines of defence, with the development
during the year of an integrated assurance framework in support of
the Group’s risk management framework.
While the legislation and expected guidance around the form and
content of an audit and assurance policy is still being drafted, it is
expected that the areas below will be covered by any future
disclosures. Current disclosures exist in respect of certain of these
areas, although these will need to be enhanced and expanded as
guidance develops. The areas highlighted below are in addition to
disclosures on the statutory audit and assurance work required by
regulators.
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HSBC Holdings plc Annual Report and Accounts 2022
Area
Overview of risk and internal control
framework
Assurance over internal controls
Relevant current disclosure
Risk review, pages 131 to 238
Risk review, pages 131 to 238,
’Global Internal Audit’, page 266, and
‘Internal controls’ page 306.
Specific information subject to
assurance
Environmental, social and governance
review, page 14
Resilience statement
(currently viability statement)
External auditor engagement
Stakeholder engagement on audit
and assurance policy
Long-term viability and going concern
statement, page 42
’External auditor’, page 265
No existing disclosure.
The Committee continues to focus on ESG and regulatory reporting
as areas for expanded assurance, in line with the risk assessment
framework established in 2021. The specific external assurance over
ESG disclosures is set out in the ESG review section of the Annual
Report and Accounts. The Committee continued to respond to various
regulatory engagement requests and surveys, including the Financial
Reporting Council’s Draft Minimum Standards for Audit Committees.
The Committee will continue to monitor developments as legislation
is drafted to enact the requirements and the associated guidance is
developed.
External auditor
The GAC has the primary responsibility for overseeing the relationship
with the Group’s external auditor, PwC.
PwC completed its eighth audit, providing robust challenge to
management and sound independent advice to the Committee on
specific financial reporting judgements and the control environment.
The senior audit partner is Scott Berryman who has been in the role
since 2019. The Committee reviewed the external auditor’s approach
and strategy for the annual audit and also received regular updates on
the audit, including observations on the control environment. Critical
audit matters discussed with PwC are set out in its report on
page 313.
External audit plan
The GAC reviewed the PwC external audit approach, including the
materiality, risk assessment and scope of the audit. PwC highlighted
the changes being made to their approach to enhance the quality and
effectiveness of the audit. Changes for the 2023 audit included more
auditing being performed centrally across legal entities. The
Committee also focused on PwC's increased use of technology
solutions, and received detailed briefings on its approach to data and
analytics.
Effectiveness of external audit process
The GAC assessed the effectiveness of PwC as the Group’s external
auditor, using a questionnaire that focused on the overall audit
process, its effectiveness and the quality of output.
In addition, the GAC Chair, certain principal subsidiary audit chairs and
members of the Group Executive Committee met with the Head of
Audit, PwC UK to discuss findings from the questionnaire and provide
in-depth feedback on the interaction with the PwC audit team.
PwC highlighted the actions being taken in response to the HSBC
effectiveness review, including the development of audit quality
indicators, which would provide a balanced scorecard and transparent
reporting to the GAC. These audit quality indicators focused on the
following areas:
• findings from inspections across the Group and regulators on PwC
as a firm;
• the hours of audit work delivered by senior PwC audit team
members, the extent of specialist and expert involvement, delivery
against agreed timetable and milestones and the use of
technology;
• any new control deficiencies in Sarbanes-Oxley locations,
proportion of management identified deficiencies and delivery of
audit deliverables to agreed timelines; and
• outcomes and scores from annual audit surveys, independent
senior partner reviews and prior period errors.
The GAC will continue to receive regular updates from PwC and
management on the progress of the external audit plan and PwC
performance across the audit quality indicators.
There were no breaches of the policy on hiring employees or former
employees of the external auditor during the year. The external
auditor attended all Committee meetings and the GAC Chair
maintains regular contact with the senior audit partner and his team
throughout the year.
Independence and objectivity
The Committee assessed any potential threats to independence that
were self-identified or reported by PwC. The GAC considered PwC to
be independent and PwC, in accordance with professional ethical
standards and applicable rules and regulations, provided the GAC with
written confirmation of its independence for the duration of 2022.
The Committee confirms it has complied with the provisions of The
Statutory Audit Services for Large Companies Market Investigation
(Mandatory Use of Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014 for the financial statements.
The Committee acknowledges the provisions contained in the 2018
UK Corporate Governance Code in respect of audit tendering. In
conformance with these requirements, the GAC oversaw the
retendering of statutory audit services for the 2025 year-end,
including considering the tendering and shared audit proposals from
the UK government’s consultation. More details on the audit tender
can be found on page 267.
The Committee has recommended to the Board that PwC should be
reappointed as auditor. Resolutions concerning the reappointment of
PwC and its audit fee for 2023 will be proposed to shareholders at the
2023 AGM.
Non-audit services
The Committee is responsible for setting, reviewing and monitoring
the appropriateness of the provision of non-audit services by the
external auditor. It also applies the Group’s policy on the award of
non-audit services to the external auditor. The non-audit services are
carried out in accordance with the external auditor independence
policy to ensure that services do not create a conflict of interest. All
non-audit services are either approved by the GAC, or by Group
Finance when acting within delegated limits and criteria set by the
GAC.
The non-audit services carried out by PwC included 73 engagements
approved during the year where the fees were over $100,000 but less
than $1m. Global Finance, as a delegate of the GAC, considered that
it was in the best interests of the Group to use PwC for these
services because they were:
• audit-related engagements that were largely carried out by
members of the audit engagement team, with the work closely
related to the work performed in the audit;
• engagements covered under other assurance services that require
obtaining appropriate audit evidence to express a conclusion
designed to enhance the degree of confidence of the intended
users other than the responsible party about the subject matter
information; or
• other permitted services to advisory attestation reports on internal
controls of a service organisation primarily prepared for and used
by third-party end users.
Eleven engagements during the year were approved where the fees
exceeded $1m. These were mainly engagements required by the
regulator and incremental fees related to previously approved
engagements, including the provision of services by PwC relating to
the Section 166 Financial Services and Markets Act 2000 Skilled
Person report.
Auditors‘ remuneration
Total fees payable
Of which fees for non-audit services
2022
$m
148.1
50.5
2021
$m
129.4
41.3
HSBC Holdings plc Annual Report and Accounts 2022
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Global Internal Audit
The primary role of the Global Internal Audit function is to help the
Board and management protect the assets, reputation and
sustainability of the Group. Global Internal Audit does this by providing
independent and objective assurance on the design and operating
effectiveness of the Group’s governance, risk management and
control framework and processes, prioritising the greatest areas of
risk. The independence of Global Internal Audit from day-to-day line
management responsibility is critical to its ability to deliver objective
audit coverage by maintaining an independent and objective stance.
Global Internal Audit is free from interference by any element in the
organisation, including on matters of audit selection, scope,
procedures, frequency, timing, or internal audit report content. The
Group Head of Internal Audit reports to, and meets frequently with,
the Chair of the GAC. In addition, in 2022, there was more interaction
between Global Internal Audit senior management and the members
of the GAC, aimed at increasing knowledge and awareness of the
audit universe and existing and emerging risks identified by Global
Internal Audit. Global Internal Audit adheres to The Institute of Internal
Auditors’ mandatory guidance.
Consistent with previous years, the 2023 audit planning process
includes assessing the inherent risks and strength of the control
environment across the audit entities representing the Group. Results
of this assessment are combined with a top-down analysis of risk
themes by risk category to ensure that themes identified are
addressed in the annual plan. Audit coverage is achieved using a
combination of business and functional audits of processes and
controls, risk management frameworks and major change initiatives,
as well as regulatory audits, investigations and special reviews. In
addition to the ongoing importance of regulatory-focused work, key
risk theme categories for 2023 audit coverage remain as: strategy,
governance and culture; financial crime, conduct and compliance;
financial resilience; and operational resilience. A quarterly assessment
of key risk themes will form the basis of thematic reporting and plan
updates and will ultimately drive the 2024 planning process.
In 2023, Global Internal Audit will maintain significant focus on the
Group transformation portfolio, increase coverage of treasury risks,
financial forecasting processes and regulatory reporting, and include
coverage of ESG risk, with focus on climate commitments,
operationalisation and reporting. In addition, Global Internal Audit will
continue its programme of culture audits to assess the extent that
behaviours reflect HSBC’s purpose, ambition, values and strategy,
and expand its coverage of franchise audits for locally significant
countries, following the development of the approach in 2022. The
annual audit plan and material plan updates made in response to
changes in the Group’s structure and risk profile are approved by the
GAC.
The results of audit work, together with an assessment of the
Group’s overall governance, risk management and control framework
and processes are reported regularly to the GAC, GRC and local audit
and risk committees, as appropriate. This reporting highlights key
themes identified through audit activity, and the output from
continuous monitoring. This includes business and regulatory
developments and an independent view of emerging and horizon risk,
together with details of audit coverage and any required changes to
the annual audit plan. Based on regular internal audit reporting to the
GAC, private sessions with the Group Head of Internal Audit, the
Global Professional Practices annual assessment and quarterly quality
assurance updates, the GAC is satisfied with the effectiveness of the
Global Internal Audit function and the appropriateness of its
resources.
Executive management is responsible for ensuring that issues raised
by Global Internal Audit are addressed within an appropriate and
agreed timetable. Confirmation to this effect must be provided to
Global Internal Audit, which validates closure on a risk basis.
Global Internal Audit maintains a close working relationship with
HSBC’s external auditor, PwC. The external auditor is kept informed
of Global Internal Audit’s activities and results, and is afforded free
access to all internal audit reports and supporting records.
266
HSBC Holdings plc Annual Report and Accounts 2022
Principal activities and significant
issues considered during 2022
Collaborative oversight by GAC, GRC and
Technology Governance Working Group
The GAC and GRC worked closely to ensure there were procedures
to manage risk and oversee the internal control framework. The
Chairs are members of both committees and engage on the agendas
of each other’s committees to further enhance connectivity,
coordination and flow of information.
A further development, based on 2022 evaluation findings, was to
have joint meetings of the GAC, GRC and Technology Governance
Working Group. These meetings would ensure there was coordinated
oversight and consistent joint feedback to management on areas of
significant overlap.
Areas of joint focus for the GAC, GRC and the Technology
Governance Working Group during 2022 were:
Finance on the Cloud
Finance on the Cloud is a key multi-year data and reporting
transformation programme using Cloud technology to enable the
transformation of the Global Finance operating model and re-
engineering of core reporting processes.
The committees conducted a deep dive review of Finance on the
Cloud and held multiple meetings throughout 2022 to challenge
management on the programme’s overall objectives, scope and target
end-state. As part of these discussions, the committees considered
organisational realignment and programme leadership, and asked
management to seek external assurance and validation of the Finance
on the Cloud investment case and technology architecture. The
committees also ensured that there was a greater understanding of
the complexities and dependencies between Finance on the Cloud
and other key programmes to ensure that deadlines for financial and
regulatory reporting deliverables were met.
Digital Business Services
The committees held a joint meeting to develop a deeper
understanding of the risk and internal controls issues across key
components of Digital Business Services. The joint meeting
discussed:
• the regulatory purpose of the service company structure, and
management providing an update on initiatives to streamline,
simplify and automate the services;
• actions taken by the Identity and Access Management sub-
function to tackle access risks through automation and a new
toolset;
• monitoring and governance activities carried out by the Global
Operations and Payments teams, and its shift towards an
automated control environment; and
• actions carried out within Global Procurement to enhance the risk
management and control culture, in particular with regard to the
oversight of critical third parties and its upgrade to a Cloud-based
procurement platform.
Embedding data into our culture
The committees reviewed and challenged the Group’s data strategy
and the work required for the Group to embed its data policies, define
the data technology landscape, and build a data-led culture. The
committees also reviewed the Group's approach to harnessing and
using data to better unlock value for our customers.
Whistleblowing and speak-up culture
An important part of HSBC’s values is speaking up when something
does not feel right. HSBC remains committed to ensuring colleagues
have confidence to speak up and acting when they do. A wide variety
of channels are provided for colleagues to raise concerns, including
the Group’s whistleblowing channel, HSBC Confidential (see page 92
for further information). The GAC is responsible for the oversight of
the effectiveness of the Group’s whistleblowing arrangements. The
Group Head of Compliance provides periodic reporting to the GAC on
the efficacy of the whistleblowing arrangements, providing an
assessment of controls and detailing the results of internal audit
assessments. The Committee is also briefed on culture and conduct
risks arising from whistleblowing cases and the associated
management actions. The Chair of the GAC acts as the Group’s
whistleblowers’ champion, with responsibility for ensuring and
overseeing the integrity, independence and effectiveness of HSBC’s
policies and procedures on whistleblowing and the protection of
whistleblowers.
The Chair continued to meet regularly throughout 2022 with the
Group Head of Conduct, Policy and Whistleblowing, receiving
briefings on material whistleblowing cases and the ongoing
effectiveness of the whistleblowing arrangements. The Committee
also received reports on actions being taken to further align our
whistleblowing arrangements to actively support our purpose and
values, and conduct approach. During 2023, the Committee will
continue to be briefed on these actions, as well as the ongoing
effectiveness of the HSBC Confidential channel.
Audit tender
Following the conclusion of a formal competitive audit tender
process, the Board has approved the re-appointment of PwC as
external auditor of the statutory audits of HSBC Holdings for 2025 to
2034, at which point we are required to rotate auditors in accordance
with UK requirements. The audit tender process considered both
large and challenger audit firms and was led by the GAC.
Scope
Process and assessment
The shortlisted firms were invited to submit capability proposals
(including written and data modelling exercises) to demonstrate their
understanding of HSBC, audit quality, capabilities and their future
vision of audit. Group and principal subsidiaries’ audit committee chair
and management meetings took place during October 2022, enabling
both the audit firms and HSBC management to articulate and discuss
critical success factors for the audit. Lead audit partner referrals and
audit quality reports from regulators supplemented these
assessments and contributed to the final evaluation of the audit firms.
The capability proposals were submitted on a fee blind basis, with the
fee proposal submitted directly to the GAC Chair.
The Committee considered the following during the evaluation of
audit firms:
• a tender proposal, a formal document in response to the tender
requirements;
• management meetings between the firms and HSBC (major legal
entity audit committee chairs and senior management);
• data exercises covering audit planning and risk assessment, ECL
modelling, firms’ broader assurance offering and a shared audit
exercise;
• public regulator audit reports for independent assessment on audit
quality;
• external referees to provide a third-party opinion on the audit lead
partner to support the evaluation process; and
• final presentations to the GAC.
As a UK public interest entity, we are required to tender our audit
every 10 years and rotate our auditor every 20 years. We disclosed in
our Annual Report and Accounts 2021 the intention to commence an
audit tender, given PwC were initially appointed for the audit of the
Annual Report and Accounts 2015.
As part of the tender process, the GAC Chair also met with Chief
Executive and Head of Standards of the Financial Reporting Council to
explain our audit tender process, understand views on shared audits
and seek input into our evaluation of individual firm’s audit quality
track record.
Pursuant to the tender, interested and qualified parties were invited to
submit proposals for the right to provide statutory audit services to
HSBC Holdings and its subsidiaries for a period of 10 years
commencing from the financial year ending 31 December 2025.
HSBC’s primary objective was to ensure a fair and transparent tender
process and appoint the audit firm that will provide the highest quality
in the most effective and efficient manner. Firms were assessed
against detailed criteria which considered audit quality, capacity and
capability, understanding of HSBC and future audit vision. Input was
sought from principal subsidiaries’ audit committee chairs as part of
the GAC evaluation. Management views were advisory only to the
GAC.
In accordance with best practice corporate governance requirements,
the audit tender process described below was designed and led by
the GAC, with direct involvement of the GAC Chair at every stage.
Pre-qualification
HSBC undertook a series of pre-qualification activities to identify
vendors that satisfy our minimum requirements relating to credibility,
capacity and independence. These activities were overseen by the
GAC. The pre-qualification phase considered both large and challenger
audit firms and explored the possibility of adopting a managed, shared
audit using challenger firms.
During the pre-qualification phase, we were informed by two of the
large audit firms that they were not able to participate in the tender as
they believed they had insufficient capacity to perform a quality audit.
Three shortlisted audit firms were invited to respond to the formal
tender, including PwC and one challenger audit firm.
Evaluation
The key evaluation criteria and their respective weightings used to
assess the successful audit firm were proposed by management and
reviewed by the Group Audit Committee. The criteria were assessed
through formal capability proposals, presentations and certain
supplementary evidence:
• Audit quality (30%) – regulatory evaluation, methodology, risk
assessment, technology.
• Capacity and capability (30%) – footprint, partner quality and
rotation, diversity, independence.
• Future audit vision (20%) – future audit developments, audit
reform and innovation.
• Understanding of HSBC (20%) – knowledge of HSBC, shareholder
concerns and the financial services landscape.
Final decision
The GAC considered various data points from the assessments
outlined above, adopting a scorecard approach to supplement the final
presentations made by the audit firms at the end of the tender
process. The Committee considered the merits of appointing a
challenger audit firm in a managed shared audit capacity, in line with
recent UK government proposals. However, it did not have sufficient
confidence that the desired audit quality outcomes could be assured
in a such a large, complex, integrated and global organisation to
pursue such an arrangement.
The GAC presented two audit firms to the Board for consideration of
awarding the tender, recommending the re-appointment of PwC
given their strong performance against our evaluation criteria and the
benefits of continuity in this period of strategic change and
uncertainty in the external environment.
The Board made a final decision to award the audit tender to PwC on
19 January 2023. PwC will continue to be subject to annual
performance reviews (including annual effectiveness surveys and
analysis of relevant audit regulator findings) in the period up to 2025
to support the annual AGM auditor re-appointment requirement.
HSBC Holdings plc Annual Report and Accounts 2022
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Corporate governance Report of the Directors | Corporate governance report | Board committees
Principal activities and significant issues considered during 2022
Areas of focus Key issues
Financial and
regulatory
reporting
Significant
accounting
judgements
Key financial metrics and strategic priorities
The GAC considered the key judgements in
relation to external reporting to track the key
financial metrics and strategic priorities and to
review the forecast performance and outlook.
Environmental, social and governance
(‘ESG’) reporting
The Committee considered management’s
efforts to enhance ESG disclosures and
associated verification and assurance activities.
The GAC reviewed the 2022 ESG disclosure
approach in line with our external
commitments.
Regulatory reporting assurance programme
The GAC monitored the progress of the
regulatory reporting assurance programme to
enhance the Group’s regulatory reporting,
impact on the control environment and
oversee regulatory reviews and engagement.
Expected credit losses
The measurement of expected credit losses
involves significant judgements, particularly
under current economic conditions. Despite a
general recovery in economic conditions in
2022, there remains an elevated degree of
uncertainty over ECL estimation under current
conditions, due to macroeconomic and political
uncertainties.
Goodwill, other non-financial assets and
investment in subsidiaries impairment
During the year, management tested for
impairment goodwill, other non-financial assets
and investments in subsidiaries. Key
judgements in this area relate to long-term
growth rates, discount factors and what cash
flows to include for each cash-generating unit
tested, both in terms of compliance with the
accounting standards and reasonableness of
the forecast.
Associates (Bank of Communications Co.,
Limited)
During the year, management performed the
impairment review of HSBC’s investment in
Bank of Communications Co., Ltd (‘BoCom’).
The impairment reviews are complex and
require significant judgements, such as
projected future cash flows, discount rate, and
regulatory capital assumptions.
Investments in subsidiaries
Management has reviewed investments in
subsidiaries for indicators of impairment and
conducted impairment reviews where relevant.
These involve exercising significant judgement
to assess the recoverable amounts of
subsidiaries, by reference to projected future
cash flows, discount rates and regulatory
capital assumptions.
Conclusions and actions
In exercising its oversight, the Committee assessed management’s assurance and
preparation of external financial reporting disclosures. The Committee reviewed the
draft external reporting disclosures and provided feedback and challenge on the top
sensitive disclosures, including key financial metrics and strategic priorities to ensure
HSBC was consistent and transparent in its messaging.
In relation to our climate change resolution, particular attention was given to the
disclosure of the financed and facilitated emissions, and thermal coal exposures. The
Committee considered the key limitations and challenges relating to governance,
processes, controls and data underpinning climate reporting. The Committee also
discussed the nature and root cause of issues identified through the increased
assurance work and ongoing enhancements to the governance, processes, controls
and data underpinning climate reporting, which resulted in the deferral of disclosures
on facilitated emissions and thermal coal. The Committee reviewed the ESG
reporting strategy, including the broadening of ESG coverage in the Annual Report
and Accounts and management’s approach on integrated reporting, which will be
further informed by feedback from external stakeholders.
The Committee reflected on the continued focus on the quality and reliability of
regulatory reporting by the PRA and other regulators globally. The GAC reviewed
management’s efforts to strengthen and simplify the end-to-end operating model,
including commissioning further independent external reviews of various aspects of
regulatory reporting. The Committee discussed and provided feedback on
management’s engagement plans with the Group’s regulators, including any potential
impacts on some of our regulatory ratios. We continue to keep the PRA and other
relevant regulators informed of our progress.
The measurement of expected credit losses involves significant judgements,
particularly under current economic conditions. There remains an elevated degree of
uncertainty over ECL estimation under current conditions, due to macroeconomic,
and political uncertainties.
The GAC reviewed the economic scenarios for the key countries in which the Group
operates, and challenged management’s judgements as to the weightings assigned
to these scenarios. The GAC also challenged management’s approach to making
management adjustments to account for the uncertainty in outcomes arising from the
Russia-Ukraine war, inflation, supply chain disruption risks, China commercial real
estate and Covid-19, including the rationale for such adjustments, the controls
underpinning the adjustment processes, and under what conditions such
adjustments could be reduced or removed. The GAC also challenged management on
the overall levels of ECL across portfolios, including looking at historical performances
of portfolios and peer group comparisons.
The GAC received reports on management’s approach to goodwill, other non-financial
assets and investments in subsidiaries impairment testing and challenged the
approach and methodologies used, with a key focus on the cash flows included
within the forecasts and the discount rates used. The GAC also challenged
management’s key judgements and considered the reasonableness of the outcomes
as a sense check against the business forecasts and strategic objectives of HSBC.
The GAC reviewed the judgements in relation to the impairment review of HSBC’s
investment in BoCom, including the sensitivity of the results to estimates and key
assumptions such as projected future cash flows and regulatory capital assumptions.
Additionally, the GAC reviewed the model’s sensitivity to long-term assumptions
including the continued appropriateness of the discount rates. The GAC also
challenged management to review all aspects of its approach to accounting for
BoCom to ensure the approach remains the most appropriate in terms of accounting
judgements including compliance with the relevant accounting requirements.
The GAC reviewed the judgements in relation to the impairment review of HSBC
Overseas Holdings (UK) Limited, and the key inputs underpinning the recoverable
amounts of its subsidiaries.
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HSBC Holdings plc Annual Report and Accounts 2022
Principal activities and significant issues considered during 2022 (continued)
Areas of focus Key issues
Significant
accounting
judgements
Legal proceedings and regulatory matters
Management has used judgement in relation
to the recognition and measurement of
provisions, as well as the existence of
contingent liabilities for legal and regulatory
matters.
Valuation of defined benefit pension
obligations
The valuation of defined benefit pension
obligations involves highly judgemental inputs
and assumptions, of which the most sensitive
are the discount rate, pension payments and
deferred pensions, inflation rate and changes
in mortality.
Valuation of financial instruments
Due to the ongoing volatile market conditions
in 2022, management continuously refined its
approach to valuing the Group’s investment
portfolio. In addition, as losses were incurred
on the novation of certain derivative portfolios,
management considered whether fair value
adjustments were required under the fair value
framework. Management’s analysis provided
insufficient evidence to support the
introduction of these adjustments in line with
IFRSs.
Long-term viability and going concern
statement
The GAC has considered a wide range of
information relating to present and future
projections of profitability, cash flows, capital
requirements and capital resources. These
considerations include stressed scenarios that
reflect the implications of the Russia-Ukraine
war, disrupted supply chains globally and
slower Chinese economic activity, as well as
considering potential impacts from other top
and emerging risks, and the related impact on
profitability, capital and liquidity.
Tax-related judgements
HSBC has recognised deferred tax assets to
the extent that they are recoverable through
expected future taxable profits. Significant
judgement continues to be exercised in
assessing the probability and sufficiency of
future taxable profits, future reversals of
existing taxable temporary differences and
expected outcomes relating to uncertain tax
treatments.
Impact of acquisitions and disposals
In 2022, HSBC engaged in a number of
business acquisition and disposal activities,
notably in Canada, France, Singapore and India.
There are a number of accounting impacts that
need to be considered, including the timing of
recognition of assets held-for-sale, gains or
losses, and the measurement of assets and
liabilities on acquisition or disposal.
Conclusions and actions
The GAC received reports from management on the legal proceedings and regulatory
matters that highlight the accounting judgements for matters where these are required. The
matters requiring significant judgements were highlighted. The GAC has reviewed these
reports and agrees with the conclusions reached by management.
The GAC has considered the effect of changes in key assumptions on the HSBC UK
Bank plc section of the HSBC Bank (UK) Pensions Scheme, which is the principal plan
of HSBC Group. The GAC also considered the impact of changes in key assumptions
on other schemes.
The GAC considered the key valuation metrics and judgements involved in the
determination of the fair value of financial instruments. The GAC considered the
valuation control framework, valuation metrics, significant year-end judgements and
emerging valuation topics and agrees with the judgements applied by management.
In accordance with the UK and Hong Kong Corporate Governance Codes, the
Directors carried out a robust assessment of the principal risks of the Group and
parent company. The GAC considered the statement to be made by the Directors and
concluded that the Group and parent company will be able to continue in operation
and meet liabilities as they fall due, and that it is appropriate that the long-term
viability statement covers a period of three years.
The GAC considered the recoverability of deferred tax assets, in particular in the US,
France and the UK. The GAC also considered management’s judgements relating to
tax positions in respect of which the appropriate tax treatment is uncertain, open to
interpretation or has been challenged by the tax authority.
The GAC considered the impacts of the planned exits of the Canadian and French
retail businesses, management's judgements in relation to classification as held for
sale, and the timing of the accounting recognition of these transactions. The GAC
also considered the financial and accounting impacts of other acquisitions and
disposals.
HSBC Holdings plc Annual Report and Accounts 2022
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Corporate governance Report of the Directors | Corporate governance report | Board committees
Principal activities and significant issues considered during 2022 (continued)
Areas of focus Key issues
Transformation and sustainable control
environment
The GAC will oversee the impact on the risk
and control environment from the Group
transformation programme.
Group
transformation
Global Finance transformation
The Committee reviewed the proposals for the
Global Finance organisational design, the
migration to Cloud and the impact on financial
controls.
IFRS 17 ’Insurance Contracts’
The Committee will oversee the transition to
IFRS 17 and consider the wider strategic
implications of the change on the insurance
business.
Regulatory
change
Basel III Reform
The GAC considered the implementation of the
Basel III Reform and the impact on the capital
requirements and RWA assurance. This was
considered in the context of the strategy and
structure of the balance sheet.
Conclusions and actions
The Committee received regular updates on the Group transformation programme
and the broader change framework, to review the impact on the risk and control
environment, to oversee progress of the transformation programme and the
continued embedding of the broader change framework.
In these updates the Committee monitored the progress of the programme, focused
on the continued implementation of the change framework and the progress in the
management of the entire change portfolio. This oversight helped the Committee to
understand the progress being made in the management of the change portfolio,
through the implementation of the change framework. The committee noted the
progress on simplifying our change inventory, greater rigour on tracking progress
against committed business cases, and strengthening of the lessons learnt process.
Management’s updates were supplemented by further focus and assurance work
from Global Internal Audit where a dedicated team continuously monitored and
reviewed the Group transformation programme. This included carrying out targeted
audit reviews, in addition to audits of significant programmes.
The Committee has oversight for the adequacy of resources and expertise, as well as
succession planning for the Global Finance function. During 2022, the Committee
dedicated significant time to the review and progress of the multi-year Global Finance
transformation programme, particularly Finance on the Cloud, with the overall
objectives being to improve the control environment and customer outcomes and to
make use of technology to increase overall efficiency.
The Group Chief Financial Officer had private sessions with the Committee to share
his perspectives on the progress of the Global Finance transformation and where
additional focus was required.
During 2022 management provided updates to the Committee on preparations for the
implementation of IFRS 17, which is effective from 1 January 2023 with one year of
comparative restatements required. The Committee was updated on the production
of the transition balance sheet and considered the financial impacts (for which a
summary is provided within the Future Accounting Developments section of the
Basis of Preparation on page 335), as well as the generation of comparative income
statement estimated impacts (for which a high level summary based on estimated
1H22 results is provided on page 99). The Committee also received updates with
respect to progress on implementing the supporting operational infrastructure,
internal controls over financial reporting, key judgements considered including
transition approaches selected, as well as plans for disclosure of related non-GAAP
measures and key performance metrics.
The first publication of results on an IFRS 17 basis will be at the 1Q23 Earnings
Release, and the Committee noted that management intends to publish an IFRS 17
Transition statement together with that announcement.
The Committee received an update on the progress and impact of the Basel III
programme on the Group. Management discussed the uncertainty over the final
definition of the rules and the actions taken to ensure sufficient flexibility to make
changes and mitigate risks from legislation being finalised at a later date and also on a
staggered basis across each jurisdiction. The discussion highlighted the
dependencies of the Basel III programme with other Group transformation
programmes, in particular the dependency on adoption of the Finance on the Cloud
solution, risk model development and the impact on data delivery and storage.
The Committee noted the completion of the programme restructure, reviewed the
ongoing management of risks, issues and dependencies and challenged
management to prioritise deliverables across each jurisdiction in line with regulatory
timelines, in each case, to ensure that solutions delivered to the minimum required
standards. The Committee noted the overall improved status of the programme and
requested an update post the Office of the Superintendent of Financial Institutions
Canada implementation date of 1 April 2023.
Committee evaluation and effectiveness
The annual review of the effectiveness of the Board committees,
including the GAC, was conducted internally in 2022, led by the Group
Company Secretary and Chief Governance Officer. Overall, the review
concluded that the GAC continued to operate effectively. The Chair’s
management of meetings and leadership of the audit tender process,
in particular, were rated highly. The review also made certain
recommendations for continuous improvement. These included a
need for continued focus on the quality of reporting, oversight of
prioritisation of key programmes, and continued coordination between
the GAC and other Board committees on topics of mutual interest. It
was also suggested that the Committee should dedicate more time to
the oversight of capacity and succession planning in the Finance and
Internal Audit functions. The Committee considered the outcomes of
the evaluation and accepts the findings. The evaluation outcomes
were reported to the Board, and the Committee will track progress
against the recommendations during 2023.
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HSBC Holdings plc Annual Report and Accounts 2022
Focus of future activities
In 2023, the Committee will prioritise control remediation and
enhancements, particularly of controls supporting regulatory
reporting. This will include developing a deeper understanding of the
prioritisation and interdependencies in the delivery of key
transformation and regulatory programmes to strengthen the risk and
control environment. It will also monitor domestic and worldwide tax
policy developments and examine the potential impact on accounting
judgements. A key priority will be to further embed ESG and climate-
related disclosures to meet increasing expectations of stakeholders,
in particular the implementation of robust processes and controls to
support these disclosures. Along with other committees of the Board,
the Committee will continue to ensure root cause themes related to
understanding and accountability for data capture, data quality and the
implementation and embedding of data policies are addressed by
management.
Group Risk Committee
"The GRC closely monitored heightened geopolitical
and macroeconomic headwinds throughout the year
to anticipate potential impacts to the Group‘s
revenue, capital base and continuing ability to support
customers."
Dear Shareholder
I am pleased to present the Group Risk Committee (‘GRC’) report.
Geopolitical risks and the macroeconomic outlook deteriorated rapidly
at the start of the year due to the Russia-Ukraine war. The GRC
closely monitored heightened geopolitical and macroeconomic
headwinds throughout the year to anticipate potential impacts to the
Group’s revenue, capital base and continuing ability to support its
customers. Measures included monitoring the Group’s preparedness
for an expected recession in key markets from rising inflation and
interest rates. The Committee embraced management’s development
of forward-looking sensitivity analysis to assess the potential impacts
on HSBC’s prudential position, franchise resilience and ability to
support customers.
The GRC worked closely with the Group Chief Risk and Compliance
Officer to strengthen the Group’s risk management framework, and
to promote the development of more dynamic and granular risk
appetite statements to manage HSBC’s risk profile.
Throughout the year, the GRC reviewed and challenged management
on the Group’s regulatory submissions, including the Bank of
England’s requirements for the Resolvability Assessment Framework,
internal capital adequacy assessment process (‘ICAAP’) and internal
liquidity adequacy assessment process (‘ILAAP’). The GRC had
primary non-executive responsibility for reviewing the outcomes of
regulatory stress tests, including the Bank of England’s climate
biennial exploratory scenario, and the 2022 annual cyclical scenario
exercise.
The GRC carefully considered the Group’s regulatory remediation and
change programmes, and helped direct management to better
prioritise and understand where there are interdependencies. In
particular, the GRC reviewed and challenged the Group’s data
management plans and interest rate risk in the banking book strategy.
The GRC also provided oversight and support to risk transformation
activities to develop stronger risk management capabilities and
outcomes across the Group.
The GRC continued to review its committee composition, skills and
experience. In June, we welcomed Geraldine Buckingham and James
Forese as new members, and we expressed sincere gratitude to José
Antonio Meade Kuribreña and Eileen Murray, who stepped down to
assume new Board governance responsibilities.
Jackson Tai
Chair
Group Risk Committee
21 February 2023
Membership
Jackson Tai (Chair)
Geraldine Buckingham2
Dame Carolyn Fairbairn3
James Forese4
Steven Guggenheimer5
José Antonio Meade Kuribreña6
Eileen Murray7
David Nish8
Member since
Sep 2016
June 2022
Sep 2021
June 2022
May 2020
May 2019
Jul 2020
Feb 2020
Meeting attendance
in 20221
18/18
11/11
17/18
12/13
16/18
10/10
7/9
16/18
1 These included seven scheduled meetings, five ad hoc meetings, four
joint meetings with the Group Audit Committee and the Technology
Governance Working Group, and two joint meetings with the Group
Remuneration Committee.
2 Geraldine Buckingham joined the GRC on 1 June 2022.
3 Dame Carolyn Fairbairn was unable to attend one meeting due to a
prior commitment.
4 James Forese joined the GRC on 1 June 2022. He was unable to
attend one meeting due to a prior commitment.
5 Steven Guggenheimer was unable to attend two meetings due to
personal circumstances.
6 José Antonio Meade Kuribreña stepped down from the GRC on 1 June
2022.
7 Eileen Murray stepped down from the GRC on 1 June 2022. She was
unable to attend two meetings due to personal circumstances.
8 David Nish was unable to attend two meetings due to a prior
commitment.
Key responsibilities
The GRC has overall non-executive responsibility for the oversight of
risk-related matters and the risks impacting the Group. The GRC’s key
responsibilities include:
• overseeing and advising the Board on all risk-related matters,
including financial and non-financial risks;
• advising the Board on risk appetite-related matters, and key
regulatory submissions;
• reviewing the effectiveness of the Group’s risk management
framework and internal controls systems (other than internal
financial controls overseen by the GAC);
• reviewing and challenging the Group’s stress testing exercises;
and
• overseeing the Group’s approach to conduct, fairness and
preventing financial crime.
Committee governance
The Group Chief Risk and Compliance Officer, Group Chief Financial
Officer, Group Chief Operating Officer, Group Company Secretary and
Chief Governance Officer, Group Chief Human Resources Officer,
Group Chief Legal Officer, Group Head of Internal Audit, Group Head
of Finance and Group Head of Risk Strategy and Macroeconomic Risk
are standing attendees at GRC meetings. The Chair and members of
the GRC also hold private meetings with the Group Chief Risk and
Compliance Officer, the Group Head of Internal Audit and external
auditor, PwC, following scheduled GRC meetings.
The participation of our senior business leaders, including the Group
Chief Executive who attended six scheduled GRC meetings in 2022,
reaffirmed the ownership and accountability of risks in the first line of
defence.
The Chair meets regularly with the Group Chief Risk and Compliance
Officer to discuss priorities and track progress on key actions. The
Chair also has regular meetings with members of senior management
to discuss specific risk matters that arise outside formal meetings.
The Chair also meets regularly with the GRC Secretary to ensure the
GRC addresses its governance responsibilities. A summary of
coverage is set out in the ’Matters considered during 2022’ table on
page 272.
HSBC Holdings plc Annual Report and Accounts 2022
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Corporate governance Report of the Directors | Corporate governance report | Board committees
Matters considered during 2022
Jan
Feb
Mar
Apr
May
Jun
Jul
Sep
Oct
Dec
Holistic enterprise risk monitoring including
Group risk profile1
Risk framework and/or policies
Treasury risk
Wholesale/retail credit risk
Financial reporting risk
Resilience risk (including IT and operational risk)
Financial crime risk
People and conduct risk
Regulatory compliance risk
Legal risk
Model risk
ESG risk
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1 The GRC receives updates on all risk types through the Group risk profile, which is presented to the majority of meetings. The Committee also met
with the Group Chief Risk and Compliance Officer and Risk and Compliance Executive Committee members in November 2022 to review the GRC
agenda, particularly matters relating to risk transformation, financial crime and conduct.
How the Committee discharged its
responsibilities
Activities outside formal meetings
The GRC held a number of meetings outside its regular schedule to
facilitate deeper and more effective oversight of the risks impacting
the Group. In particular, Directors’ education meetings and GRC
Chair’s preview meetings strengthened the understanding of more
technical topics and promoted constructive challenge. Areas covered
included risk transformation, interest rate risk in the banking book,
stress testing, ICAAP and ILAAP preparations, as well as recovery and
resolution planning. Further details on these sessions are included in
the ’Principal activities and significant issues considered during 2022’
table starting on page 273.
Connectivity with principal subsidiary risk committees
During 2022, the GRC continued to actively engage with principal
subsidiary risk committees through the scheduled participation of
principal subsidiary risk committee chairs at GRC meetings, and
through a connectivity meeting with the principal subsidiary risk
committee chairs. This participation and connectivity promoted the
sharing of information and best practices between the GRC and
principal subsidiary risk committees.
The GRC also received reports on the key risks facing principal
subsidiaries at its regular meetings and continued to review escalated
reports and certifications from the principal subsidiary risk
committees. The certifications confirmed that the principal subsidiary
risk committees had challenged management on the quality of the
information provided, reviewed the actions proposed by management
to address any emerging issues and that risk management and
internal control systems had been operating effectively.
These interactions furthered the GRC’s understanding of the risk
profile of the principal subsidiaries, leading to more comprehensive
review and challenge by the GRC.
Engagement with the Risk and Compliance Executive
Committee
During 2022, the GRC met with the Risk and Compliance Executive
Committee to promote information sharing and encourage active
engagement with executive management.
During the engagement meeting, the GRC developed a better
understanding of the efforts to strengthen our capabilities across the
Group Risk and Compliance function. There were also in-depth
discussions on the efforts to embed the right risk culture into our
global operations to support our transformation activities. The
engagement also promoted a healthy working relationship between
GRC members and executive management.
Collaborative oversight by the GRC, GAC and Technology
Governance Working Group
The GRC worked closely with the GAC and the Technology
Governance Working Group to address any areas of significant
overlap, and to oversee risk more comprehensively through inter-
committee communications and joint meetings.
The GRC, GAC and the Technology Governance Working Group
convened on four occasions to consider the Group's data strategy and
ambitions, the Finance on the Cloud transformation programme, and
internal control issues across key components of Digital Business
Services.
Further details on each of these sessions can be found under the
’Collaborative oversight by the GAC, GRC and Technology
Governance Working Group’ section of the GAC report on page 266.
The committees worked closely to ensure appropriate alignment in
the review, discussion, challenge and conclusions on topics including
risk and control issues relating to Digital Business Services, and the
transition of core capabilities to the Cloud. This ensured that the
committees benefited from each other’s expertise and challenge. The
GRC Chair also included the GAC Chair for pre-meetings on technical
matters such as interest rate risk in the banking book and stress
testing.
Coordination between the GRC, GAC and the Technology Governance
Working Group is supported by cross-membership. The GRC and GAC
Chairs are members of both committees in order to strengthen
connectivity and the flow of information between the committees.
The GRC Chair is also a member of the Technology Governance
Working Group, and each of the co-Chairs of the Technology
Governance Working Group are members of the GRC and GAC,
respectively.
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HSBC Holdings plc Annual Report and Accounts 2022
Principal activities and significant issues considered during 2022
Risk areas
Holistic
enterprise risk
monitoring,
including
Group risk
profile
Risk
framework/
policies
Key issues
Geopolitical and macroeconomic risks continue
to present significant challenges to revenue
growth, operational resilience, and our
commitment to serve customers and local
markets.
The Group risk appetite statement defines the
Group’s risk appetite and tolerance thresholds
and forms the basis of the first and second lines
of defence’s management of risks, the Group’s
capacity and capabilities to support customers,
and the achievement of strategic goals.
The Group takes active steps to safeguard its
capital and liquidity positions.
It also performs internal and regulatory stress
tests to measure its resilience and performance
against stress, and to consider strategic
management actions that could be applied
against anticipated stress events and headwinds.
The Group is also required to show how its
resolution strategy could be carried out in an
orderly way, and identify any risks to successful
resolution.
Treasury risk,
including
stress testing
and recovery
and resolution
HSBC faces risk from the possibility of losses
resulting from the failure of a counterparty to
meet its agreed obligations to pay the Group.
Wholesale/
retail credit risk
Conclusions and actions
The GRC closely monitored global geopolitical and macroeconomic risks that could
impact the Group’s strategy, business performance or operations. These risks
were exacerbated by the Russia-Ukraine conflict and by related regulatory and
reputational risks impacting our operations globally.
The GRC continued to track top and emerging risks, our risk appetite and other
management information metrics, as well as other early warning measures to
understand sensitivities and the likelihood of the potential impact to our
operations, customers and stakeholders. The GRC encouraged management to
examine and maintain a timely and up-to-date book of strategic management
actions.
The GRC maintained oversight of the Group’s risk management framework and
changes to the Group’s risk appetite statements, which provided the basis for the
Committee’s interactive review of financial and non-financial risk management
information at each scheduled GRC meeting. The GRC continued to promote the
development of more dynamic and granular risk appetite statements that were
forward looking and risk-responsive. The GRC provided oversight for the linkage
between risk appetite statements with the Group’s corporate strategy, stress
testing, financial resource plan, as well as the Group’s move towards stronger,
sustainably higher returns for shareholders. The GRC recommended changes to
the Group’s risk appetite statement, including in the areas of interest rate risk in
the banking book, insurance risk, climate risk, resilience risk, financial crime risk,
regulatory compliance and liquidity risk.
The GRC reviewed the Group’s ongoing treasury, capital and liquidity risk
management activities, including early warning indicators, scenario stress testing,
interest rate risk in the banking book (’IRRBB’) strategy and remediation activity,
capital and liquidity reporting, and capital and liquidity adequacy.
The GRC conducted its annual review, challenge and recommendation of the
Group’s ICAAP and ILAAP to the Board for approval. GRC members previewed the
ICAAP and ILAAP submissions in depth, with input from principal subsidiary risk
committee chairs as appropriate. The GRC evaluated the Group’s IRRBB strategy
and progress on the multi-year liquidity improvement programme. The GRC will
continue to monitor the Group’s IRRBB strategy closely through regular updates in
2023. In relation to stress testing exercises, the GRC reviewed the Bank of
England’s 2022 annual cyclical scenarios, and following a detailed review of
principal subsidiary and global businesses inputs, approved the results of the 2022
annual cyclical scenario exercise in December 2022. The GRC also reviewed the
implications of the results of the severely adverse scenario stress test from the
Federal Reserve’s Comprehensive Capital Analysis and Review in relation to HSBC
North America Holdings, and considered actions being progressed by management
in response.
The GRC continued its oversight of the Group’s progress in developing its
capabilities against the Bank of England’s requirements for recovery and
resolvability. In 2022, the GRC reviewed and challenged the Group recovery plan,
including with an assessment of the financial resources and recovery capacity
needed to stabilise the Group. The GRC considered views of all lines of defence to
determine credibility and ability to execute the plan. In advance of the review by
the GRC, the GRC and GAC Chairs met with management to consider the principal
subsidiary risk committee components.
The GRC was heavily involved in the governance of the resolvability assessment
framework (‘RAF’). This included oversight of the addendum to the Group’s RAF
self-assessment that set out HSBC’s progress since submission of the original
self-assessment in October 2021. The GRC also reviewed the RAF public
disclosure prior to its submission, and considered remedial actions to address the
feedback provided by the Bank of England.
In addition, the GRC assessed the adequacy of the recovery and resolution
planning programme that is expected to deliver improvements, in line with
management expectation and the PRA’s feedback.
The GRC reviewed updates on the strategy and approach to managing credit risk
and credit risk capabilities. The GRC received quarterly updates on the Group’s
expected credit losses and provisions, loan impairment charges and the credit risk
arising from the wholesale portfolio and mortgage books. The GRC also reviewed
the potential impact of a likely recession in our key markets due to rising inflation
and interest rates to assess management’s readiness and approach to drive
stronger credit risk management practices. The GRC continued its emphasis on
building even stronger credit capabilities for specialty sectors, the development of
stronger portfolio management capabilities and further improving the Group’s
credit risk culture.
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Principal activities and significant issues considered during 2022 (continued)
Risk areas
Financial
reporting risk
Key issues
HSBC is exposed to the risk where controls
supporting the reporting of its financial
statements are not effective, resulting in material
error or misstatement.
Resilience risk
(technology
and operational
risk)
Resilience risk is where we may be unable to
provide our customers with critical business
services due to significant disruption.
Technology risk is where there may be
unmanaged disruption to any IT system within
HSBC, as a result of malicious acts, accidental
actions or poor IT practice or IT system failure.
The operational resilience programme defines
the Group’s policies and practices to strengthen
its ability and readiness to serve customers in the
event of unforeseen disruptions in key markets.
Conclusions and actions
The GRC receives regular reports on entity level control assessments to enable the
oversight of the effectiveness of such controls in support of the Group's financial
reporting. The GRC also receives notable audit reports that provide an assessment
of control effectiveness, where applicable. While the GAC assumes primary
responsibility for the oversight of financial reporting capabilities, the GAC
collaborated with the GRC and the Technology Governance Working Group to
assess the progress in developing these capabilities. Further details on the joint
meeting are included in the ’Collaborative oversight by the GAC, GRC and
Technology Governance Working Group’ section on page 272.
The GRC continued its oversight of the Group’s implementation of operational
resilience capabilities in line with PRA and FCA policies. The GRC reviewed and
challenged the operational resilience self-assessment against regulatory
expectations, and worked with management to ensure that ownership and the
delivery of resilience outcomes were embedded within the business and with
function leaders. The GRC advocated for the early adoption of operational
resilience requirements across key markets and businesses. The GRC will oversee
the progress in extending the programme of operational resilience globally
throughout 2023.
The GRC regularly reviewed reports on the Group’s technology risk profile, as well
as reports on cybersecurity risks. The GRC also maintained a strong focus on
understanding the Group’s data risk landscape, its data strategy and data
management programme.
Financial crime
risk
The Group is committed to closely monitoring
and managing the risk that HSBC’s products and
services will be exploited for criminal activity,
including fraud, bribery and corruption, tax
evasion, sanctions and export control violations,
money laundering, terrorist financing and
proliferation financing.
The GRC continued to review the Group’s approach to managing its financial crime
risk across geographies and businesses. This included reviewing the Group’s
progress in enhancing its transaction monitoring framework, as well as monitoring
the fraud landscape and the strategies for managing such risk.
In light of the Russia-Ukraine war, the GRC also maintained oversight of the ever-
changing and increasingly complex international sanctions landscape in which the
Group and its customers operate, as well as the Group’s approach to managing its
compliance with multiple and differing sanctions regimes globally.
People and
conduct risk
Regulatory
compliance
risk
Legal risk
Model risk
The Group promotes a culture that is effective in
managing risk and leads to fair conduct
outcomes. It seeks to actively manage the risk of
not having the right people with the right skills
doing the right thing, including risks associated
with employment practices and relations.
The GRC monitored people risk and employee conduct, with support from the
Group Chief Human Resources Officer and Group Chief Risk and Compliance
Officer. The GRC considered people risk issues with a focus on capacity,
capability, culture and conduct. It also considered remuneration risks, and
strategies to retain talent and acquire new capabilities and skills in key areas.
The GRC also placed strong emphasis on policies and practices relating to conduct
and fairness to customers, especially on vulnerable customers given heightened
macroeconomic pressures and stress on customers across markets.
The GRC and Group Remuneration Committee met jointly in September and
December, and reviewed the Group’s risk and reward alignment framework to
promote sound and effective risk management in meeting PRA and FCA
remuneration rules and expectations.
The Group operates in multiple jurisdictions, and
is exposed to risks associated with inappropriate
market conduct or breaching related financial
services regulatory standards or expectations.
The GRC receives feedback from regulators, and monitors the progress of any
regulatory remediation activities, with the support from the Group Chief Risk and
Compliance Officer as well as principal subsidiary risk committee chairs. During
the year, the GRC had oversight over reports providing feedback from regulators,
including a summary of regulatory deliverables to ensure HSBC remains in line
with regulatory standards and expectations.
HSBC is exposed to the risk of financial loss,
legal or regulatory action resulting from
contractual risk, dispute management risk,
breach of competition law or intellectual property
risk.
HSBC faces risk from the inappropriate or
incorrect business decisions arising from the use
of models that have been inadequately designed,
implemented or used, or from models that do not
perform in line with expectations and predictions.
The GRC oversees and receives regular updates on key legal developments and
material legal issues from the Group Chief Legal Officer. The updates also cover
material litigation and regulatory enforcement matters and an overview of the legal
risk profile of HSBC.
The GRC continued to oversee the Group’s progress in managing model risk
through the Group Chief Risk and Compliance Officer’s Group risk profile report.
The GRC oversaw the progress in achieving our model risk vision and the
strengthening of our model risk management capabilities. In particular, the GRC
reviewed model risk deliverables against external review findings, improvements
made to enhance first line of defence engagement in the model lifecycle, progress
made to transform the Model Risk Management function and the implementation
of new global model risk policy and standards.
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Principal activities and significant issues considered during 2022 (continued)
Risk areas
ESG risk
Key issues
Successful delivery of our climate ambition will
be determined by our ability to measure and
manage all components of environmental, social
and governance (’ESG’) risk, including climate
risk.
Conclusions and actions
The GRC remained focused on ESG risk, including climate risk, and has reviewed
quarterly reports on climate risk management, while maintaining oversight of
delivery plans to ensure that the Group develops robust climate risk management
capabilities. The GRC also has oversight over ESG-related initiatives and reviews
these to assess the risk profile.
The GRC approved the Group’s climate biennial exploratory scenario stress test
submission to the PRA in March 2022. In preparation, the GRC reviewed the
scenario and considered planned engagement with clients, strategic management
actions; the challenges in relation to data, modelling and infrastructure support;
and the impact of climate change on our physical risks including through our
residential and corporate real estate mortgage books.
Committee evaluation
Focus of future activities
During 2022, the GRC implemented the recommendations of the
external committee evaluation conducted by Lintstock in consultation
with the Group Company Secretary and Chief Compliance Officer in
December 2021. This included strengthening the focus of meeting
agendas, and continuing the GRC’s engagement with the Risk and
Compliance Executive Committee and principal subsidiary risk
committee chairs.
Continuing the commitment to regular evaluation, the Group
Company Secretary and Chief Governance Officer performed an
annual review of the effectiveness of the GRC in December 2022.
The evaluation concluded that the GRC continued to operate
effectively and in line with regulatory requirements, and identified
enhancements. The outcomes of the evaluation have been reported
to the Board, and the GRC will track the progress in implementing
recommendations during 2023.
The GRC’s focus for 2023 will include the following activities. It will:
• oversee risk transformation activities to develop even stronger risk
management capabilities;
• oversee the continued enhancement of the Group's risk appetite
and risk management framework, especially in light of continued
geopolitical and macroeconomic headwinds;
• continue to oversee treasury risk to strengthen our capital and
liquidity management capabilities, including proactive management
of interest rate risk in the banking book;
• continue to review and challenge the consistency of our risk
appetite statements, our financial resource plan, and the outcomes
from our stress testing exercise;
• monitor our ESG progress, including the delivery against the
climate commitments and the development of appropriate data
and model management tools and capabilities;
• continue the oversight of recovery and resolution planning
activities to assess our resolvability capabilities if such situation
arises;
• continue the oversight of the delivery of technology-related
programmes including the adoption of Cloud platforms, and
enhancement of the Group’s IT systems/platform;
• continue to oversee financial crime risk and the strengthening of
the financial crime control framework, including proactive
management by the business; and
• assess our strategic opportunities and risks including exposures to
digital currencies or assets and use of timely application of
technology such as machine learning or artificial intelligence.
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Corporate governance
Report of the Directors | Corporate governance report | Directors’ remuneration report
Directors’ remuneration report
Contents
Membership
276
279
282
298
Committee Chair’s statement
Executive remuneration at a glance
Annual report on Directors’ remuneration
Additional regulatory remuneration disclosures
All disclosures in the Directors’ remuneration report are unaudited
unless otherwise stated. Disclosures marked as audited should be
considered audited in the context of financial statements taken as a
whole.
"This year we have refreshed our reward strategy to
inspire a dynamic culture as we focus on energising
for growth and delivering sustainable value to our
shareholders, customers and colleagues."
Dear Shareholder
I am pleased to present our 2022 Directors’ remuneration report on
behalf of the members of the Group Remuneration Committee, and
my first as Chair of the Committee. I would like to thank our previous
Chair, Pauline van der Meer Mohr, for her excellent stewardship of
the Committee.
I also thank you for your support of our remuneration resolutions at
the 2022 Annual General Meeting (‘AGM’). Our current policy and its
implementation received 96% of votes in favour.
In addition to our usual agenda, the Committee has been focused on
aligning performance measures and remuneration more closely with
our strategy. We have been engaging with our major shareholders
and other investor groups, who have shared valuable feedback.
We have refreshed our wider reward strategy and proposition for the
workforce in response to the new or elevated challenges we are
facing as we move beyond the Covid-19 pandemic, including the cost
of living pressures many of our colleagues are experiencing. The
commitments we make to colleagues are critical to support us in
energising for growth and delivering sustainable performance.
Performance in 2022
Financial performance
Financial performance in 2022 was supported by a rise in global
interest rates, which materially improved our net interest income, and
we maintained our strong focus on cost discipline, despite inflationary
pressures and continued investment in technology. While our revenue
outlook remains positive, there are continued risks around inflation
and increasing macroeconomic uncertainty in many of the markets in
which we operate.
Adjusted profit before tax increased by $3.4bn to $24.0bn, as a rise in
adjusted revenue of 18% to $55.3bn was partly offset by an adjusted
expected credit losses charge of $3.6bn, compared with a net release
in 2021 of $0.8bn, and growth in adjusted operating expenses of 1%.
Our return on average tangible equity (‘RoTE‘) was 9.9%, an increase
of 1.6% on 2021, and we have now exceeded our ambition of $120bn
of risk-weighted asset (‘RWA‘) gross saves since the start of our
programme in 2020.
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Member since
Meeting
attendance in 2022
Dame Carolyn Fairbairn (Chair)
Geraldine Buckingham
Rachel Duan
James Forese
José Antonio Meade Kuribreña
Pauline van der Meer Mohr1
Sept 2021
May 2022
Sept 2021
May 2020
May 2021
Jan 2016
6/6
4/4
6/6
6/6
6/6
2/2
1 Pauline van der Meer Mohr stepped down from the Committee and
Board at the conclusion of the AGM on 29 April 2022.
In 2022, we approved dividends of $0.32 per share, equivalent to a
payout ratio of 44% of reported earnings per share. We are
establishing a dividend payout ratio of 50% of reported earnings per
share for 2023 and 2024, excluding material significant items, and we
intend to revert to paying quarterly dividends from the first quarter of
2023.
Non-financial performance
In our employee Snapshot survey, our Employee engagement and
Inclusion indices both increased by 1% year on year to 73% and 76%,
respectively, which are both above the financial services benchmarks.
The percentage of Black heritage colleagues in senior leadership
globally increased by 0.3% to 2.5%, meeting our stretch goal. The
percentage of women in senior leadership also increased by 1.6% to
33.3% since 2021, and we are on track to meet our commitment of
35% by 2025.
For customer satisfaction, net promoter score (’NPS’) performance
has been positive relative to our competitors in some areas of our
business, with work to do in others. In WPB, our NPS increased in the
UK and Hong Kong, and we were ranked in first place in Hong Kong.
In CMB, our NPS increased in Hong Kong but declined in the UK, and
we were ranked in second place in Hong Kong. In GBM, our global
NPS improved and our global rank remained in fifth place. In WPB and
CMB digital businesses in Hong Kong, we were ranked in first and
third places, respectively. In GBM globally, our digital trade finance
platforms maintained first place for the quality of platforms. Our
PayMe payments app was also ranked in second place for digital
wallets. In WPB, our NPS increased in mainland China and Singapore,
remained unchanged in Mexico, and in India saw a small decline. In
CMB, our NPS increased in mainland China, Singapore and Mexico,
and our rank positions in those markets either improved compared
with 2021 or were in the top three against competitors.
Workforce reward
Group variable pay pool
The Committee determined an overall variable pay pool of $3,359m
(2021: $3,495m) following a review of our performance against
financial and non-financial metrics set out in the Group risk
framework. The Committee considered our strong 2022 financial
performance, with a 17% increase in adjusted profit before tax, a
RoTE of 9.9% and adjusted cost growth of 1% year on year. The
Committee also considered the external environment, the challenging
economic outlook and projected outcomes across the market to
ensure we remain competitive to attract and retain talent.
The distribution of the pool was differentiated by business
performance. Overall year-on-year variable pay outcomes were
strongest in CMB, followed by WPB but down in GBM to reflect
relative performance. There was robust differentiation for individual
performance so that our highest performers received meaningful
variable pay increases on the previous year. We have protected
variable pay for junior colleagues, which was up on average,
recognising the inflationary and cost of living challenges experienced
across most of our markets.
In determining 2023 fixed pay increases, we considered the impact of
inflation in each country where we operate. Increases were targeted
towards more junior and middle management colleagues as fixed pay
is a larger proportion of their overall pay. Across the Group, there was
an overall increase of 5.5% in fixed pay, compared with 3.6% for
2022. The level of increases varied by country, depending on the
economic situation and individual roles. There were no fixed pay
increases for most of our senior leaders, including our executive
Directors.
Supporting colleagues in 2022
We monitored the global economic situation carefully and took action
to support our colleagues according to the market, given local inflation
and cost of living pressures. We continued to support our colleagues
in those markets still significantly impacted by the pandemic. In
mainland China and Hong Kong, we provided care packages and
increased well-being sessions. In mainland China, we also delivered
food essentials and provided inconvenience allowances. In Argentina
and Türkiye, we made regular adjustments to fixed pay given the
continuing inflationary pressures. In Sri Lanka, we made one-off
payments and fixed pay increases during the year to address high
inflation. In the UK, we provided almost 17,000 junior colleagues with
a one-off payment of £1,500 to help with energy cost pressures.
We continued to focus on well-being, benefits, financial guidance,
employee assistance programmes and access to hardship funds, as
well as pay.
£2,164,000 for Noel Quinn (2021: £1,590,000) and £1,091,000 for
Ewen Stevenson (2021: £978,000).
The year-on-year increase in annual incentive for the Group Chief
Executive is based on a formulaic assessment of performance against
financial and non-financial targets set by the Board at the start of last
year, taking into account the Group’s 2022 financial plan and strategic
priorities and commitments.
While the variable pay pool is determined by the Group’s overall
performance, it is not set in a formulaic manner. Our approach is to
smooth the variable pay pool outcomes over time to protect overall
pay for colleagues from material volatility in performance caused by
market conditions. In years of lower Group performance, we protect
colleagues from significant downside in pay outcomes, including in
2020 when adjusted profit before tax fell 45% year on year, but the
variable pay pool decreased just 20%. In years of stronger
performance, such as in 2022, a similar approach is taken on the
upside.
The Committee carefully considered the executive Directors’ pay
outcomes in the context of pay decisions made for the wider
workforce and determined that these are an appropriate reflection of
Group, business and individual performance delivered in 2022.
Key remuneration decisions for Directors
Long-term incentive (‘LTI‘) for executive Directors
Executive Director changes
Georges Elhedery was appointed Group Chief Financial Officer from
1 January 2023. Ewen Stevenson is leaving the Group on 30 April
2023 and will receive a payment in lieu of notice until 25 October
2023. All remuneration decisions in respect of this change were made
in accordance with our shareholder-approved policy, and are detailed
in the annual report on remuneration.
Georges Elhedery’s remuneration was set on appointment with a
base salary of £780,000 per annum, a fixed pay allowance of
£1,085,000 per annum, a pension allowance of 10% of his base salary
(in line with most UK employees) and variable remuneration and
benefits in accordance with our policy.
In recognition of the services that Ewen Stevenson provided to HSBC
during his tenure and the circumstances of his departure, he has been
treated as a good leaver for the purpose of unvested incentive
awards. He remained eligible for a 2022 annual incentive but will not
receive a long-term incentive award for the 2023 to 2025 performance
period.
Executive Directors‘ annual incentive
The Group's financial performance was reflected in the performance
against the measures in the executive Directors’ annual scorecards. In
particular, the Committee recognised: adjusted profit before tax was
$24.0bn, which represented an increase of 17% compared with 2021;
strong cost controls were demonstrated, despite inflationary
pressures and continued investment in technology, with adjusted
costs at $30.5bn; and RoTE was 9.9%, an improvement on the 8.3%
achieved in 2021.
Overall, combined with non-financial measures, this level of
performance resulted in a formulaic scorecard outcome of 79.32% of
the maximum opportunity for Noel Quinn (2021: 57.30%) and 76.65%
for Ewen Stevenson (2021: 60.43%). The increase relative to 2021
reflected performance against targets and is largely a result of
stronger financial performance in 2022.
The annual incentive scorecard is also subject to a risk and
compliance modifier, which provides the Committee with the
discretion to adjust down the overall scorecard outcome. Taking into
account the Group’s performance against risk metrics, inputs from
the Group Risk Committee and the overall accountability of the
executive Directors with regards to specific matters around capital
management in the year, the Committee used its judgement and
applied a downward adjustment of 5% and 15% to Noel Quinn’s and
Ewen Stevenson’s annual incentive outcomes, respectively. The
difference in adjustments reflected the degree of accountability and
relative proximity for capital management. This resulted in an adjusted
incentive outcome of 75.35% of maximum opportunity for Noel Quinn
and 65.15% for Ewen Stevenson. This represented amounts of
For LTI awards for the 2023 to 2025 performance period, we will
continue to use measures and targets relating to: RoTE; capital
reallocation to Asia; relative total shareholder return (‘TSR’); and
environmental impact.
Following feedback from some of our shareholders, the Committee
reviewed the TSR performance peer group, with the objective of
including more Asian peers to better reflect the balance of markets
and businesses of the Group. The new peer group will be used for the
relative TSR measure for LTI awards with a 2023 to 2025
performance period, and now includes Bank of China (Hong Kong),
China Merchants Bank and OCBC Bank. No change will be made to
the performance peer group for any LTI awards granted prior to the
2023 to 2025 LTI award.
For the 2023 to 2025 performance period: Noel Quinn will receive an
LTI award of £4,275,000 (320% of salary) in respect of his
performance for 2022; Georges Elhedery will receive an LTI award of
£1,248,000 (160% of salary) in respect of his performance for 2022
when he was not an executive Director; and Ewen Stevenson will not
receive an LTI award.
Ewen Stevenson participated in the LTI for the 2020 to 2022
performance period that will vest in March 2023. The TSR and RoTE
performance targets were not met and therefore these elements of
the award lapsed in full. The customers measure was determined to
be 57% met and therefore 19% of the overall award will vest on a
pro-rata basis over the next five years.
Executive Directors‘ fixed pay for 2023
The Committee decided that there will be no increase to the base
salary or fixed pay allowances for Noel Quinn for 2023. The fixed pay
for Georges Elhedery for 2023 was set on appointment.
Ordinarily, an increase would have been considered for Noel Quinn to
ensure that his total remuneration opportunity is competitive in the
market. However, given the broader economic context and
inflationary and cost of living pressures for colleagues across many of
our markets, we targeted increases to our more junior and lower paid
colleagues this year.
Looking ahead
We note the UK government’s consultation around the variable to
fixed pay ratio, and anticipate that this will eventually allow us to place
more emphasis on variable pay in the overall package. We will keep
our approach under review and consult with shareholders on any
potential changes to our overall remuneration framework for
executive Directors. In the meantime, our approach for 2023 will be
consistent with the current approved policy and regulatory
requirements.
We are committed to opening up a world of opportunity for all our
people in 2023 and beyond. Our refreshed reward proposition
articulates how we are building a dynamic culture where the best
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want to work, where we reward colleagues responsibly and reward
their successes. We will continue to do the right thing for our
colleagues, rewarding them fairly and supporting them to grow.
We continue to protect value for our shareholders and customers, and
manage our costs. We will also continue to engage with all our
stakeholders on executive pay matters.
We believe that our decisions on executive pay for 2022 have struck
the right balance for all stakeholders and are also fair relative to
performance. As Chair of the Committee, I hope you will support the
Remuneration decisions in context
2022 Directors’ remuneration report, which will be subject to an
advisory vote at our 2023 AGM.
Dame Carolyn Fairbairn
Chair
Group Remuneration Committee
21 February 2023
We have given serious consideration to how we manage competing variables when deciding pay outcomes this year. We feel the decisions
that have been made strike a balance between prioritising fixed pay increases for those who need it the most, and variable pay increases for
our most exceptional performers. We will continue to listen carefully to all stakeholders – colleagues, customers and shareholders, as well as
our regulators – in making these important judgements.
What are we doing to support colleagues?
A key aspect of the Committee’s activities this year has been ensuring
that we support our colleagues through the challenges that many are
facing. In recognition of the broader environment, we are spending
more on fixed pay than we have in recent years, and we have
increased the total funding by 5.5% globally. We want to make sure
that colleagues can avoid facing financial hardship, and we support the
senior leadership’s decision to focus fixed pay increases on our more
junior and middle management employees, where this is a larger
proportion of their overall pay.
We have taken a number of targeted actions to support our colleagues
during 2022, taking the local context into consideration, as detailed in
the Chair’s letter. This includes support for those particularly impacted
by inflationary pressures in Argentina, Türkiye and Sri Lanka. It also
includes support in mainland China and Hong Kong where colleagues
are still significantly impacted by the pandemic. In the UK, we
supported colleagues facing energy cost pressures.
We have continued to provide a wide range of resources to all our
colleagues globally, including wider support on financial guidance,
employee assistance programmes and access to hardship funds.
How was fixed and variable pay determined for executive
Directors?
The Committee makes decisions on executive Director pay based on a
policy that is agreed with our shareholders. The performance against
targets in the executive Directors’ annual scorecards reflects their
individual contribution to the Group's strong financial performance in
2022.
We set clear targets at the start of the year, and then the Committee
assesses if they have been met or not. The annual incentive scorecard
is also subject to a risk and compliance modifier.
Overall, this has resulted in a higher annual incentive outcome for our
executive Directors for 2022. Details of these outcomes are set out in
our annual report on remuneration below.
There have been no fixed pay increases for our executive Directors.
How was fixed and variable pay funding determined for all
employees?
What are the key areas of focus for the Committee over the
coming year?
The Group has increased fixed pay funding by 5.5% for 2023,
compared with 3.6% for 2022.
We have allocated fixed pay by market, with outcomes differentiated
based on the economic circumstances, and particularly wage inflation,
in each market. We have taken into account the impact of the current
economic environment and targeted fixed pay increases towards
more junior and middle management colleagues where fixed pay is a
larger part of their total compensation and who may be most impacted
by inflation and cost of living pressures.
There have been no fixed pay increases for most of our senior leaders
for 2023, including our executive Directors.
The Group variable pay pool is determined by reviewing Group
performance against key financial and non-financial metrics. Although
we have improved our financial performance this year, we have kept
the pool broadly flat when compared with 2021. Our approach is to
smooth the variable pay pool outcomes over time to protect overall
pay for colleagues from material volatility in performance caused by
market conditions. Within the overall variable pay pool, there has been
significant differentiation to reward our best performing businesses
and recognise excellent individual performance.
Outcomes for colleagues vary significantly depending on their role,
business area and performance.
The Committee notes the UK government’s consultation around the
bonus cap, and we anticipate that this will eventually lead to a
remuneration structure with a greater focus on variable pay for
performance. We intend to review the remuneration arrangements for
our executive Directors in due course in light of the UK government’s
proposals, and will consult with shareholders on any potential changes
to our overall remuneration framework.
The Committee continues to keep the performance metrics used for
our executive scorecards under review to ensure that they continue to
support the successful execution of our strategy, while also taking
into account views of our major shareholders, and investor and
regulatory guidance in this area. As the Group continues to progress
on our environmental, social and governance (’ESG’) journey, the
Committee has discussed how we ensure our environmental and
social commitments continue to be appropriately reflected in the
performance scorecards for members of the Group Executive
Committee. This is an area the Committee intends to consider further
over the coming year.
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HSBC Holdings plc Annual Report and Accounts 2022
Executive remuneration at a glance
This section sets out an overview of our performance, our 2022 remuneration outcomes for executive Directors and a summary of the policy
approved by shareholders at our 2022 AGM, including how we will implement the policy in 2023.
Our performance
Adjusted profit before tax
$24.0bn
(2021: $20.6bn)
Net new invested assets
$80bn
(2021: $64bn)
Adjusted costs
$30.5bn
(2021: $30.1bn)
Employee engagement
index
73%
(2021: 72%)
Inclusion index
76%
(2021: 75%)
Colleagues reporting
HSBC cares about their
well-being
70%
(up from 50% in 2016
when we first ran the
survey)
Return on average
tangible equity
9.9%
(2021: 8.3%)
Percentage of women in
senior leadership roles
33.3%
(2021: 31.7%)
Remuneration outcomes for executive Directors
Summary remuneration outcomes for 2022 are set out below. Further details are set out in our annual report on remuneration.
Noel Quinn
Total remuneration (£000)
Ewen Stevenson
Total remuneration (£000)
Annual incentive outcome
Shareholding (% of salary)1
1 Executive Directors are expected to meet their shareholding guidelines within five years of the date of their appointment. Noel Quinn and Ewen
Stevenson were appointed on 5 August 2019 and 1 January 2019 respectively.
HSBC Holdings plc Annual Report and Accounts 2022
279
£10,522 £5,562 Salary and fixed pay allowancePension and benefitsAnnual incentiveLong-term incentiveNotional returns on deferred cashawarded in respect of prior roleMaximum opportunity2022 total remuneration£6,167£4,701Salary and fixed pay allowancePension and benefitsAnnual incentiveLong-term incentiveReplacement awardMaximum opportunity2022 total remuneration75.35%24.65%AchievedLapsed65.15%34.85%AchievedLapsed400%513%Shareholding requirementCurrent shareholding300%658%Shareholding requirementCurrent shareholdingCorporate governance
Report of the Directors | Corporate governance report | Directors’ remuneration report
Remuneration policy summary – executive Directors
This section summarises our remuneration policy for executive Directors. The policy was approved at the AGM on 29 April 2022. The full
remuneration policy can be found on pages 257 to 265 of our Annual Report and Accounts 2021 and in the Directors’ Remuneration Policy
Supplement, which is available under Group results and reporting in the 'Investors' section of www.hsbc.com.
Elements and objectives
Operation
Base salary
• Base salary is paid in cash on a monthly basis.
• Other than in exceptional circumstances, the base salary for the current executive
Directors will not increase by more than 15% above the level at the start of the policy
period in total for the duration of the policy.
Fixed pay allowance (‘FPA’)
Cash in lieu of pension
Annual incentive
Long-term incentive (‘LTI’)
Benefits
Shareholding guidelines
• The FPA is granted in instalments of immediately vested shares.
• On vesting, shares equivalent to the net number of shares delivered (after those sold to
cover any income tax and social security) are subject to a retention period and released
annually on pro-rata basis over five years, starting from the March immediately following
the end of the financial year for which the shares are granted.
• Dividends are paid on the vested shares held during the vesting period.
• Cash in lieu of pension is paid on a monthly basis as 10% of base salary.
• This allowance, as a percentage of salary, is aligned with the maximum contribution rate,
as a percentage of salary, that HSBC could make for a majority of employees who are
defined contribution members of the HSBC Bank (UK) Pension Scheme.
• The maximum opportunity for the annual incentive is up to 215% of base salary.
• Annual incentive performance is measured against an individual scorecard.
• At least 50% of any award is delivered in shares, which are normally immediately vested.
• On vesting, shares equivalent to the net number of shares that have vested (after those
sold to cover any income tax and social security payable) will be held for a retention period
of up to one year, or such period as required by regulators.
• Awards will be subject to clawback (i.e. repayment or recoupment of paid vested awards)
for a period of seven years from the date of award, extending to 10 years in the event of
an ongoing internal/regulatory investigation at the end of the seven-year period. Any
unvested awards will be subject to malus (i.e. reduction and/or cancellation) during any
applicable deferral period.
• The maximum opportunity for LTI awards is up to 320% of base salary.
• The LTI award is granted if the Committee considers that there has been satisfactory
performance over the prior year and subject to a forward-looking three-year performance
period from the start of the financial year in which the awards are granted.
• At the end of the performance period, awards will vest in five equal instalments, with the
first vesting on or around the third anniversary of the grant date and the last instalment
vesting on or around the seventh anniversary of the grant date.
• On vesting, shares equivalent to the net number of shares that have vested (after those
sold to cover any income tax and social security payable) will be held for a retention period
of up to one year, or such period as required by regulators.
• Awards are subject to malus provisions prior to vesting. Vested shares are subject to
clawback for a period of seven years from the date of award, extending to 10 years in the
event of an ongoing internal/regulatory investigation at the end of the seven-year period.
• Awards may be entitled to dividend equivalents during the vesting period, paid on vesting.
Where awards do not receive dividend equivalents, the number of shares awarded can be
determined using the share price discounted for the expected dividend yield.
• Benefits include the provision of medical insurance, accommodation, car, club
membership, independent legal advice in relation to a matter arising out of the
performance of employment duties for HSBC, tax return assistance or preparation, and
travel assistance (including any associated tax due, where applicable).
• Additional benefits may also be provided when an executive is relocated or spends a
substantial proportion of his/her time in more than one jurisdiction for business needs.
Executive Directors are expected to satisfy the following shareholding requirement as a
percentage of base salary within five years from the date of their appointment:
• Group Chief Executive: 400%
• Group Chief Financial Officer: 300%
All-employee share plans
Executive Directors are eligible to participate in all-employee share plans, such as HSBC
Sharesave, on the same basis as all other employees.
Implementation in 2023
Base salary will not be
increased for 2023 and will
remain as follows:
• Noel Quinn: £1,336,000
• Georges Elhedery:
£780,000
FPA for 2023 will not be
increased for 2023 and will
remain as follows:
• Noel Quinn: £1,700,000
• Georges Elhedery:
£1,085,000
• No change to percentage of
base salary.
• No change to quantum.
• See page 286 for details of
2023 annual incentive
measures.
• No change to quantum.
• See page 285 for details of
performance measures for
the LTI awards with a 2023
to 2025 performance
period.
• Benefits to be provided as
per policy. Details will be
disclosed in the Annual
Report and Accounts 2023
single figure of
remuneration table.
• No change to percentage of
base salary.
• Participation in any such
plans will be disclosed in
the Annual Report and
Accounts 2023, as required.
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HSBC Holdings plc Annual Report and Accounts 2022
Our approach to workforce reward
Our refreshed reward proposition
During 2022, the Committee refreshed our reward strategy, to
strengthen our focus on inspiring a dynamic culture where the best
want to work. This work was underpinned by comprehensive internal
and external research, including reviewing two years of feedback and
data from our Snapshot and pay surveys, and exit interviews about
what makes colleagues join, leave and engaged at HSBC.
Our workforce proposition is rooted in our purpose and values. Our
commitment to reward colleagues fairly, along with the opportunity to
do inspiring work and contribute within our international network,
creates a unique proposition for colleagues. Our refreshed principles
and supporting commitments articulate the experience for
employees, and provide a clear framework to creating a dynamic
culture where the best talent are motivated to deliver high
performance. These principles are:
• We will reward you responsibly through fixed pay security and
protection through core benefits, a competitive total compensation
opportunity, and pay equity with a more inclusive and sustainable
benefits proposition over time.
• We will recognise your success through our performance culture
and routines, including feedback and recognition, pay for
performance, and all employee share ownership opportunities.
• We will support you to grow through our proposition beyond pay,
with a focus on future skills and development, your mental,
physical, social and financial well-being, and flexibility in working
practices.
We live up to many of these commitments today. We will also set
new goals to continue to improve over time, with plans to focus on
improving colleague sentiment through more transparency and
structure in pay design, and better communications on how we make
reward decisions.
Aligned with these commitments, we have developed a roadmap to
build on our strong benefits and well-being programme, including
flexible working, and more inclusive and sustainable benefits.
We have set clear measures and key performance indicators to track
our progress, including by listening to colleague feedback.
Supporting colleagues in 2022
In 2022, our colleagues faced a backdrop of increasing economic
instability, with rising energy prices and inflation, which increased
their cost of living. While we continued to focus on making
responsible reward decisions for our colleagues through our annual
pay review, we also took a number of actions throughout 2022.
Given this context and our focus on pay security, we allocated more
to fixed pay increases than in prior years, and this was based on
consistent principles to help address the impact of rising inflation in
many of our locations.
In determining 2023 fixed pay increases, we considered the impact of
inflation in each market where we operate. Increases were targeted
towards more junior and middle management colleagues as fixed pay
is a larger proportion of their overall pay. Across the Group, there was
an overall increase of 5.5% in fixed pay, compared with 3.6% for
2022. The level of increases varied by market, depending on the
economic situation and individual roles.
The distribution of the variable pay pool was differentiated by
business performance. There was robust differentiation for individual
performance so that our highest performers received meaningful
variable pay increases on the previous year. We have protected
variable pay for junior colleagues, which is up on average, recognising
the inflationary and cost of living challenges experienced across most
of our markets.
Considering the macroeconomic environment and cost of living
challenges impacting colleagues, we provided specific support to
those most affected. For example, in the UK and the Channel Islands
we paid our more junior colleagues a one-off payment of £1,500 to
help with the cost of living pressures, driven primarily by rising energy
costs. In Argentina, Sri Lanka and Türkiye, where colleagues were
impacted by inflationary challenges, we gave our colleagues fixed pay
increases throughout the year. In other areas we provided our
colleagues support in the form of meal vouchers to help with rising
food costs, and we increased flexibility around how and where our
colleagues work. Some of our colleagues are still significantly
impacted by the pandemic and we have ensured support in these
specific markets. In mainland China and Hong Kong, we provided care
packages and increased well-being sessions. In mainland China, we
also delivered food essentials and provided inconvenience
allowances. Where colleagues have been impacted by the Russia-
Ukraine war we offered free independent and professional
counselling, alongside hosting regular public webinars to manage
topics such as stress and dealing with anxiety. Our colleagues in
Poland have been providing direct assistance to people crossing the
border and we quickly made available financial resources for them to
continue to directly support refugees.
The well-being of our people remained a critical focus in 2022, and in
particular, the financial well-being of our colleagues and their families.
Guided by data and colleague feedback, the pillars of our well-being
programme are mental, physical, financial and social well-being.
Despite the immense challenges, sentiment remained high. A total of
70% of colleagues believe HSBC genuinely cares about their well-
being. In a September survey, 84% of colleagues rated their mental
well-being as positive, 71% rated their overall physical well-being
positively and 60% of colleagues reported their financial well-being as
positive.
We measure our colleagues’ sentiment on performance and pay
through our annual pay review surveys. Considering the challenges
colleagues faced, it was encouraging to see that check-ins happened
regularly, with 66% of colleagues having frequent conversations with
their managers (2021: 60%). Our colleagues tell us that these have a
positive impact on their performance, development and well-being,
and are important in motivating them to perform at their best.
Throughout the year we recognise our colleagues for demonstrating
our values. The ‘At Our Best’ recognition online platform allows for
real-time recognition and communication of positive behaviours by
colleagues, in line with our purpose and values. We also run annual
spotlight campaigns, with the campaign in 2022 focusing on ESG
issues to recognise colleagues for exceptional actions in supporting
our need to work responsibly. Our colleagues made over 1.2 million
recognitions during 2022, a record high and an 11% increase on the
previous year.
HSBC Holdings plc Annual Report and Accounts 2022
281
Corporate governance Report of the Directors | Corporate governance report | Directors’ remuneration report
Annual report on Directors’
remuneration
This section sets out how our approved Directors’ remuneration
policy was implemented during 2022.
Determining executive Directors’ incentive
outcomes
(Audited)
For any annual incentive award to be made, each executive Director
must achieve a minimum standard of conduct and values-aligned
behaviour. For 2022, both executive Directors met this requirement.
The award is determined by applying the outcome of their annual
incentive scorecard to the maximum opportunity, which was set at
215% of salary. The scorecard measures, weightings and targets
were determined at the start of the financial year taking into account
the Group’s plan for 2022 and the Group’s strategic priorities and
commitments. For strategic measures, the assessment was against
targets set for employee diversity, survey results for employee
experience and customer satisfaction measures, as well as progress
made and momentum generated to achieve our strategic priorities.
The Group’s financial performance was reflected in the achievement
against the measures in the executive Directors’ annual scorecards. In
particular, the Committee recognised:
•
•
adjusted profit before tax was $24.0bn, which represented an
increase of 17% compared with $20.6bn in 2021;
strong cost controls were demonstrated, despite inflationary
pressures and continued investment in technology, with adjusted
costs at $30.5bn; and
• RoTE was 9.9%, an improvement on 8.3% in 2021.
Annual incentive scorecard assessment
(Audited)
Summary assessment
Our Employee engagement and Inclusion indices in the Snapshot
survey both increased and were above the financial services
benchmarks. The percentage of Black heritage colleagues in senior
leadership globally increased, as did the percentage of women in
senior leadership. For customer satisfaction, NPS performance is
assessed with reference to rank movements against our competitors
and underlying NPS scores. Performance details for employees and
customers measures are set out in the table in the section below.
Overall, this level of performance resulted in a formulaic scorecard
outcome of 79.32% of the maximum for Noel Quinn and 76.65% for
Ewen Stevenson.
The annual incentive scorecard is also subject to a risk and
compliance modifier, which provides the Committee with the
discretion to adjust down the overall scorecard outcome. Taking into
account the Group’s performance against risk metrics, inputs from
the Group Risk Committee and the overall accountability of the
executive Directors with regards to specific matters around capital
management in the year, the Committee used its judgement and
applied a downward adjustment of 5% to Noel Quinn’s annual
incentive outcome and 15% to Ewen Stevenson’s. The difference in
adjustments reflected the degree of accountability and relative
proximity for capital management. This resulted in an adjusted
incentive outcome of 75.35% of maximum opportunity for Noel Quinn
and 65.15% for Ewen Stevenson. This represented amounts of
£2,164,000 for Noel Quinn (2021: £1,590,000) and £1,091,000 for
Ewen Stevenson (2021: £978,000).
As detailed in the Chair’s letter, the Committee considered carefully
the executive Directors’ pay outcomes in the context of pay decisions
made for the wider workforce and determined that these were an
appropriate reflection of Group, business and individual performance
delivered in 2022.
Group adjusted profit before tax
($bn)
Group lending growth –
customer loans and advances
(third party)
Growth in net new invested
assets ($bn)
Reported RoTE
Group adjusted cost total ($bn)
Customer satisfaction
Employee experience
Personal objectives
Total
Annual incentive formulaic
outcome (000)
Risk adjustments as a result of
Committee judgement (000)
Annual incentive (000)
Minimum
(25%
payout)
Maximum
(100%
payout)
Noel Quinn
Ewen Stevenson
Performance
Weighting
(%)
Assessment
(%)
Outcome
(%)
Weighting
(%)
Assessment
(%)
Outcome
(%)
16.66
19.51
24.01
20.00
100.00
20.00
15.00
100.00
15.00
2.96%
5.93%
1.45%
7.50
—
—
5.00
—
—
52.36
3.00%
30.87
76.17
5.00%
29.47
79.83
9.90%
30.47
See following tables for commentary
7.50
15.00
10.00
15.00
15.00
10.00
100.00
100.00
100.00
46.43
60.33
87.50
100.00
5.00
15.00
10.00
15.00
15.00
20.00
100.00
100.00
100.00
46.43
60.33
87.50
74.15
7.50
15.00
4.64
9.05
13.13
10.00
79.32
£2,278
£(114)
5%
£2,164
5.00
15.00
4.64
9.05
13.13
14.83
76.65
£1,284
£(193)
15%
£1,091
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HSBC Holdings plc Annual Report and Accounts 2022
Strategic measures for Noel Quinn and Ewen Stevenson
Customer
satisfaction
15.00%
Measures Weighting (%) Assessment considerations by the Committee
Maintain and
improve NPS
in the UK
and Hong
Kong, in
digital
markets, and
in key
growth
markets
• UK and Hong Kong (assessed at 59%). In WPB, our NPS improved in the
UK and Hong Kong, and we were ranked in first place in Hong Kong. In
CMB, our NPS improved in Hong Kong but fell in the UK, and we were
ranked in second place in Hong Kong. In GBM, our global NPS improved
and our global rank remained in fifth.
• Digital markets (assessed at 68%). In WPB and CMB digital businesses in
Hong Kong, we were ranked in first and third. In GBM globally, our digital
trade finance platforms maintained first place for the quality of platforms.
Our PayMe payments app was ranked in second place for digital wallets.
• Key growth markets (assessed at 54%). In WPB, our NPS improved in
Assessment (%) Outcome (%)
60.33%
9.05%
Employee
experience
Improve
engagement,
and diversity
and inclusion
15.00%
mainland China and Singapore, remained unchanged in Mexico, and in India
saw a small decrease. In CMB, our NPS increased in mainland China,
Singapore and Mexico, and our rank positions in those markets either
improved compared with 2021 or were in the top three against
competitors.
• Our Snapshot Employee engagement and Inclusion indices both increased
one percentage point year on year to 73% and 76%, respectively, above
maximum targets and the financial services benchmarks.
• The percentage of Black heritage colleagues in senior leadership increased
by 0.3% to 2.5%, meeting our maximum target.
• The percentage of women in senior leadership increased by 1.6% to 33.3%
since 2021, within the target range of 33.2% to 33.7%.
87.50%
13.13%
Personal objectives for Noel Quinn and Ewen Stevenson
For each executive Director, personal objectives were set at the start of the year and measured by the Committee with respect to key performance indicators under
our strategy levers.
Noel Quinn
Weighting Assessment Performance achievement
Technology
transformation
2.5%
100%
• The Committee's assessment reflects strong progress automating our organisation at scale against targets
set. Our Cloud adoption rate, which is the percentage of our technology services on the private or public
Cloud, increased to 35% (2021: 27%). At the end of 2022, approximately 49% of our WPB customers were
'mobile active' users (2021: 43%).
2.5%
100%
• The targets for inorganic initiatives were delivered in 2022. We completed the acquisition of L&T
Execution of
inorganic initiatives
in Asia
Progress on exits
identified
Progress on
innovation
programmes
2.5%
2.5%
Investment Management Limited, making us the 12th largest mutual fund management company in India,
bringing in $10.8bn assets under management and 2.4 million active portfolios. We raised our stake in
HSBC Qianhai in China to 90%, completed our acquisition of the remaining 50% shares in HSBC Life
Insurance in China. We renewed our exclusive life distribution partnership with Allianz in Asia, resulting in
the combined group being the fourth largest health insurer and seventh largest life insurer in Singapore.
100%
• The planned sales of our banking business in Canada, branch operations in Greece and business in Russia
were announced, reflecting strong progress in reshaping our portfolio.
100%
• In CMB, we launched an industry-leading native bank account service with Oracle Netsuite Enterprise
Resource Planning. We also launched Business Go, a platform that brings together international SMEs with
providers of expert advice and business optimisation tools. In GBM, we launched HSBC Orion, our new
proprietary tokenisation platform used for digital bond issuance. In WPB, we launched our international
credit offering, allowing customers to gain access to credit in a new country based on credit history in their
home country.
Total
10% out of 10%
Ewen Stevenson Weighting Assessment Performance achievement
Finance for the
future
12%
67%
• The financial implications of financed emissions targets for the oil and gas, and power and utilities sectors
and for the $750bn to $1tn target were included in our financial resource plan, meeting the objectives set.
• The second round of the climate biennial exploratory scenario and stress tests for the Monetary Authority
of Singapore and European Central Bank were completed, with no material issues.
• Plans have been delivered for IFRS 17 compliant reporting, in line with external reporting and disclosure
requirements.
• The Bank of England Resolvability Assessment Framework and regulatory reporting enhancement
objectives were delivered in line with the targets set.
• Resolved 100% of market risk RWA-related issues and over 80% of liquidity-related issues, which were
previously identified and managed under the regulatory reporting enhancement programme.
• The programme to deliver timely, accurate and complete customer-centric management information using
a single data Cloud platform, with enhanced controls and reduced operational risks, is on track to the
agreed scope, costs and timeline.
• Targets were met with increased Employee engagement index at 75% favourable (2021: 68%).
• Female representation in senior management roles across Finance increased to 32.1% (2021: 30.2%).
• Finance costs overall were within 2022 targets. The number of FTEs at the end of 2022 was slightly higher
than the maximum target, mainly due to growth in key areas where new capabilities are required.
4%
96%
Global Finance
employee
experience and
function efficiency
Creating strong
corporate
development and
Group
transformation
functions
4%
75%
• The Group Transformation function has made strong progress in aligning our change portfolio to the
Group's strategy and systematically documenting a full change inventory. Achievements include clear
reporting with associated costs on how the change portfolio is enabling the delivery of Group strategy, and
stronger governance of the change portfolio, with an expanded remit of the Transformation Oversight
Executive Committee to cover the entire change portfolio with improved accountability via targeted
reviews of high impact programmes.
• Major transactions included planned sales of our banking business in Canada, branch operations in Greece
and business in Russia were announced; the planned merger of Oman operations with Sohar International
Bank; the completion of the Axa Singapore acquisition; the sale of US domestic mass market retail
banking; and the acquisition of L&T Investment Management Limited in India.
Total
14.83% out of 20%
HSBC Holdings plc Annual Report and Accounts 2022
283
Corporate governance
Report of the Directors | Corporate governance report | Directors’ remuneration report
Single figure of remuneration
(Audited)
The following table shows the single figure of total remuneration of each executive Director for 2022, together with comparative figures.
Single figure of remuneration
(£000)
Base salary1
Fixed pay allowance (’FPA’)1
Cash in lieu of pension
Taxable benefits2
Non-taxable benefits2
Total fixed
Annual incentive
Notional returns3
Replacement award4
Long term incentive5
Total variable
Total fixed and variable
Noel Quinn
Ewen Stevenson
2022
1,329
1,700
133
119
86
3,367
2,164
31
—
—
2,195
5,562
2021
1,288
1,700
129
95
71
3,283
1,590
22
—
—
1,612
4,895
2022
775
1,085
77
7
50
1,994
1,091
—
1,180
436
2,707
4,701
2021
751
1,062
75
3
42
1,933
978
—
754
—
1,732
3,665
1 Executive Directors made the personal decision to donate 100% of their base salary increases for 2021 to charity. Ewen Stevenson also donated his
FPA increase for 2021 to charity. Figures in the table above are the gross figures before charitable donations.
2 Taxable benefits include the provision of medical insurance, car and tax return assistance (including any associated tax due, where applicable). Non-
taxable benefits include the provision of life assurance and other insurance cover.
3 The deferred cash awards granted in prior years include a right to receive notional returns for the period between the grant and vesting date. This is
4
determined by reference to a rate of return specified at the time of grant and paid annually, with the amount disclosed on a paid basis.
In 2019, Ewen Stevenson was granted replacement awards to replace unvested awards, which were forfeited as a result of him joining HSBC. The
awards, in general, match the performance, vesting and retention periods attached to the awards forfeited. The values included in the table for 2022
relate to his 2018 replacement award granted by the Royal Bank of Scotland Group plc, now renamed as NatWest Group plc ('NatWest') for
performance year 2018 and was subject to a pre-vest performance test assessed and disclosed by NatWest in its Annual Report and Accounts 2021
(page 158). As no adjustment was proposed for Ewen Stevenson by NatWest, a total of 241,988 shares granted in respect of his 2018 replacement
award ceased to be subject to performance conditions. These awards were granted at a share price of £6.643 and the HSBC share price was £4.8772
when the first tranche of these awards vested and all tranches were no longer subject to performance conditions, with no value attributable to share
price appreciation. The values included in the table for 2021 are explained in the Annual Report and Accounts 2021.
5 An LTI award over 476,757 shares was made in February 2020 (in respect of 2019) at a share price of £5.6220 for which the performance period
ended on 31 December 2022. The value has been computed based on a share price of £4.816, the average share price during the three-month period
to 31 December 2022. There is no value attributable to share price appreciation. See the following section for details of the assessment outcomes,
which resulted in 19% vesting due to performance.
Benefits
The values of the significant benefits in the single figure table are set out in the following table1. The insurance benefit for Noel Quinn has
increased year on year because of the increase in premium at annual renewal.
(£000)
Insurance benefit (non-taxable)
Car and driver (UK and Hong Kong)
Noel Quinn
2022
82
69
2021
67
87
1 The insurance and car benefits for Ewen Stevenson are not included in the above table as they were not deemed significant.
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HSBC Holdings plc Annual Report and Accounts 2022
Long-term incentive (’LTI’) awards
(Audited)
LTI awards over 2020 to 2022 performance period
The 2019 LTI award was granted to Ewen Stevenson in February
2020. Noel Quinn did not receive a 2019 LTI award. Based on the
performance outcome, 90,584 shares will vest for Ewen Stevenson.
The awards will vest in five equal annual instalments commencing in
February 2023.
The Committee is mindful of executives not experiencing ’windfall
gains’ through the granting of LTI awards when a share price is
particularly low. We introduced an upfront windfall gains check for
2020 LTI awards. The Committee agreed that if the LTI grant share
price experienced a greater than 30% decline since the previous
grant, that an adjustment percentage equal to half the share price
percentage decline would be applied to the awards to mitigate the
potential for windfall gains. Although this was not in place for the
2019 LTI award, no pre-grant adjustment would have been applied if it
had been. The value of awards at vesting is less than at grant and the
Committee determined that there are no windfall gains to consider for
this award.
Assessment of the 2019 LTI award (performance period 1 January 2020 to 31 December 2022)
Measures (weighting)1
Average RoTE with CET1
underpin2 (33.3%)
Relative TSR3 (33.3%)
Minimum
(25% payout)
Target
(50% payout)
Maximum
(100% payout)
Actual
Assessment Outcome
10.0%
11.0%
12.0%
9.9%
0.0%
0.00%
At median of the peer
group
Straight-line vesting
between minimum
and maximum
At upper quartile of
peer group
Below
median
0.0%
0.00%
Customers (33.3%)
Performance was assessed by the Committee based on:
• customer satisfaction scores at the start and end of the three-year performance
period for our global businesses in home and scale markets, which resulted in a
formulaic 64% outcome. This comprised:
– UK and Hong Kong (assessed at 58%) – in WPB and CMB, we were ranked
in first and second place in Hong Kong, with improved NPS scores. In GBM,
our global NPS improved and our global rank remained in fifth;
– Digital markets (assessed at 77%) – in WPB and CMB digital markets, we
were ranked in top three positions in Hong Kong, and in GBM globally, our
digital trade finance platforms were ranked in first place; and
– Key growth markets (assessed at 56%) – in WPB, our NPS increased in
mainland China, Singapore and Mexico, and in India saw a small decline, and
in CMB, our NPS increased in Mexico, with slight decreases in the other
markets, but our rank positions in all four markets were in the top three
against competitors.
• progress against customer objectives linked to our strategy over 2020 to 2022. It
was determined that it broadly represented target performance and therefore
50% of this element was achieved. The main items driving this assessment are
our growth in international and Premier customers and in specific growth
markets, where our overall performance has been broadly in line with plan and
expectations.
These two percentages (64% and 50%) averaged to 57%.
57.0%
19.00%
Total
19.00%
1 Awards vest on a straight-line basis for performance between the minimum, target and maximum levels of performance set in this table.
2 Assessed based on RoTE in the 2022 financial year, which was not met. The CET1 underpin was met.
3 The peer group was: Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse Group, DBS Group Holdings, Deutsche Bank, J.P. Morgan
Chase & Co., Lloyds Banking Group, Morgan Stanley, Standard Chartered and UBS Group.
LTI awards over 2023 to 2025 performance period
After taking into account performance for 2022, the Committee
decided to grant Noel Quinn an LTI award of £4,275,000.
The 2022 LTI awards will have a three-year performance period
starting 1 January 2023. During this period, performance will be
assessed based on four equally weighted measures: two financial
measures to incentivise value creation for our shareholders; a
measure linked to our climate ambitions; and relative total shareholder
return (’TSR’). This is consistent with the measures used for our last
LTI awards.
The Committee regularly reviews the TSR peer group to ensure it
remains an appropriate performance comparison, taking into account
strategic shifts in our geographical and business mix, notably future
growth investment in Asia and wealth business. Following feedback
from some of our shareholders, the Committee reviewed the TSR
performance peer group, with the objective of including more Asian
peers to better reflect the balance of markets and businesses of the
Group. The new peer group will be used for the relative TSR measure
for LTI awards for the 2023 to 2025 performance period and now
includes Bank of China (Hong Kong), China Merchants Bank and
OCBC Bank. No change will be made to the performance peer group
for subsisting LTI awards.
The LTI continues to be subject to a risk and compliance modifier,
which gives the Committee the discretion to adjust down the overall
outcome to ensure that the Group operates soundly when achieving
its financial targets. For this purpose, the Committee will receive
information including any risk metrics outside of tolerance for a
significant period of time and any risk management failures that have
resulted in significant customer detriment, reputational damage and/
or regulatory censure.
The RoTE and capital reallocation to Asia measures are also subject to
a CET1 underpin. If the CET1 ratio at the end of the performance
period is below the CET1 risk tolerance level set in the risk appetite
statement, then the assessment for these measures will be reduced
to nil.
As the awards are not entitled to dividend equivalents in accordance
with regulatory requirements, the number of shares to be awarded
will be adjusted to reflect the expected dividend yield of the shares
over the vesting period.
To the extent performance conditions are satisfied at the end of the
three-year performance period, the awards will vest in five equal
annual instalments commencing from around the third anniversary of
the grant date. On vesting, shares equivalent to the net number of
shares that have vested (after those sold to cover any income tax and
social security payable) will be held for a retention period of up to one
year, or such period as required by regulators.
HSBC Holdings plc Annual Report and Accounts 2022
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Performance conditions for LTI awards in respect of 2022 (performance period 1 January 2023 to 31 December 2025)
Measures1
RoTE with CET1 underpin2
Capital reallocation to Asia with CET1
underpin3
Carbon reduction
(own emissions)
Sustainable finance
and investment
Transition to net
zero4
Relative TSR5
Subject to risk and compliance modifier
Minimum
(25% payout)
13.0%
49.0%
64.0%
Target
(50% payout)
14.3%
50.5%
68.0%
Maximum
(100% payout)
15.5%
Weighting
%
25.0
52.0%
72.0%
$588.0bn
$700.0bn
$756.0bn
At the median of the peer
group
Straight-line vesting between
minimum and maximum
At the upper quartile of the
peer group
25.0
25.0
25.0
1 Awards will vest on a straight-line basis for performance between the minimum, target and maximum levels of performance set in this table.
2 To be assessed based on RoTE at the end of the performance period. This metric will be subject to the CET1 underpin.
3 To be assessed based on share of Group tangible equity (on a reported basis and excluding associates) allocated to Asia by 31 December 2025. This
metric will be subject to the CET1 underpin.
4 Carbon reduction will be measured based on percentage reduction in total energy and travel emissions achieved by 31 December 2025 using 2019 as
the baseline. The sustainable finance and investment metric will assess the cumulative amount provided and facilitated over the period ending 31
December 2025.
5 The peer group for the 2022 award is: Bank of China (Hong Kong), Barclays, BNP Paribas, China Merchants Bank, Citigroup, DBS Group Holdings, JP
Morgan Chase & Co., Lloyds Banking Group, OCBC Bank, Standard Chartered and UBS Group.
Annual incentive measures for 2023
2023 annual incentive performance measures
Weighting
The 2023 annual incentive scorecard measures for our executive
Directors have been set to deliver growth and business
transformation. They were selected by the Committee after taking
into account the Group’s strategic pivot to Asia and feedback received
from our major shareholders during engagement in the year. The
targets have been set to reflect the Group’s 2023 plan, while
considering macroeconomic uncertainty, including the interest-rate
environment and rising inflation.
The Committee will continue to retain discretion to adjust the
formulaic outcomes of scorecards, taking into account factors such as
Group profits, wider business performance and stakeholder
experience, to ensure executive reward is aligned with underlying
Group performance and the broader stakeholder experience.
The weightings and performance measures for the 2023 annual
incentive award for executive Directors are disclosed below. In
previous years, the weightings were different for the Group Chief
Executive and Group Chief Financial Officer. For 2023, these have
been aligned, reflecting feedback from shareholders and to simplify
our approach. The performance targets are commercially sensitive
and it would be detrimental to the Group’s interests to disclose them
at the start of the financial year. Subject to commercial sensitivity, we
will disclose the targets for a given year in the Directors’
remuneration report for that year.
Financial (subject to CET1 underpin)
Reported profit before tax
Reported operating expenses
Reported Group RoTE
Reported Asia RoTE
Fee income growth
Net new invested assets growth
Stakeholders
Customer satisfaction
(improvement in NPS scores/rank)
Employee experience
(gender and ethnicity representation and Inclusion index
score)
Personal objectives
Group Chief Executive: technology transformation,
innovation, and simplification of processes and organisation
Group Chief Financial Officer: regulatory priorities (regulatory
reporting enhancement programme, resolution recovery
planning, and ESG and climate), Finance change
transformation and digitisation, energised Finance
workforce, and liquidity usage and capital management
Subject to risk and compliance modifier
60%
15%
15%
15%
5%
5%
5%
30%
15%
15%
10%
286
HSBC Holdings plc Annual Report and Accounts 2022
Scheme interests awarded during 2022
(Audited)
The table below sets out the scheme interests granted to executive Directors during 2022 in respect of performance year 2021, as disclosed in
the 2021 Directors’ remuneration report. No non-executive Directors received scheme interests during the financial year.
Scheme awards in 2022
(Audited)
Noel Quinn
Ewen Stevenson
Basis on which
Type of interest
awarded
award made
LTI deferred shares2 % of salary2
LTI deferred shares2 % of salary2
Face
value
awarded1
£000
Percentage
receivable for
minimum
performance
Number of
shares
awarded
End of
performance
period
Date of award
28 February 2022
28 February 2022
5,290
3,086
25
25
983,339
573,674
31 December 2024
31 December 2024
1 The face value of the award has been computed using HSBC’s closing share price of £5.380 taken on 25 February 2022. LTI awards are conditional
share awards subject to a three-year forward-looking performance period and vest in five equal annual instalments, between the third and seventh
anniversary of the award date, subject to performance achieved. On vesting, awards will be subject to a one-year retention period. Awards are subject
to malus during the vesting period and clawback for a maximum period of 10 years from the date of the award.
In line with regulatory requirements, scheme interests awarded during 2022 were not eligible for dividend equivalents. In accordance with the
remuneration policy approved by shareholders at the 2019 AGM, the LTI award was determined at 320% of salary for Noel Quinn and 320% of salary
for Ewen Stevenson. The number of shares to be granted was determined by taking HSBC’s closing share price of £5.380 taken on 25 February 2022,
and applying a discount based on HSBC’s expected dividend yield of 5% per annum for the vesting period (£4.201).
2
The above table does not include details of shares issued as part of the fixed pay allowance and shares issued as part of the 2021 annual
incentive award that vested on grant and were not subject to any further service or performance conditions. Details of the performance
measures and targets for the 2021 LTI award are below:
Performance conditions for LTI awards in respect of 2021 (performance period 1 January 2022 to 31 December 2024)
(Audited)
Measures1
RoTE (with CET1 underpin)2
Capital reallocation to Asia (with CET1 underpin)3
Environment and
sustainability4
Relative TSR5
Carbon reduction
Sustainable finance and
investment
Minimum
(25% payout)
Target
(50% payout)
Maximum
(100% payout)
Weighting %
8.0%
46.0%
52.0%
9.5%
48.0%
56.0%
11.0%
50.0%
60.0%
$285.0bn
$340.0bn
$370.0bn
At median of the
peer group
Straight-line vesting between
minimum and maximum
At upper quartile of
peer group
25.0
25.0
25.0
25.0
1 Awards will vest on a straight-line basis for performance between the minimum, target and maximum levels of performance set in this table.
2 To be assessed based on RoTE at the end of the performance period. The measure will also be subject to a CET1 underpin. If the CET1 ratio at the
end of the performance period is below the CET1 risk tolerance level set in the risk appetite statement, then the assessment for this measure will be
reduced to nil.
3 To be assessed based on share of Group tangible equity (on a constant currency basis and excluding associates) allocated to Asia by 31 December
2024. This metric will be subject to the CET1 underpin outlined above.
4 Carbon reduction will be measured based on percentage reduction in total energy and travel emissions achieved by 31 December 2024 using 2019 as
the baseline. The sustainable finance and investment metric will assess cumulative financing provided over the period commencing on 1 January 2020
and ending on 31 December 2024.
5 The peer group for the 2021 award is: Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse Group, DBS Group Holdings, Deutsche Bank,
J.P. Morgan Chase & Co., Lloyds Banking Group, Morgan Stanley, Standard Chartered and UBS Group.
Executive Directors’ interests in shares
(Audited)
The shareholdings of executive Directors in 2022, including the
shareholdings of their connected persons, at 31 December 2022 (or
the date they stepped down from the Board, if earlier) are set out
below. The following table shows the comparison of shareholdings
with the company shareholding guidelines. There have been no
changes in the shareholdings of the executive Directors from
31 December 2022 to the date of this report.
Individuals have five years from their appointment date to build up the
recommended levels of shareholding. In line with investor guidance,
for executive Directors, unvested shares that are not subject to
forward-looking performance conditions (on a net of tax basis) will
count towards their shareholding requirement under the shareholder-
approved policy.
The Committee reviews compliance with the shareholding
requirement and has full discretion in determining if any unvested
shares should be taken into consideration for assessing compliance
with this requirement, taking into account shareholder expectations
and guidelines. The Committee also has full discretion in determining
any penalties for non-compliance.
With regard to post-employment shareholding arrangements, we
believe that our remuneration structure achieves the objective of
ensuring there is ongoing alignment of executive Directors' interests
with shareholder experience post-cessation of their employment due
to the following features of the policy:
• Shares delivered to executive Directors as part of the fixed pay
allowance have a five-year retention period, which continues to
apply following a departure of an executive Director.
• Shares delivered as part of an annual incentive award are subject
to a one-year retention period, which continues to apply following
a departure of an executive Director.
• LTI awards have a seven-year vesting period with a one-year post-
vesting retention period, which is not accelerated on departure.
The weighted average holding period of an LTI award within HSBC
is therefore six years, in excess of the five-year holding period
typically implemented by FTSE-listed companies. When an
executive Director ceases employment as a good leaver under our
policy, any LTI awards granted will continue to be released over a
period of up to eight years, subject to the outcome of performance
conditions.
HSBC operates a policy under which individuals are not permitted to
enter into any personal hedging strategies in relation to HSBC shares
subject to a vesting and/or retention period.
HSBC Holdings plc Annual Report and Accounts 2022
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Shares
(Audited)
Executive Directors
Noel Quinn6
Ewen Stevenson6
Shareholding
guidelines
(% of salary)
Shareholding at
31 Dec 20222
(% of salary)
Share
interests
(number
of shares)
At 31 Dec 2022
Scheme interests
Shares awarded
subject to deferral1
Share
options3
without
performance
conditions4
with
performance
conditions5
400%
300%
513%
658%
1,422,650
1,064,626
—
—
415,771
383,587
2,101,893
1,687,628
1 The gross number of shares is disclosed. A portion will be sold at vesting to cover any income tax and social security that falls due at the time of
vesting.
2 The value of the shareholding is calculated using an average of the daily closing share prices in the three months to 31 December 2022 (£4.816).
3 At 31 December 2022, Noel Quinn and Ewen Stevenson did not hold any options under the HSBC Holdings Savings-Related Share Option Plan (UK).
4 The amount for Ewen Stevenson reflects the award granted in May 2019, replacing the 2015 to 2018 LTIs forfeited by the Royal Bank of Scotland
Group plc, now renamed as NatWest Group plc (’NatWest’), and is subject to any performance adjustments assessed and disclosed in the relevant
NatWest Annual Report and Accounts.
5 LTI awards granted in February 2021 and 2022 are subject to the performance conditions as set out in the preceding sections above.
6 Executive Directors are expected to meet their shareholding guidelines within five years of the date of their appointment (Noel Quinn and Ewen
Stevenson were appointed on 5 August 2019 and 1 January 2019, respectively).
Service contracts
The service contracts of executive Directors do not have a fixed term.
The notice periods of executive Directors are set at the discretion of
the Committee, taking into account market practice, governance
considerations, and the skills and experience of the particular
candidate at that time.
Service agreements for each executive Director are available for
inspection at HSBC Holdings’ registered office. Consistent with
the best interests of the Group, the Committee will seek to minimise
termination payments. Directors may be eligible for a payment in
relation to statutory rights.
Noel Quinn
Ewen Stevenson
Contract date (rolling)
18 March 2020
1 December 2018
Notice period
(Director and HSBC)
12 months
12 months
Total pension entitlements
(Audited)
No employees who served as executive Directors during the year
have a right to amounts under any HSBC final salary pension scheme
for their services as executive Directors or are entitled to additional
benefits in the event of early retirement. There is no retirement age
set for Directors, but the normal retirement age for colleagues is 65.
Payments to past Directors
(Audited)
No payments were made to, or in respect of, former Directors in the
year in excess of the minimum threshold of £50,000 set for this
purpose.
Payments for loss of office
(Audited)
Departure terms for Ewen Stevenson
Ewen Stevenson is leaving the Group on 30 April 2023. He will
receive payments totalling £703,519 from the Group in lieu of his
base salary and pension allowance from 1 January until 25 October
2023. He will also receive his fixed pay allowance in respect of the
same period, which totals £885,836, and will be awarded in
immediately vested shares. The fixed pay allowance will be subject to
a retention period and released on a pro-rata basis over five years.
Ewen Stevenson will not be eligible for an LTI award in respect of the
2022 performance year, or any annual incentive award in respect of
the 2023 performance year.
In accordance with the contractual terms agreed and our approved
Directors’ remuneration policy, Ewen Stevenson was granted good
leaver status in respect of his outstanding unvested share awards.
Good leaver status is conditional upon him not taking up a role with a
defined list of competitor financial services firms for a year from his
departure date. As a good leaver, his deferred share awards will
continue to vest and be released on their scheduled vesting dates,
subject to the relevant terms (including post-vesting retention periods,
malus and, where applicable, clawback). Any vesting of his LTI
awards will be pro-rated for the period up to the departure date and
will be subject to the relevant terms (including post-vesting retention
periods, malus and clawback) and the achievement of the required
performance conditions. For this purpose, his 2020 and 2021 LTI
awards have been pro-rated for time with the maximum number of
shares, being 495,597 and 254,966 respectively, still subject to
performance.
The Group will make a contribution towards Ewen Stevenson's legal
fees incurred in connection with his departure arrangements. In line
with the Directors' remuneration policy, Ewen Stevenson will be
eligible to receive certain post-departure benefits for a period of up to
seven years after the departure date.
Ewen Stevenson will receive no other compensation or payment for
the termination of his service agreement or his ceasing to be a
Director of the Group.
No other payments for loss of office were made to, or in respect of,
former or current Directors in the year.
External appointments
During 2022, executive Directors did not receive any fees from
external appointments.
288
HSBC Holdings plc Annual Report and Accounts 2022
Summary of shareholder return and Group
Chief Executive remuneration
The graph shows HSBC TSR performance (based on the daily spot
Return Index in sterling) against the FTSE 100 Total Return Index for
the 10-year period ended 31 December 2022.
HSBC TSR and FTSE 100 Total Return Index
The FTSE 100 Total Return Index has been chosen as a recognised
broad equity market index of which HSBC Holdings is a member. The
single figure remuneration for the Group Chief Executive over the
past 10 years, together with the outcomes of the respective
annual incentive and LTI awards, are presented in the following table.
Group Chief Executive
2013
Stuart
Gulliver
2014
Stuart
Gulliver
2015
Stuart
Gulliver
2016
Stuart
Gulliver
2017
Stuart
Gulliver
Total single figure £000
Annual incentive1 (% of maximum)
Long-term incentive1,2,3 (% of maximum)
8,033
49%
49%
7,619
54%
44%
7,340
45%
41%
5,675
64%
–%
6,086
80%
–%
2018
2019
Stuart
Gulliver
2,387
76%
100%
John
Flint
4,582
76%
–%
John
Flint
Noel
Quinn
2,922
61%
–%
1,977
66%
–%
2020
Noel
Quinn
4,154
32%
–%
2021
Noel
Quinn
4,895
57%
–%
2022
Noel
Quinn
5,562
75%
–%
1 The 2012 annual incentive figure for Stuart Gulliver includes 60% of the annual incentive disclosed in the 2012 Directors’ remuneration report, which
was deferred for five years and subject to service conditions and satisfactory completion of the five-year deferred prosecution agreement with the US
Department of Justice, entered into in December 2012 (’AML DPA’) as determined by the Committee. The AML DPA performance condition was met
and the award vested in 2018. The value of the award at vesting was included in the 2018 single figure of remuneration and included as long-term
incentive for 2018.
2 Long-term incentive awards are included in the single figure for the year in which the performance period is deemed to be substantially completed.
For Group Performance Share Plan (’GPSP’) awards, this is the end of the financial year preceding the date of grant. GPSP awards shown in 2013 to
2015 are therefore related to awards granted in 2014 to 2016.
3 The GPSP was replaced by the LTI in 2016 and the value for GPSP is nil for 2016 as no GPSP award was made for 2016. LTI awards have a three-year
performance period and the first LTI award was made in February 2017. The value of the LTI awards expected to vest will be included in the total
single figure of remuneration of the year in which the performance period ends. Noel Quinn did not receive the 2019 LTI award that had a
performance period ended on 31 December 2022.
Voting results from Annual General Meeting
2022 Annual General Meeting voting results
Remuneration report (votes cast)
Remuneration policy (votes cast)
For
95.83%
7,675,588,519
95.73%
7,666,488,029
Against
4.17%
334,152,471
4.27%
342,320,697
Withheld
––
6,830,718
––
7,773,468
HSBC Holdings plc Annual Report and Accounts 2022
289
HSBC TSRFTSE 100 Total Return IndexDec 2012Dec 2013Dec 2014Dec 2015Dec 2016Dec 2017Dec 2018Dec 2019Dec 2020Dec 2021Dec 2022100%200%Corporate governance Report of the Directors | Corporate governance report | Directors’ remuneration report
Group Remuneration Committee
The Group Remuneration Committee is responsible for setting the
overarching principles, parameters and governance of the Group’s
remuneration framework for our colleagues, and the remuneration of
executive Directors, the Group Chairman and other senior Group
colleagues. The Committee regularly reviews the framework to
ensure it supports the Group’s purpose, values, culture and strategy,
as well as promoting sound risk management. The Committee also
reviews the framework to satisfy itself that it complies with the
regulatory requirements of multiple jurisdictions.
All members of the Committee are independent non-executive
Directors of HSBC Holdings plc. No Directors are involved in deciding
their own remuneration. A copy of the Committee’s terms of
reference can be found on our website at www.hsbc.com/who-we-
are/leadership-and-governance/board-committees.
The Committee met six times during 2022. Pauline van der Meer
Mohr stepped down from the Committee and the Board after the
2022 AGM, and was succeeded as Group Remuneration Committee
Chair by Dame Carolyn Fairbairn. Geraldine Buckingham was
appointed as a member of the Committee in June 2022. The
following is a summary of the Committee’s key activities during 2022.
Matters considered during 2022
Jan
Feb May
Jul
Sep
Dec
Remuneration framework and governance
Group variable pay pool, workforce performance and pay matters, pay gap report, and employee insights
Directors’ remuneration policy design
Executive Director remuneration policy implementation, scorecards and pay proposals
Remuneration for other senior executives of the Group
Directors’ remuneration report
Regulatory, risk and governance
Information on material risk and audit events, and performance and remuneration impacts for individuals involved
Regulatory updates, including approach and outcomes for the identification of Material Risk Takers
Governance matters
Principal subsidiaries
Matters from subsidiary committees
l
l
l
l
l
l
l
l
l
l
ô
l
l
l
l
l
l
ô
l
ô
l
l
ô
l
l
l
l
l
ô
l
l
ô
l
l
l
l
l
ô
l
l
ô
l
l
l
l
l
ô
l
l
l
l
l
l
l
l Matter considered
ô Matter not considered
Advisers
The Committee received input and advice from different advisers on
specific topics during 2022. Deloitte provided independent advice to
the Committee. Deloitte also provided tax compliance and other
advisory services to the Group in 2022. Deloitte is a founding member
of the Remuneration Consultants Group and voluntarily operates
under the code of conduct in relation to executive remuneration
consulting in the UK.
The Committee also received advice from Willis Towers Watson on
market data and remuneration trends. Willis Towers Watson provides
actuarial support to Global Finance and benchmarking data and
services related to benefits administration for our Group employees.
The Committee was satisfied the advice provided by Deloitte and
Willis Towers Watson was objective and independent in 2022.
For 2022, total fees of £203,800 and £79,803 were incurred in relation
to remuneration advice provided by Deloitte and Willis Towers
Watson, respectively. This was based on pre-agreed fees and a time-
and-materials basis.
During the year, the Committee conducted a tender process for its
independent remuneration adviser. This involved participating firms
submitting proposals and meeting with the Committee Chair and
management. Following this process, Deloitte was reappointed as the
Committee’s independent advisers.
Attendees and interaction with other Board
committees
During the year, Noel Quinn as the Group Chief Executive provided
regular briefings to the Committee. In addition, the Committee
engaged with, and received updates from, the following:
• Mark Tucker, Group Chairman;
• Elaine Arden, Group Chief Human Resources Officer;
• Ewen Stevenson, who was Group Chief Financial Officer until
31 December 2022;
• Jenny Craik, Group Head of Performance, Reward and Employee
Relations;
• Pam Kaur, Group Chief Risk and Compliance Officer;
• Bob Hoyt, Group Chief Legal Officer;
• Shawn Chen, former Global General Counsel for Litigation and
Regulatory Enforcement;
• Maureen Lewis, Interim Global General Counsel for Litigation and
Investigation; and
• Aileen Taylor, Group Company Secretary and Chief Governance
Officer.
The Committee also received feedback and input from the Group Risk
Committee and Group Audit Committee on risk, conduct and
compliance-related matters relevant to remuneration.
No Director is present at Group Remuneration Committee meetings
when their own remuneration is discussed.
In addition to the meetings above, the Group Risk Committee
convened two joint meetings with the Group Remuneration
Committee in September 2022 and December 2022. They reviewed
the Group’s risk and reward alignment framework, which is designed
to promote sound and effective risk management in meeting PRA and
FCA remuneration rules and expectations.
Committee effectiveness
The annual review of the effectiveness of the Board committees,
including the Group Remuneration Committee, was conducted
internally in 2022, led by the Group Company Secretary and Chief
Governance Officer. Overall, the review concluded that the
Committee continued to operate effectively and in line with regulatory
requirements.
Areas for continued enhancement were identified, including the need
to focus on: a differentiated, fair and transparent reward framework;
ESG performance metrics; and in particular, sustainability; the
development of climate performance measures aligned to strategic
net zero goals; and greater coordination with the Group Risk
Committee. Given the anticipated changes to remuneration
regulations and evolving shareholder views on remuneration, a
structured training programme will be developed and delivered by the
Committee’s independent remuneration advisers. The outcomes of
the 2022 annual review have been reported to the Board, and the
Group Remuneration Committee will track the progress in
implementing recommendations during 2023.
290
HSBC Holdings plc Annual Report and Accounts 2022
Non-executive Directors
(Audited)
The following table shows the total fees and benefits of non-executive Directors for 2022, together with comparative figures for 2021.
Fees and benefits
(Audited)
(£000)
Geraldine Buckingham3
Rachel Duan4
Dame Carolyn Fairbairn5
James Forese6
Steven Guggenheimer
Irene Lee7
José Antonio Meade Kuribreña8
Pauline van der Meer Mohr9
Eileen Murray10
David Nish
Jackson Tai
Mark Tucker
Total (£000)
Total ($000)
Fees1
2022
155
225
265
689
262
488
242
92
262
477
377
1,500
5,034
6,199
2021
—
67
80
572
250
556
223
291
266
482
350
1,500
4,637
5,710
Benefits2
2022
2021
—
5
1
—
10
—
14
18
—
22
25
113
208
256
—
—
—
—
—
—
—
—
—
10
—
33
43
53
Total
2022
155
230
266
689
272
488
256
110
262
499
402
1,613
5,242
6,455
2021
—
67
80
572
250
556
223
291
266
492
350
1,533
4,680
5,763
1 Fees are in line with the Directors’ remuneration policy that was approved at the 2022 AGM. No travel allowance was paid to non-executive Directors
during 2021 due to travel restrictions. The payment of the travel allowance of £4,000 per annum (pro-rata) was paid following the resumption of travel
by the Board in 2022.
2 Benefits include taxable expenses such as accommodation, travel and subsistence relating to attendance at Board and other meetings at HSBC
Holdings' registered offices. Amounts disclosed have been grossed up using a tax rate of 45%, where relevant.
3 Appointed to the Board and the Group Nomination & Corporate Governance Committee on 1 May 2022, and appointed as a member of the Group
Remuneration Committee and Group Risk Committee on 1 June 2022.
4 Appointed as a member of the Group Audit Committee on 1 June 2022.
5 Appointed as Chair of the Group Remuneration Committee effective 29 April 2022.
6 Stepped down as a member of the Group Audit Committee on 1 June 2022 and joined the Group Risk Committee on 1 June 2022. Includes fees of
£447,000 (2021: £332,000) in relation to his role as Chair of HSBC North America Holdings, Inc. This fee was deferred for 2022.
7 Retired from the Board effective 29 April 2022. Includes fees of £434,000 (2021: £380,000) in relation to her roles as non-executive Director and
Remuneration Committee Chair, Audit Committee member and Risk Committee member of The Hongkong and Shanghai Banking Corporation Limited
and non-executive Chair, Nomination Committee Chair and member of the Audit, Risk and Remuneration Committees of Hang Seng Bank Limited.
8 Retired from the Group Risk Committee on 1 June 2022. Appointed as the designated workforce engagement non-executive Director on 1 June 2022.
9 Retired from the Board effective 29 April 2022.
10 Retired from the Group Risk Committee on 1 June 2022, and appointed as a member of Group Audit Committee on 1 June 2022.
Non-executive Directors’ interests in shares
(Audited)
The shareholdings of persons who were non-executive Directors in
2022, including the shareholdings of their connected persons, at
31 December 2022, or date of cessation as a Director if earlier, are
set out below.
Shares
Non-executive Directors are expected to meet the shareholding
guidelines within five years of the date of their appointment. All non-
executive Directors who had been appointed for five years or more at
31 December 2022 met the guidelines.
Geraldine Buckingham (appointed to the Board on 1 May 2022)
Rachel Duan
Dame Carolyn Fairbairn
James Forese
Steven Guggenheimer
Irene Lee (retired on 29 Apr 2022)
José Antonio Meade Kuribreña
Eileen Murray
David Nish
Jackson Tai
Mark Tucker
Pauline van der Meer Mohr (retired on 29 Apr 2022)
Shareholding
guidelines (number
of shares)
Share interests
(number of shares)
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
115,000
15,000
15,000
15,000
75,000
50,000
66,515
307,352
15,000
HSBC Holdings plc Annual Report and Accounts 2022
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Corporate governance
Report of the Directors | Corporate governance report | Directors’ remuneration report
2023 fees for non-executive Directors
The table below sets out the 2023 fees for non-executive Directors.
Position
Non-executive Group Chairman1
Non-executive Director (base fee)
Senior Independent Director
Group Risk Committee
Group Audit Committee and Group Remuneration Committee
Nomination & Corporate Governance Committee
Technology Governance Working Group
Designated workforce engagement non-executive Director
2023 fees
£
1,500,000
127,000
200,000
150,000
40,000
75,000
40,000
––
33,000
60,000
40,000
Chair
Member
Chair
Member
Chair
Member
Co-Chair
1 The Group Chairman does not receive a base fee or any other fee in respect of chairing of the Nomination & Corporate Governance Committee.
Service contracts
contracts, but are bound by letters of appointment issued for and on
behalf of HSBC Holdings, which are available for inspection at HSBC
Holdings’ registered office. There are no obligations in the non-
executive Directors’ letters of appointment that could give rise to
remuneration payments or payments for loss of office.
Non-executive Directors are appointed for fixed terms not exceeding
three years, which may be renewed subject to their re-election by
shareholders at AGMs. Non-executive Directors do not have service
2023 AGM
Geraldine Buckingham1
Kalpana Morparia1
David Nish
2024 AGM
James Forese
Steven Guggenheimer
Eileen Murray
Mark Tucker
2025 AGM
Rachel Duan
Dame Carolyn Fairbairn
José Antonio Meade Kuribreña
1 Geraldine Buckingham and Kalpana Morparia were appointed following the 2022 AGM and therefore their initial three-year appointment terms are subject
to approval of their election by shareholders at the 2023 AGM. Their initial three-year term of appointment will end at the conclusion of the 2026 AGM,
subject to annual re-election by shareholders’ at the relevant AGMs.
Our approach to workforce remuneration
Remuneration alignment with executive Directors
Total compensation, which comprises fixed and variable pay, is the key focus of our remuneration framework, with variable pay differentiated by
performance and demonstration of value-aligned behaviours. We set out below the key features and design characteristics of our remuneration
framework, which will apply on a Group-wide basis, subject to compliance with local laws:
Overview of remuneration structure for employees
Remuneration
components and
objectives
Fixed pay
Attract and retain
employees with market
competitive pay for the
role, skills and
experience required.
Benefits
Support the physical,
mental and financial
health of a diverse
workforce in
accordance with local
market practice.
Annual incentive
Incentivise and reward
performance based on
annual financial and
non-financial measures
consistent with the
medium- to long-term
strategy, stakeholder
interests and values-
aligned behaviours.
Application for Group employees
• Fixed pay may include salary, fixed pay allowance, cash in lieu of pension and other cash
allowances in accordance with local market practice.
• It is based on predetermined criteria, non-discretionary, transparent and not reduced
based on performance.
• It represents a higher proportion of total compensation for more junior employees.
• Fixed pay may change to reflect an individual’s position, role or grade, cost of living in the
country, individual skills, capabilities and experience.
• Fixed pay is generally delivered in cash on a monthly basis.
Approach for executive
Directors
• Consistent with approach for
Group colleagues except
fixed pay allowance paid in
shares.
• Benefits may include, but are not limited to, the provision of a pension, medical insurance,
• Provision of medical
life insurance, health assessment and relocation support.
insurance, life insurance, car
and tax return assistance.
Group Chief Executive is
eligible to receive
accommodation and a car
benefit in Hong Kong.
• All employees are eligible to be considered for a discretionary variable pay award.
• Annual incentive is
Individual awards are determined against objectives for performance set at the start of the
year.
• Annual incentives represent a higher proportion of total compensation for more senior
employees and will be more closely aligned to Group and business performance as
seniority increases.
• Variable pay for Group employees identified as Material Risk Takers (’MRTs’) under
European Union Regulatory Technical Standard (’RTS’) 2021/923 is limited to 200% of
fixed pay, as approved by shareholders at the 2014 AGM held on 23 May 2014 (98% in
favour).
• Awards are generally paid in cash and shares. For MRTs, at least 50% of the awards are
in shares and/or where required by regulations, in units linked to asset management
funds.
determined based on the
outcomes of annual
scorecard of financial and
non-financial measures.
• Executive Directors and
Group Executives are also
eligible to be considered for a
long-term incentive award,
which is subject to three-year
forward-looking performance
measures.
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HSBC Holdings plc Annual Report and Accounts 2022
Overview of remuneration structure for employees (continued)
Remuneration
components and
objectives
Buy-out awards
Support recruitment of
key individuals.
Application for Group employees
Approach for executive
Directors
• Buy-out awards may be offered if an individual holds any outstanding unvested awards
• For new hires, the approach
that are forfeited on resignation from the previous employer.
• The terms of the buy-out awards will not be more generous than the terms attached to
the awards forfeited on cessation of employment with the previous employer.
is consistent with the
approach taken for
employees and policy
approved by shareholders.
Target variable
remuneration
Support recruitment of
key individuals.
• Target variable pay is an indicative value, which is awarded in exceptional circumstances
• For new hires, the approach
for new hires, and is limited to the individual's first year of employment only, and is
subject to a number of factors (such as the respective performance of the Group,
business unit and individual), and the final value paid remains at the full discretion of
HSBC.
is consistent with the
approach taken for
employees and policy
approved by shareholders.
Deferral
Align employee
interests with the
medium- to long-term
strategy, stakeholder
interests and values-
aligned behaviours.
• All of the LTI award, or at
least 60% of the total
variable award (including LTI),
is deferred. The deferred
awards will vest in five equal
annual instalments, with the
first vesting on or around the
third anniversary of the grant
date and the last instalment
vesting on or around the
seventh anniversary of the
grant date.
• All deferred awards are in
HSBC shares and subject to a
post-vesting retention period
of one year.
• The exceptional circumstances would typically involve a critical new hire and would also
depend on the factors such as the seniority of the individual, where the new hire
candidate is forfeiting any awards and the timing of the hire during the performance year.
• A Group-wide deferral approach is applicable to all employees. A portion of annual
incentive awards above a specified threshold is deferred in shares vesting annually over a
three-year period (33% vesting on the first and second anniversaries of grant and 34% on
the third).
• For MRTs, awards are generally subject to a minimum 40% deferral (60% for awards of
£500,000 or more) over a minimum period of four years.
• A deferral period of five years is applied for senior management and individuals in
specified roles with managerial responsibilities as prescribed under the PRA and FCA
remuneration rules and seven years for individuals in PRA-designated senior management
functions.
• In line with the PRA and FCA remuneration rules, and in compliance with local regulations,
the deferral requirement for MRTs is not applied to individuals where their total variable
pay is £44,000 or less and variable pay is not more than one-third of total compensation.
For these individuals, the Group standard deferral applies.
• Individuals based outside the UK and identified as MRTs under local regulations, would be
subject to local requirements where necessary.
• All deferred awards are subject to malus provisions, subject to compliance with local
laws. Awards granted to MRTs on or after 1 January 2015 and awards granted to non-
MRTs on or after 1 January 2022 are subject to clawback.
• HSBC operates an anti-hedging policy for all employees, which prohibits employees from
entering into any personal hedging strategies in respect of HSBC securities.
• For all Group MRTs and the majority of local MRTs, excluding executive Directors, a
minimum 50% of the deferred awards is in HSBC shares and the rest into deferred cash.
Local regulatory requirements would also apply where necessary.
• For some employees in our asset management business, where required by the relevant
regulations, at least 50% of the deferred award is linked to fund units reflective of funds
managed by those entities, with the remaining portion in deferred cash awards.
• Variable pay awards made in HSBC shares or linked to relevant fund units granted to
MRTs are generally subject to a one-year retention period post-vesting.
• MRTs who are subject to a five-year deferral period, except senior management or
individuals in PRA- and FCA-designated senior management functions, have a six-month
retention period applied to their awards.
• Where an employee is subject to more than one regulation, the requirement specific to
the sector and/or country in which the individual is working is applied.
Severance payments
Adhere to contractual
agreements with
involuntary leavers.
• Where an individual’s employment is terminated involuntarily for gross misconduct then,
subject to compliance with local laws, the Group’s policy is not to make any severance
payment in such cases and all outstanding unvested awards are forfeited.
• Any payments will be in line
with the policy on loss of
office
• For other cases of involuntary termination of employment, the determination of any
severance will take into consideration the performance of the individual, contractual notice
period, applicable local laws and circumstances of the case.
• Generally, all outstanding unvested awards will normally continue to vest in line with the
applicable vesting dates. Where relevant, any performance conditions attached to the
awards, and malus and clawback provisions, will remain applicable to those awards.
• Severance amounts awarded to MRTs are not considered as variable pay for the purpose
of application of the deferral and variable pay cap rules under the PRA and FCA
remuneration rules where such amounts include: (i) payments of fixed remuneration that
would have been payable during the notice and/or consultation period; (ii) statutory
severance payments; (iii) payments determined in accordance with any approach
applicable in the relevant jurisdictions; and (iv) payments made to settle a potential or
actual dispute.
HSBC Holdings plc Annual Report and Accounts 2022
293
Corporate governance Report of the Directors | Corporate governance report | Directors’ remuneration report
Link between risk, performance and reward
Our remuneration practices promote sound and effective risk
management while supporting our business objectives and the
delivery of our strategy.
We set out below the key features of our framework, which help
enable us to achieve alignment between risk, performance and
reward, subject to compliance with local laws and regulations:
Framework
elements
Variable pay
pool
Application
The Group variable pay pool is expected to reflect Group performance, based on a range of financial, non-financial and contextual
factors. We use a countercyclical funding methodology, with both a floor and a ceiling, with the payout ratio generally reducing as
performance increases to avoid pro-cyclicality. The floor recognises that even in challenging times, remaining competitive is important.
The ceiling recognises that at higher levels of performance it is not always necessary to continue to increase the variable pay pool,
thereby limiting the risk of inappropriate behaviour to drive financial performance.
The main quantitative and qualitative performance and risk metrics used for assessment of performance include:
• Group and business unit financial performance, taking into account contextual factors driving performance, and capital
requirements;
• current and future risks, taking into consideration performance against the risk appetite, financial and resourcing plan and global
conduct outcomes; and
• fines, penalties and provisions for customer redress, which are automatically included in the Committee’s definition of profit for
determining the pool.
In the event that the Group was unable to distribute dividends to shareholders for reasons such as capital adequacy, then the Group
may determine that as a year of weak performance. In such a year, the Group may withhold some, or all, variable pay for employees
including unvested share awards, using the metrics outlined above as a basis for that determination.
Individual
performance
scorecard
Control
function staff
• Assessment of individual performance is made with reference to clear and relevant financial and non-financial objectives. Objectives
for senior management take into account appropriate measures linked to sustainability risks, such as: reduction in carbon footprint;
facilitating financing to help clients with their transition to net zero; employee diversity targets; and risk and compliance measures.
A mandatory global risk objective is included in the scorecard of all other employees. All employees receive a behaviour rating as
well as a performance rating, which ensures performance is assessed not only on what is achieved but also on how it is achieved.
• The performance and reward of individuals in control functions, including risk and compliance employees, are assessed according to
a balanced scorecard of objectives specific to the functional role they undertake.
• Their remuneration is determined independent of the performance of the business areas they oversee.
• The Committee is responsible for approving the remuneration for the Group Chief Risk and Compliance Officer and Group Head of
Internal Audit.
Variable pay
adjustments
and conduct
recognition
Malus
Clawback
Sales
incentives
Identification
of MRTs
• Group policy is for control functions staff to report into their respective function. Remuneration decisions for senior functional roles
are made by the global function head.
• Remuneration is carefully benchmarked with the market and internally to ensure it is set at an appropriate level.
• Variable pay awards may be adjusted downwards in circumstances including:
– detrimental conduct, including conduct that brings HSBC into disrepute;
– involvement in events resulting in significant operational losses, or events that have caused or have the potential to cause
significant harm to HSBC; and
– non-compliance with the values-aligned behaviours and other mandatory requirements or policies.
• Rewarding positive conduct may take the form of use of our global recognition programme, At Our Best, or positive adjustments to
variable pay awards.
Malus can be applied to unvested deferred awards (up to 100% of awards) granted in prior years in circumstances including:
• detrimental conduct, including conduct that brings the business into disrepute;
• past performance being materially worse than originally reported;
• restatement, correction or amendment of any financial statements; and
• improper or inadequate risk management.
Clawback can be applied to vested or paid awards granted to MRTs on or after 1 January 2015 (and awards granted to non-MRTs on
or after 1 January 2022) for a period of seven years, extended to 10 years for employees in PRA and FCA designated senior
management functions in the event of ongoing internal/regulatory investigation at the end of the seven-year period. Clawback may be
applied in circumstances including:
• participation in, or responsibility for, conduct that results in significant losses;
• failing to meet appropriate standards and propriety;
• reasonable evidence of misconduct or material error that would justify, or would have justified, summary termination of a contract
of employment; and
• a material failure of risk management suffered by HSBC or a business unit in the context of Group risk-management standards,
policies and procedures.
• We generally do not operate commission-based sales plans, unless aligned with local market practice and with appropriate
safeguards to avoid incentivising inappropriate sales behaviours.
• We identify individuals as MRTs based on the qualitative and quantitative criteria set out in the RTS and using the following key
principles that underpin HSBC’s identification process:
– MRTs are identified at Group, HSBC Bank (consolidated) and HSBC UK Bank level.
– MRTs are also identified at other solo regulated entity level as required by the regulations.
– When identifying an MRT, HSBC considers an employee’s role within its matrix management structure. The global business
and function that an individual works within takes precedence, followed by the geographical location in which they work.
• We also identify additional MRTs based on our own internal criteria, which include compensation thresholds and individuals in
certain roles and grades who otherwise would not be identified as MRTs under the criteria prescribed in the RTS.
294
HSBC Holdings plc Annual Report and Accounts 2022
Pay ratio
The following table shows the ratio between the total pay of the
Group Chief Executive and the lower quartile, median and upper
quartile pay of our UK employees.
Total pay ratio
Method
A
A
A
A
Lower
quartile
167:1
154:1
139:1
169:1
Median
95:1
90:1
85:1
105:1
Upper
quartile
49:1
46:1
43:1
52:1
2022
2021
2020
2019
nearly 35,000 UK employees, other than the individual performing the
role of Group Chief Executive. We calculated our pay quartiles and
benefits information for our UK employees using:
• full-time equivalent annualised fixed pay, which includes salary and
allowances, at 31 December 2022;
• variable pay awards for 2022;
• return on deferred cash awards granted in prior years. The
deferred cash portion of the annual incentive granted in prior years
includes a right to receive notional returns for the period between
the grant date and vesting date, which is determined by reference
to a rate of return specified at the time of grant. A payment of
notional return is made annually and the amount is disclosed on a
paid basis in the year in which the payment is made;
Total pay and benefits amounts used to calculate the ratio
• gains realised from exercising awards from taxable employee
Lower quartile
Median
Upper quartile
share plans; and
Total
pay and
benefits
33,284
31,727
29,833
28,920
Total
salary
24,615
27,666
23,264
24,235
Total
pay and
benefits
58,257
54,678
48,703
46,593
Total
pay and
benefits
Total
salary
113,778 95,000
106,951 84,000
75,000
96,386
72,840
93,365
Total
salary
41,000
41,500
36,972
41,905
(£) Method
2022
2021
2020
2019
A
A
A
A
The increase in median ratio is primarily driven by a higher annual
incentive payout than in 2021 to the Group Chief Executive, reflecting
the improvement in the financial performance of the Group. This is
described further in the Committee Chair‘s letter.
The total pay and benefits for the median employee for 2022 was
£58,257, a 6.5% increase compared with 2021.
Our UK workforce comprises a diverse mix of employees across
different businesses and levels of seniority, from junior cashiers in our
retail branches to senior executives managing our global business
units. We aim to deliver market-competitive pay for each role, taking
into consideration the skills and experience required for the business.
Pay structure varies across roles in order to deliver an appropriate mix
of fixed and variable pay. Junior employees have a greater portion of
their pay delivered in a fixed component, which does not vary with
performance and allows them to predictably meet their day-to-day
needs. Our senior management, including executive Directors,
generally have a higher portion of their total compensation opportunity
structured as variable pay and linked to the performance of the Group,
given their role and ability to influence the strategy and performance
of the Group. Executive Directors also have a higher proportion of
their variable pay delivered in shares, which vest over a period of
seven years with a post-vesting retention period of one year. During
this deferral and retention period, the awards are linked to the share
price so the value of award realised by them after the vesting and
retention period will be aligned to the performance of the Group.
We are satisfied that the median pay ratio is consistent with the pay,
reward and progression policies for our UK workforce, taking into
account the diverse mix of our UK employees, the compensation
structure mix applicable to each role and our objective of delivering
market competitive pay for each role subject to Group, business and
individual performance.
Our ratios have been calculated using the option ‘A’ methodology
prescribed under the UK Companies (Miscellaneous Reporting)
Regulations 2018. Under this option, the ratios are calculated using
full-time equivalent pay and benefits of all employees providing
services in the UK at 31 December 2022. We believe this approach
provides accurate information and representation of the ratios. The
ratio has been computed taking into account the pay and benefits of
• full-time equivalent value of taxable benefits and pension
contributions.
Full-time equivalent fixed pay and benefits for each employee have
been calculated by using each employee’s data as at 31 December
2022. Where an employee works part-time, fixed pay and benefits are
grossed up, where appropriate, to full-time equivalent. One-off
benefits have not been included in calculating the ratios as these are
not permanent in nature and in some cases, depending on individual
circumstances, may not truly reflect a benefit to the employee.
Total pay and benefits for the Group Chief Executive is the single
figure of remuneration table for Noel Quinn. Total remuneration does
not include an LTI as he has not received an LTI award with a
performance period that ended during 2022. In a year in which the
value of an LTI is included in the single figure table of remuneration,
the ratios could be higher.
Given differences in business mix and size; employment and
compensation practices; methodologies for computing pay ratios; and
assumptions used by companies, the reported ratios may not be
comparable to our international and listed peers on the FTSE 100.
Relative importance of spend on pay
The following chart shows the change in:
• total staff pay between 2021 and 2022; and
• dividends and share buy-backs in respect of 2021 and 2022.
In 2022, total spend on pay was slightly lower than in 2021, while the
distribution to shareholders increased by 29% compared with 2021,
reflecting a higher dividend and the capital return to shareholders
through the $1bn share buy-back announced in February 2022, which
concluded in 2022. Dividends include an approximation of the amount
payable in April 2023 in relation to the second interim dividend of
$0.23 per ordinary share.
Relative importance of spend on pay
2022 —
$8,144m
$1,000m $9,144m
Total return to
shareholder
2021 —
$5,070m
$2,000m
$7,070m
Employee pay
2022 —
2021 —
$18,366m
$18,742m
↑
29%
↓
-2%
Employee pay
Dividends
Share buy-back
HSBC Holdings plc Annual Report and Accounts 2022
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Report of the Directors | Corporate governance report
Comparison of Directors’ and employees’
pay
The following table compares the changes in each Director’s salary,
taxable benefits and annual incentive between 2020 and 2022 with
the percentage change in each of those elements of pay for UK-based
employees of HSBC Group Management Services Limited, the
employing entity of the executive Directors.
There were no changes to the fees or benefits of the non-executive
Directors between 2022 and 2020. The year-on-year percentage
Annual percentage change in remuneration
change in fees noted in the table below is primarily driven by any pro-
rated fees received by the non-executive Director for 2022 and/or
2021 and/or 2020 based on time served by them on the Board and
the relevant Board committees and any additional responsibilities
taken on by the non-executive Director during each year. The value of
benefits received by the non-executive Directors reflect the taxable
expense reimbursements claimed, and the associated gross-up tax, in
relation to attending the Board meetings in each year. Non-executive
Directors who joined after 1 January 2022 are not included, which
includes Geraldine Buckingham who joined on 1 May 2022.
Director/employees
Executive Directors
Noel Quinn2
Ewen Stevenson (retired on 31
December 2022)
Non-executive Directors3
Kathleen Casey (retired on 24
April 2020)
Laura Cha (retired on 28 May
2021)4
Henri de Castries (retired on 28
May 2021)4,5
Rachel Duan6
Dame Carolyn Fairbairn7
James Forese8
Steven Guggenheimer9
Irene Lee (retired on 29 April
2022)
José Antonio Meade Kuribreña10
Pauline van der Meer Mohr
(retired on 29 April 2022)10
Heidi Miller (retired on 28 May
2021)4,5
Eileen Murray7
David Nish
Sir Jonathan Symonds (retired
on 18 February 2020)
Jackson Tai10
Mark Tucker
Employee group11
Base
salary/fees
2020
Benefits
Annual
incentive
Base
salary/fees
2021
Benefits
Annual
incentive1
Base
salary/fees
2022
Benefits
Annual
incentive
151.7%
353.7%
20.2%
1.7%
-48.9%
99.0%
3.2%
25.3%
36.1%
2.6%
-25.0%
-58.4%
1.8%
-75.0%
117.3%
3.2%
133.3%
11.6%
-65.0%
200.0%
97.0%
—
4.1%
-75.0%
—
—
—
—
—
—
—
—
20.3%
28.7%
-100.0%
100.0%
17.7%
-75.0%
1.1%
-100.0%
—
—
108.7%
-50.0%
-86.5%
-10.8%
—
2.0%
-4.8%
-78.9%
-77.5%
2.3%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
-20.0%
—
-58.8%
—
—
-59.4%
2,100.0%
—
—
257.5%
86.6%
1.8%
10.4%
—
—
—
—
—
-100.0%
-6.7%
-100.0%
-60.3%
121.7%
0.4%
171.4%
—
25.0%
—
—
-1.4%
—
1.0%
-100.0%
-36.5%
1.3%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
25.2%
—
—
—
235.8%
231.1%
20.5%
4.8%
-12.2%
8.5%
-68.4%
—
-1.5%
-1.0%
—
7.7%
—
3.1%
—
—
—
—
—
—
—
—
—
—
—
—
120.0%
—
—
242.4%
7.0%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3.7%
1 Noel Quinn and Ewen Stevenson both voluntarily waived the cash portion of their 2020 annual incentive. The year-on-year percentage change
between 2020 and 2021 would be -1% for Noel Quinn and 9% for Ewen Stevenson without this cash waiver.
2 Noel Quinn succeeded John Flint as interim Group Chief Executive with effect from 5 August 2019 and was appointed permanently into the role on
17 March 2020. The annual percentage change in 2020 for Noel Quinn is based on remuneration reported in his 2019 single figure of remuneration (for
the period 5 August 2019 to 31 December 2019) and his 2020 single figure of remuneration (for the period 1 January 2020 to 31 December 2020).
Based on his annualised 2019 compensation as an executive Director, his percentage change in salary, benefits and annual incentive was 2.1%,
85.2% and -50.9%, respectively for 2020.
In some instances, non-executive Directors may have served only part of the year resulting in large year-on-year percentage changes in fees and/or
benefits. Page 291 provides the underlying single figure of remuneration for non-executive Directors used to calculate the figures above.
3
4 Retired from the Board during 2021 and therefore fees received during 2021 were lower than the fees received in 2020.
5 There was no change to the benefit provided. The year-on-year change reflected the increase in taxable expense reimbursement claimed in 2021 for
attending Board and other meetings at HSBC Holdings’ registered offices.
6 Appointed as member of the Group Audit Committee on 1 June 2022.
7 Appointed as Chair of the Group Remuneration Committee effective 29 April 2022.
8 Appointed as non-executive Chair of HSBC North America Holdings, Inc in 2021. Fees for 2021 included fees in relation to this role.
9 Joined the Board during 2020 and therefore received fees for only part of 2020.
10 Received no taxable benefits in 2021, resulting in a 100% reduction from 2021.
11 Employee group consists of individuals employed by HSBC Group Management Services Ltd, the employing entity of the executive Directors, as no
individuals are employed directly by HSBC Holdings.
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HSBC Holdings plc Annual Report and Accounts 2022
Policy alignment with UK Corporate Governance Code
The table below details how the Group Remuneration Committee addresses the principles set out in the UK Corporate Governance Code in
respect of the Directors' remuneration policy:
Provision
Approach
Clarity
Remuneration arrangements should be
transparent and promote effective engagement
with shareholders and the workforce.
Simplicity
Remuneration structures should avoid complexity
and their rationale and operation should be easy
to understand.
Risk
Remuneration structures should identify and
mitigate against reputational and other risks from
excessive rewards, as well as behavioural risks
that can arise from target-based incentive plans.
Predictability
The range of possible values of rewards to
individual Directors and any other limits or
discretions should be identified and explained at
the time of approving the policy.
Proportionality
The link between individual awards, the delivery
of strategy and the long-term performance of the
Group should be clear and outcomes should not
reward poor performance.
• The Committee regularly engages and consults with key shareholders to take into account
shareholder feedback and to ensure there is transparency on our policy and its implementation.
• Details of our remuneration practices and our remuneration policy for Directors are published and
available to all our employees.
• Our Directors' remuneration policy has been designed so that it is easy to understand and
transparent, while complying with the provisions set out in the UK Corporate Governance Code
and the remuneration rules of the UK's PRA and FCA, as well as meeting the expectations of our
shareholders. The objective of each remuneration element is explained and the amount paid in
respect of each element of pay is clearly set out.
• In line with regulatory requirements, our remuneration practices promote sound and effective risk
management while supporting our business objectives.
• The Group Chief Risk and Compliance Officer attends Committee meetings and updates the
Committee on the overall risk profile of the Group. The Committee also seeks inputs from the
Group Risk Committee when making remuneration decisions.
• Risk and conduct considerations are taken into account in setting the variable pay pool, from
which any executive Director variable pay is funded.
• Executive Directors' annual incentive and LTI scorecards include a mix of financial and non-
financial measures. Financial measures in the scorecards are subject to a CET1 capital underpin to
ensure CET1 capital remains within risk tolerance levels while achieving financial targets. In
addition, the overall scorecard outcome is subject to a risk and compliance modifier.
• The deferred portion of any awards granted to executive Directors is subject to a seven-year
deferral period during which our malus policy can be applied. All variable pay awards that have
vested are subject to our clawback policy for a period of up to seven years from the award date
(extending to 10 years where an investigation is ongoing).
• The charts set out in our shareholder approved policy report (available in our Annual Report and
Accounts 2021) show how the total value of remuneration and its composition vary under different
performance scenarios for executive Directors.
• The annual incentive and LTI scorecards reward achievement of our financial and resource plan
targets, as well as long-term financial and shareholder value creation targets.
• The Committee retains the discretion to adjust the annual incentive and LTI payout based on the
outcome of the relevant scorecards, if it considers that the payout determined does not
appropriately reflect the overall position and performance of the Group during the performance
period.
Alignment with culture
Incentive schemes should drive behaviours
consistent with the Group's purpose, values and
strategy.
• In order for any annual incentive award to be made, each executive Director must achieve a
required behaviour rating, which is assessed by reference to the HSBC Values.
• Annual incentive and LTI scorecards contain non-financial measures linked to our wider social
obligations. These include measures related to reducing the environmental impact of our
operations, improving customer satisfaction, diversity and employee engagement.
• Each year senior employees participate in a 360 degree survey, which gathers feedback on values-
aligned behaviours from peers, direct reports, skip level reports and managers.
HSBC Holdings plc Annual Report and Accounts 2022
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Additional regulatory remuneration
disclosures
This section provides disclosures required under the Hong Kong
Ordinances, Hong Kong Listing Rules and the Pillar 3 remuneration
disclosures.
For the purpose of the Pillar 3 remuneration disclosures, executive
Directors and non-executive Directors are considered to be members
of the management body. Members of the Group Executive
Committee other than the executive Directors are considered as
senior management.
MRT remuneration disclosures
The following tables set out the remuneration disclosures for
individuals identified as MRTs for HSBC Holdings.
Remuneration information for individuals who are only identified as
MRTs at HSBC Bank plc, HSBC UK Bank plc or other solo-regulated
entity levels is included, where relevant, in those entities’ disclosures.
The 2022 variable pay information included in the following tables is
based on the market value of awards. For share awards, the market
value is based on HSBC Holdings’ share price at the date of grant
(unless indicated otherwise). For cash awards, it is the value of
awards expected to be paid to the individual over the deferral period.
Remuneration awarded for the financial year (REM1)
Number of identified staff
Total fixed pay ($m)
Fixed
remuneration
of which: cash-based ($m)1
of which: shares or equivalent ownership interests ($m)2
of which: share-linked instruments or equivalent non-cash instruments ($m)
of which: other instruments ($m)
of which: other forms ($m)
Number of identified staff
Total variable remuneration ($m)4,5
of which: cash-based ($m)
– of which: deferred ($m)
Variable
remuneration3
of which: shares or equivalent ownership interests ($m)2
– of which: deferred ($m)
of which: share-linked instruments or equivalent non-cash instruments ($m)
– of which: deferred ($m)
of which: other instruments ($m)
– of which: deferred ($m)
of which: other forms ($m)
– of which: deferred ($m)
Total remuneration ($m)
Supervisory
function
Management
function
Other senior
management
Other
identified
staff
12.0
6.4
6.4
—
—
—
—
12.0
—
—
—
—
—
—
—
—
—
—
—
6.4
2.0
6.3
2.9
3.4
—
—
—
2.0
11.0
1.6
—
9.4
7.8
—
—
—
—
—
—
17.3
18.9
43.6
43.6
—
—
—
—
18.9
65.4
30.0
17.9
35.4
23.3
—
—
—
—
—
—
109.0
1,203.1
656.8
656.8
—
—
—
—
1,203.1
641.0
321.0
151.9
305.9
170.0
8.7
4.7
—
—
5.4
3.3
1,297.8
1 Cash-based fixed remuneration is paid immediately.
2 Paid in HSBC shares. Vested shares are subject to a retention period of up to one year.
3 Variable pay awarded in respect of 2022. In accordance with shareholder approval received on 23 May 2014 (98% in favour), for each MRT the variable
component of remuneration for any one year is limited to 200% of fixed component of the total remuneration.
4 The Group has used the discount rate under PRA remuneration rule 15.13 for 7 individuals for the purpose of calculating the ratio between fixed and
variable components of 2022 total remuneration.
5 27 identified staff members were exempt from the application of the remuneration structure requirements for MRTs under the PRA and FCA
remuneration rules. Their total remuneration is $6.2m, of which $5.1m is fixed pay and $1.1m is variable remuneration.
Special payments to staff whose professional activities have a material impact on institutions’ risk profile (REM2)
Supervisory
function
Management
function
Other senior
management
Other
identified
staff
Guaranteed variable remuneration awards1
Number of identified staff
Total amount ($m)
– of which guaranteed variable remuneration awards paid during the financial year, that are not
taken into account in the bonus cap ($m)
Severance payments awarded in previous periods, that have been paid out during the financial year2
Number of identified staff
Total amount ($m)
Severance payments awarded during the financial year2
Number of identified staff
Total amount ($m)
– of which paid during the financial year ($m)
– of which deferred ($m)
– of which severance payments paid during the financial year, that are not taken into account in
the bonus cap ($m)
– of which highest payment that has been awarded to a single person ($m)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
59.8
26.9
21.1
—
26.9
2.2
1 No guaranteed variable remuneration was awarded in 2022. HSBC would offer a guaranteed variable remuneration award in exceptional
circumstances for new hires, and for the first year of employment only. It would typically involve a critical new hire, and would also depend on factors
such as the seniority of the individual, whether the new hire candidate has any competing offers and the timing of the hire during the performance
year.
Includes payments such as payment in lieu of notice, statutory severance, outplacement service, legal fees, ex-gratia payments and settlements
(excludes pre-existing benefit entitlements triggered on terminations).
2
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HSBC Holdings plc Annual Report and Accounts 2022
Deferred remuneration at 31 December1 (REM3)
Total amount
of deferred
remuneration
awarded for
previous
performance
periods
of which:
due to
vest in
the
financial
year
of which:
vesting in
subsequent
financial
years
Amount of
performance
adjustment
made in the
financial year
to deferred
remuneration
that was due
to vest in the
financial year
Amount of
performance
adjustment
made in the
financial year
to deferred
remuneration
that was due
to vest in
future
performance
years
Total
amount of
adjustment
during the
financial
year due to
ex post
implicit
adjustments
Total amount
of deferred
remuneration
awarded
before the
financial year
actually paid
out in the
financial year
Total amount
of deferred
remuneration
awarded for
previous
performance
period that
has vested
but is subject
to retention
periods
—
—
—
—
—
—
31.1
2.9
28.2
—
—
—
114.3
43.3
70.0
1.0
—
—
853.1
359.1
474.2
13.9
—
5.9
998.5
—
—
—
—
—
—
2.6
0.5
2.1
—
—
—
15.7
6.4
8.5
0.8
—
—
232.5
85.2
139.0
5.4
—
2.9
250.8
—
—
—
—
—
—
28.5
2.4
26.1
—
—
—
98.6
36.9
61.5
0.2
—
—
620.6
273.9
335.2
8.5
—
3.0
747.7
—
—
—
—
—
—
-2.4
—
-2.4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
-2.4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1.9
—
1.9
—
—
—
3.0
—
2.9
0.1
—
—
21.6
—
21.6
0.7
—
-0.7
26.5
—
—
—
—
—
—
2.7
0.5
2.2
—
—
—
16.0
6.5
8.7
0.8
—
—
235.4
86.0
142.1
5.5
—
1.8
254.1
—
—
—
—
—
—
1.0
—
1.0
—
—
—
3.0
—
2.7
0.3
—
—
38.1
—
34.9
2.4
—
0.8
42.1
$m
Supervisory function
Cash-based
Shares
Share-linked instruments
Other instruments
Other forms
Management function
Cash-based
Shares
Share-linked instruments
Other instruments
Other forms
Other senior management
Cash-based
Shares
Share-linked instruments
Other instruments
Other forms
Other identified staff
Cash-based
Shares
Share-linked instruments
Other instruments
Other forms
Total amount
1 This table provides details of balances and movements during performance year 2022. For details of variable pay awards granted for 2022, refer to the
’Remuneration awarded for the financial year’ table. Deferred remuneration is made in cash and/or shares. Share-based awards are made in HSBC
shares.
Identified staff - remuneration by band1 (REM4)
€1,000,000 – 1,500,000
€1,500,000 – 2,000,000
€2,000,000 – 2,500,000
€2,500,000 – 3,000,000
€3,000,000 – 3,500,000
€3,500,000 – 4,000,000
€4,000,000 – 4,500,000
€4,500,000 – 5,000,000
€5,000,000 – 6,000,000
€6,000,000 – 7,000,000
€7,000,000 – 8,000,000
€8,000,000 – 9,000,000
€9,000,000 – 10,000,000
€10,000,000 – 11,000,000
€11,000,000 – 12,000,000
Identified staff that are high
earners as set out in Article
450(i) CRR
246
107
48
26
12
8
7
5
6
2
3
1
1
—
1
1 Table prepared in euros in accordance with Article 450 of the European Union Capital Requirements Regulation, using the exchange rates published by
the European Commission for financial programming and budget for December of the reported year as published on its website.
HSBC Holdings plc Annual Report and Accounts 2022
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Corporate governance
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Information on remuneration of staff whose professional activities have a material impact on institutions’ risk profile (REM5)
Management body
Business areas
Supervisory
function
Management
function Total
Investment
banking
Retail
banking
Asset
management
Corporate
function
Independent
internal
control
function
All
other
Total
1,236.0
12.0
2.0
14.0
2.0
2.0
548.5
228.0
—
32.0
6.9
2.0
6.0
151.0
172.0
71.6
6.4
—
6.4
17.3 23.7
704.8
225.2
40.5
189.0
123.8 123.5
11.0 11.0
368.6
107.6
21.0
92.4
53.9 62.9
6.3 12.7
336.2
117.6
19.5
96.6
69.9 60.6
Total number of
identified staff
– of which members of
the Board
– of which senior
management
– of which other
identified staff
Total remuneration of
identified staff ($m)
– of which variable
remuneration ($m)1
– of which fixed
remuneration ($m)
1 Variable pay awarded in respect of 2022. In accordance with shareholder approval received on 23 May 2014 (98% in favour), for each MRT the variable
component of remuneration for any one year is limited to 200% of fixed component of the total remuneration.
Directors’ emoluments
The details of compensation paid to executive and non-executive Directors for the year ended 31 December 2022 are set out below:
Emoluments
Directors' base salary, allowances and benefits in kind
Non-executive Directors' fees and benefits in kind
Pension contributions
Performance-related pay paid or receivable2
Inducements to join paid or receivable
Compensation for loss of office
Notional return on deferred cash
Total
Total ($000)
Noel Quinn
2022
£000
3,367
—
6,439
—
—
31
9,837
12,113
2021
£000
3,283
—
5,721
—
—
22
9,026
12,414
Ewen Stevenson
Non-executive Directors1
2022
£000
1,994
—
1,091
1,180
—
—
4,265
5,252
2021
£000
1,933
—
3,388
754
—
—
6,075
8,356
2022
£000
5,242
—
—
—
—
—
5,242
6,455
2021
£000
4,680
—
—
—
—
—
4,680
5,763
1 Fees and benefits in kind for 2021 reflects the population as per the single figure table for non-executive Directors, which excludes individuals who
have stepped down from the Board during 2021.
2 Includes the value of the deferred and LTI awards at grant.
The aggregate amount of Directors’ emoluments (including both
executive Directors and non-executive Directors) for the year ended
31 December 2022 was $23,820,419. As per our policy, benefits in
kind may include, but are not limited to, the provision of medical
insurance, income protection insurance, health assessment,
life assurance, club membership, tax assistance, car benefit, travel
assistance, provision of company owned-accommodation and
relocation costs (including any tax due on these benefits, where
applicable). Post-employment medical insurance benefit was provided
to former Directors, including Douglas Flint valued at £6,706 ($8,258),
Stuart Gulliver valued at £6,706 ($8,258), John Flint valued at £9,996
($12,309), and Marc Moses valued at £15,851 ($19,519). Tax return
support was also provided to John Flint valued at £5,441 ($6,700), and
Marc Moses valued at £2,500 ($3,079). The total aggregate value of
benefits provided to former executive Directors was £47,200
($58,123). The aggregate value of Director retirement benefits for
current Directors is nil. Amounts are converted into US dollars based
on the average year-to-date exchange rates for the respective year.
Emoluments
£000s
Basic salaries, allowances and benefits in kind
Pension contributions
Performance-related pay paid or receivable1
Inducements to join paid or receivable
Compensation for loss of office
Total
Total ($000)
1 Includes the value of deferred shares awards at grant.
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HSBC Holdings plc Annual Report and Accounts 2022
There were payments under retirement benefit arrangements with
two former Directors of $405,660. The provision at 31 December
2022 in respect of unfunded pension obligations to former Directors
amounted to $5,387,659. This relates to unfunded unapproved
retirement benefits schemes.
Emoluments of senior management and five highest paid
employees
The following tables set out the details of emoluments paid to senior
management, which in this case comprises executive Directors and
members of the Group Executive Committee, for the year ended
31 December 2022, or for the period of appointment in 2022 as a
Director or member of the Group Executive Committee. Details of the
remuneration paid to the five highest paid employees, comprising one
executive Director and four Group Executives, for the year ended
31 December 2021, are also presented.
Five highest paid employees
13,404
99
23,237
—
—
36,740
45,242
Senior management
41,639
611
56,616
—
—
98,866
121,745
Emoluments by bands
Hong Kong dollars
$10,500,001 – $11,000,000
$19,500,001 – $20,000,000
$24,000,001 – $24,500,000
$25,500,001 – $26,000,000
$29,500,001 – $30,000,000
$39,500,001 – $40,000,000
$41,000,001 – $41,500,000
$44,000,001 – $44,500,000
$44,500,001 – $45,000,000
$45,500,001 – $46,000,000
$52,500,001 – $53,000,000
$53,000,001 – $53,500,000
$55,500,001 – $56,000,000
$56,500,001 – $57,000,000
$60,500,001 – $61,000,000
$61,000,001 – $61,500,000
$64,000,001 – $64,500,000
$69,000,001 – $69,500,000
$76,000,001 – $76,500,000
$82,500,001 – $83,000,000
$135,000,001 – $135,500,000
US dollars
$1,340,909 – $1,404,762
$2,490,259 – $2,554,112
$3,064,935 – $3,128,787
$3,256,493 – $3,320,346
$3,767,315 – $3,831,168
$5,044,371 – $5,108,224
$5,235,930 – $5,299,782
$5,619,047 – $5,682,899
$5,682,899 – $5,746,752
$5,810,605 – $5,874,458
$6,704,544 – $6,768,397
$6,768,397 – $6,832,250
$7,087,661 – $7,151,514
$7,215,367 – $7,279,219
$7,726,189 – $7,790,042
$7,790,042 – $7,853,894
$8,173,158 – $8,237,011
$8,811,686 – $8,875,539
$9,705,626 – $9,769,478
$10,535,712 – $10,599,565
$17,240,256 – $17,304,109
Number of highest paid
employees
Number of senior
management
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
Share capital and other related
disclosures
Share buy-back programme
On 20 April 2022, HSBC Holdings concluded a share buy-back
programme of its ordinary shares of $0.50 each that had been
announced in October 2021. Under this buy-back programme in 2022,
a total of 191,466,093 ordinary shares were repurchased for
cancellation on UK trading venues, including the London Stock
Exchange, BATS, Chi-X, Turquoise and/or Aquis Exchange.
On 3 May 2022, HSBC Holdings commenced a further share buy-back
programme of its ordinary shares of $0.50 each up to a maximum
consideration of $1.0bn. This programme concluded on 28 July 2022,
with 86,606,357 ordinary shares repurchased for cancellation on the
UK trading venues and 70,066,800 ordinary shares repurchased for
cancellation on The Stock Exchange of Hong Kong Limited (’HKEx’).
The purpose of both buy-back programmes was to reduce HSBC’s
number of outstanding ordinary shares.
As at 31 December 2022, the total number of ordinary shares
purchased and cancelled during the year was 348,139,250,
representing a nominal value of $174,069,625 and an aggregate
consideration paid by HSBC of £1,426,598,865 on the UK trading
venues and HK$3,514,580,618 on the HKEx. The shares cancelled
represent 1.72% of the shares in issue and 1.74% of the shares in
issue, excluding treasury shares.
The table that follows outlines details of the shares purchased and
cancelled on a monthly basis during 2022.
First share buy-back on UK trading venues in 2022
Month shares cancelled
Jan-22
Feb-22
Mar-22
Apr-22
Total
Second share buy-back on UK trading venues in 2022
Month shares cancelled
May-22
Jun-22
Jul-22
Aug-22
Total
Number
of shares
purchased and
cancelled
25,382,519
19,064,151
72,125,062
74,894,361
191,466,093
Number
of shares
purchased and
cancelled
21,447,447
31,082,904
33,126,211
949,795
86,606,357
Highest price
paid per share
Lowest price
paid per share
Average price
paid per share
Aggregate
price paid
£
5.2700
5.5510
5.4040
5.4100
£
4.4555
5.1530
4.4935
5.1460
£
4.9784
5.3395
4.9129
5.2608
£
126,363,981
101,793,492
354,343,000
394,002,122
976,502,595
Highest price
paid per share
Lowest price
paid per share
Average price
paid per share
Aggregate
price paid
£
5.2700
5.4960
5.5530
5.2170
£
4.7800
4.9780
5.0840
5.1230
£
4.9911
5.2729
5.2598
5.1755
£
107,047,291
163,897,398
174,235,941
4,915,640
450,096,270
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Number of
shares
purchased and
cancelled
5,244,800
31,582,400
33,239,600
70,066,800
Highest price
paid per share
Lowest price
paid per share
Average price
paid per share
Aggregate
price paid
(HK$)
(HK$)
(HK$)
(HK$)
52.8500
52.7000
52.3000
46.5000
48.2500
47.4000
50.8537
50.8657
49.3809
266,717,438
1,606,461,400
1,641,401,780
3,514,580,618
Dividend waivers
HSBC Holdings’ employee benefit trusts, which hold shares in HSBC
Holdings in connection with the operation of its share plans, have
lodged standing instructions to waive dividends on shares held by
them that have not been allocated to employees. Shares held by
custodians in connection with the vesting of employee share awards
also lodged instructions to waive dividends. The total amount of
dividends waived during 2022 was $10.7m.
Preference shares
The preference shares, which have preferential rights to income and
capital, do not, in general, confer a right to attend and vote at general
meetings.
There are three classes of preference shares in the share capital of
HSBC Holdings: non-cumulative US dollar preference shares of $0.01
each (‘dollar preference shares’); non-cumulative preference shares of
£0.01 each (‘sterling preference shares’); and non-cumulative
preference shares of €0.01 (‘euro preference shares’).
The sterling preference share in issue is a Series A sterling preference
share. There are no dollar preference shares or euro preference
shares in issue.
Information on dividends approved for 2021 and 2022 may be found
in Note 8 on the financial statements on page 359.
Further details of the rights and obligations attaching to the HSBC
Holdings’ issued share capital may be found in Note 32 on the
financial statements.
Compliance with Hong Kong Listing Rule 13.25A(2)
HSBC Holdings has been granted a waiver from strict compliance
with Rule 13.25A(2) of the Rules Governing the Listing of Securities
on the Stock Exchange of Hong Kong.
Under this waiver, HSBC’s obligation to file a Next Day Return
following the issue of new shares, pursuant to the vesting of share
awards granted under its share plans to persons who are not
Directors, would only be triggered where it falls within one of the
circumstances set out under Rule 13.25A(3).
Share capital changes in 2022
In addition to the share buy-back programme, the following events
occurred during the year in relation to the ordinary share capital of
HSBC Holdings:
Scrip dividends
There were no scrip dividends issued during the year.
Second share buy-back on HKEx in 2022
Month shares purchased
May-22
Jun-22
Jul-22
Total
Dividends
Dividends for 2022
An interim dividend of $0.09 for the 2022 half-year was paid on
29 September 2022. For further details of the dividends approved in
2022, see Note 8 on the financial statements.
On 21 February 2023, the Directors approved a second interim
dividend for 2022 of $0.23 per ordinary share, making a total of $0.32
for the 2022 full-year. The second interim dividend for 2022 will be
payable on 27 April 2023 in cash in US dollars, or in sterling or Hong
Kong dollars at exchange rates to be determined on 17 April 2023. As
the second interim dividend for 2022 was approved after
31 December 2022, it has not been included in the balance sheet of
HSBC as a liability. The distributable reserves of HSBC Holdings at
31 December 2022 were $35.2bn.
A quarterly dividend of £0.01 per Series A sterling preference share
was paid on 15 March, 15 June, 15 September and 15 December
2022.
Dividends for 2023
The Group intends to pay quarterly dividends during 2023.
A dividend of £0.01 per Series A sterling preference share was
approved on 21 February 2023 for payment on 15 March 2023.
Share capital
Issued share capital
The nominal value of HSBC Holdings’ issued share capital paid up at
31 December 2022 was $10,146,803,705 divided into 20,293,607,410
ordinary shares of $0.50 each and one non-cumulative preference
share of £0.01, representing approximately 100.00% and 0.00%
respectively of the nominal value of HSBC Holdings’ total issued
share capital paid up at 31 December 2022.
Rights, obligations and restrictions attaching to shares
The rights and obligations attaching to each class of ordinary and non-
cumulative preference shares in our share capital are set out in full in
our Articles of Association. The Articles of Association may be
amended by special resolution of the shareholders and can be found
on our website at www.hsbc.com/who-we-are/leadership-and-
governance/board-responsibilities.
Ordinary shares
HSBC Holdings has one class of ordinary share, which carries no right
to fixed income. There are no voting restrictions on the issued
ordinary shares, all of which are fully paid. On a show of hands, each
member present has the right to one vote at general meetings. On a
poll, each member present or voting by proxy is entitled to one vote
for every $0.50 nominal value of share capital held.
There are no specific restrictions on transfers of ordinary shares,
which are governed by the general provisions of the Articles of
Association and prevailing legislation.
Information on the policy adopted by the Board for paying interim
dividends on the ordinary shares may be found in the ’Shareholder
information’ section on page 418.
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HSBC Holdings plc Annual Report and Accounts 2022
Market value per share
from
£
to
£
5.1
All-employee share plans1
HSBC Holdings
ordinary shares issued
Aggregate
nominal value
$
HSBC International Employee Share Purchase Plan
234,830
117,415
4.9385
1 In respect of the HSBC Holdings Savings Related Share Option Plan (UK), no new shares were issued under this plan. All exercises were satisfied by
market purchased shares. See page 309 for details of options granted, exercised and lapsed.
HSBC share plans
Vesting of awards under the HSBC Share Plan 2011
9,991,391
4,995,696
4.789
5.498
HSBC Holdings
ordinary shares issued
Aggregate
nominal value
$
Market value per share
from
£
to
£
Authorities to allot and to purchase shares and
pre-emption rights
At the AGM in 2022, shareholders renewed the general authority for
the Directors to allot new shares up to 13,475,996,328 ordinary
shares, 15,000,000 non-cumulative preference shares of £0.01 each,
15,000,000 non-cumulative preference shares of $0.01 each and
15,000,000 non-cumulative preference shares of €0.01 each.
Shareholders also renewed the authority for the Directors to make
market purchases of up to 2,021,399,449 ordinary shares. The
Directors exercised their market purchase authority from both the
2021 and 2022 AGMs and purchased 348,139,250 ordinary shares
during the year.
In addition, shareholders gave authority for the Directors to grant
rights to subscribe for, or to convert any security into, no more than
4,042,798,898 ordinary shares in relation to any issue by HSBC
Holdings or any member of the Group of contingent convertible
securities that automatically convert into or are exchanged for
ordinary shares in HSBC Holdings in prescribed circumstances. For
further details on the issue of contingent convertible securities, see
Note 32 on the financial statements.
Other than as disclosed in the tables above headed ‘Share capital
changes in 2022’, the Directors did not allot any shares during 2022.
Debt securities
In 2022, HSBC Holdings issued the equivalent of $25.4bn of debt
securities in the public capital markets in a range of currencies and
maturities in the form of senior and subordinated securities to ensure
it meets the current and proposed regulatory rules, including those
relating to the availability of adequate total loss-absorbing capacity.
For details of capital instruments and subordinated bail-inable debt,
see Notes 29 and 32 on pages 393 and 402.
Treasury shares
In accordance with the terms of a waiver granted by the Hong Kong
Stock Exchange on 19 December 2005, HSBC Holdings will comply
with the applicable law and regulation in the UK in relation to the
holding of any shares in treasury and with the conditions of the waiver
in connection with any shares it may hold in treasury. At
31 December 2022, pursuant to Chapter 6 of the UK Companies Act
2006, 325,273,407 ordinary shares were held in treasury. This was
the maximum number of shares held at any time during 2022,
representing 1.60% of the shares in issue as at 31 December 2022.
The nominal value of shares held in treasury was $162,636,704.
Notifiable interests in share capital
During 2022, HSBC Holdings did not receive any notification of major
holdings of voting rights pursuant to the requirements of Rule 5 of the
Disclosure Guidance and Transparency Rules (’Rule 5 of the DTRs’).
On 13 February 2023, pursuant to Rule 5 of the DTRs, Norges Bank
gave notice that on 10 February 2023 it had the following: a direct
interest in HSBC Holdings ordinary shares of 598,657,162; and
qualifying financial instruments with 9,249,895 voting rights that may
be acquired if the instruments are exercised or converted,
representing 2.998% and 0.046% respectively, of the total voting
rights at that date.
No further notifications had been received between 31 December
2022 and 15 February 2023. Previous notifications received are as
follows:
• BlackRock, Inc. gave notice on 3 March 2020 that on 2 March
2020 it had the following: an indirect interest in HSBC Holdings
ordinary shares of 1,235,558,490; qualifying financial instruments
with 7,294,459 voting rights that may be acquired if the
instruments are exercised or converted; and financial instruments
with a similar economic effect to qualifying financial instruments,
which refer to 2,441,397 voting rights, representing 6.07%, 0.03%
and 0.01%, respectively, of the total voting rights at 2 March 2020.
• Ping An Asset Management Co., Ltd. gave notice on 6 December
2017 that on 4 December 2017 it had an indirect interest in HSBC
Holdings ordinary shares of 1,007,946,172, representing 5.04% of
the total voting rights at that date.
At 31 December 2022, according to the register maintained by HSBC
Holdings pursuant to section 336 of the Securities and Futures
Ordinance of Hong Kong:
• BlackRock, Inc. gave notice on 9 March 2022 that on 4 March
2022 it had the following interests in HSBC Holdings ordinary
shares: a long position of 1,701,656,169 shares and a short
position of 19,262,061 shares, representing 8.27% and 0.09%,
respectively, of the ordinary shares in issue at that date.
• Ping An Asset Management Co., Ltd. gave notice on
25 September 2020 that on 23 September 2020 it had a long
position of 1,655,479,531 in HSBC Holdings ordinary shares,
representing 8.00% of the ordinary shares in issue at that date.
Sufficiency of float
In compliance with the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited, at least 25% of the total
issued share capital has been held by the public at all times during
2022 and up to the date of this report.
Dealings in HSBC Holdings listed securities
The Group has policies and procedures that, except where permitted
by statute and regulation, prohibit specified transactions in respect of
its securities listed on The Stock Exchange of Hong Kong Limited.
Except for dealings as intermediaries or as trustees by subsidiaries of
HSBC Holdings, and purchases by HSBC Holdings under the share
buy-back programme, neither HSBC Holdings nor any of its
subsidiaries has purchased, sold or redeemed any of its securities
listed on The Stock Exchange of Hong Kong Limited during the year
ended 31 December 2022.
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Directors’ interests
Pursuant to the requirements of the UK Listing Rules and according to
the register of Directors’ interests maintained by HSBC Holdings
pursuant to section 352 of the Securities and Futures Ordinance of
Hong Kong, the Directors of HSBC Holdings at 31 December 2022
had certain interests, all beneficial unless otherwise stated, in the
shares or debentures of HSBC Holdings and its associated
corporations.
Directors’ interests – shares and debentures
Save as stated in the following table, no further interests were held
by Directors, and no Directors or their connected persons were
awarded or exercised any right to subscribe for any shares or
debentures in any HSBC corporation during the year.
No Directors held any short position as defined in the Securities and
Futures Ordinance of Hong Kong in the shares or debentures of
HSBC Holdings and its associated corporations.
At 31 Dec 2022 or date of cessation, if earlier
At 1 Jan 2022, or
date of
appointment,
if later
Beneficial
owner
Child
under 18
or spouse
Jointly
with
another
person
Trustee
Total
interests
HSBC Holdings ordinary shares
Geraldine Buckingham1 (appointed to the Board on 1 May 2022)
Rachel Duan1
Dame Carolyn Fairbairn
James Forese1
Steven Guggenheimer1
Irene Lee (retired on 29 Apr 2022)
José Antonio Meade Kuribreña1
Eileen Murray1
David Nish
Noel Quinn2
Ewen Stevenson2
Jackson Tai1,3
Mark Tucker
Pauline van der Meer Mohr (retired on 29 Apr 2022)
—
—
—
115,000
15,000
15,000
15,000
75,000
50,000
15,000
15,000
15,000
115,000
—
15,000
15,000
75,000
—
1,131,278 1,422,650
838,154 1,064,626
32,800
307,352
15,000
66,515
307,352
15,000
—
—
—
—
—
—
—
—
50,000
—
—
11,965
—
—
—
—
—
—
15,000
—
—
—
—
—
—
21,750
—
—
15,000
—
15,000
—
15,000
—
115,000
—
15,000
—
15,000
—
15,000
—
75,000
—
50,000
—
— 1,422,650
— 1,064,626
66,515
—
307,352
—
15,000
—
1 Geraldine Buckingham has an interest in 3,000, Rachel Duan has an interest in 3,000, James Forese has an interest in 23,000, Steven Guggenheimer
has an interest in 3,000, José Antonio Meade Kuribreña has an interest in 3,000, Eileen Murray has an interest in 15,000 and Jackson Tai has an
interest in 13,303 listed American Depositary Shares (’ADS’), which are categorised as equity derivatives under Part XV of the Securities and Futures
Ordinance of Hong Kong. Each ADS represents five HSBC Holdings ordinary shares.
2 Executive Directors’ other interests in HSBC Holdings ordinary shares arising from the HSBC Holdings Savings-Related Share Option Plan (UK) and the
HSBC Share Plan 2011 are set out in the Scheme interests in the Directors’ remuneration report on page 276. At 31 December 2022, the aggregate
interests under the Securities and Futures Ordinance of Hong Kong in HSBC Holdings ordinary shares, including interests arising through employee
share plans and the interests above were: Noel Quinn – 3,940,314; and Ewen Stevenson – 3,135,841. Each Director’s total interests represents
approximately 0.02% of the shares in issue and 0.02% of the shares in issue excluding treasury shares.
3 Jackson Tai has a non-beneficial interest in 11,965 shares of which he is custodian.
There have been no changes in the shares or debentures of the
current Directors from 31 December 2022 to the date of this report.
Board governance
Listing Rule 9.8.4 and other disclosures
This section of the Annual Report and Accounts 2022 forms part of
and includes certain disclosures required in the Report of the
Directors incorporated by cross-reference, including under Listing
Rule 9.8.4 and otherwise as applicable by law.
Content
Long-term incentives
Dividend waivers
Dividends
Share buy-back
Emoluments waivers
Emissions
Energy efficiency
Principal activities of HSBC
Business review and future developments
Page references
285
302
302
301
291
47
49, 57, 59
12, 31, 108, 382
11–42, 44, 133, 142, 409
Appointment and re-election of Directors
A rigorous selection process is followed for the appointment of
Directors. Appointments are made on merit and candidates are
considered against objective criteria, having regard to the benefits of a
diverse Board. Appointments are made in accordance with HSBC
Holdings’ Articles of Association. The Nomination & Corporate
Governance Committee report sets out further details of the Board
selection process.
The Board may at any time appoint any person as a Director or
secretary, either to fill a vacancy or as an additional officer. The Board
may appoint any Director or secretary to hold any employment or
executive office, and may revoke or terminate any such appointment.
Non-executive Directors are appointed for an initial three-year term
and, subject to continued satisfactory performance based upon an
assessment by the Group Chairman and the Nomination & Corporate
Governance Committee, are proposed for re-election by shareholders
at each AGM. They typically serve two three-year terms, with any
individual's appointment beyond six years to be for a rolling one-year
term and subject to thorough review and challenge with reference to
the needs of the Board. Where Directors are appointed beyond six
years, an explanation is provided in the Annual Report and Accounts.
Shareholders vote at each AGM on whether to elect and re-elect
individual Directors. All Directors that stood for election and re-
election at the 2022 AGM were elected and re-elected by
shareholders.
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HSBC Holdings plc Annual Report and Accounts 2022
None of the Directors who retired during the year or who are not
offering themselves for re-election at the 2023 AGM have raised
concerns about the operation of the Board or the management of the
company.
No executive Director is involved in deciding their own remuneration
outcome.
Commitments
The terms and conditions of the appointments of non-executive
Directors are set out in a letter of appointment, which includes the
expectations of them and the estimated time required to perform
their role. Letters of appointment of each non-executive Director are
available for inspection at the registered office of HSBC Holdings. The
anticipated time commitment for a non-executive Director serving on
the Board and as a member of any committee is no more than 75
days per annum. Directors who also chair a large committee are
expected to commit up to 100 days per annum with the Senior
Independent Director expected to serve an additional 30 days per
annum. The time commitment of the Group Risk Committee chair is
up to 150 days per annum. Any additional time commitment
connected with Board-related appointments will be confirmed
separately.
Board approval is required for any non-executive Directors’ external
commitments, with consideration given to their total time
commitments and potential conflicts of interest.
Conflicts of interest
The Board has an established policy and set of procedures, reviewed
and amended in 2022, to ensure that the Board’s management of
Directors’ conflicts of interest is effective. The Board has the power
to authorise conflicts where they arise, in accordance with the
Companies Act 2006 and HSBC Holdings’ Articles of Association.
Details of all Directors’ conflicts of interest are recorded in the
register of conflicts. As part of its 2022 review, the Board agreed that
responsibility for the ongoing review of the conflicts register be
conducted by the Board, having previously been overseen by the
Nomination & Corporate Governance Committee. Upon appointment,
new Directors are advised of the policy and procedures for managing
conflicts. Directors are required to notify the Board of any actual or
potential conflicts of interest and to update the Board with any
changes to the facts and circumstances surrounding such conflicts.
Directors are requested to review and confirm their own and their
respective closely associated persons’ outside interests and
appointments twice each year. The Board has considered, and
authorised (with or without conditions) where appropriate, potential
conflicts as they have arisen during the year in accordance with its
conflicts policy and procedures. All non-executive Directors are re-
vetted by the compliance team every three years following
appointment and as part of such process all conflicts checks are
refreshed.
Joint Company Secretary
Aileen Taylor is the Group Company Secretary and Chief Governance
Officer.
In addition to being appointed as Deputy Group Secretary in
December 2021, for administrative purposes, Hannah Ashdown (46)
was also appointed in October 2022 as Joint Company Secretary. She
is a Fellow of the Chartered Governance Institute UK and Ireland.
Hannah has over 20 years’ governance and regulatory experience
across multiple sectors including financial services, asset
management, energy, leisure and retail.
Directors’ indemnity
The Articles of Association of HSBC Holdings contain a qualifying
third-party indemnity provision, which entitles Directors and other
officers to be indemnified out of the assets of HSBC Holdings against
claims from third parties in respect of certain liabilities.
HSBC Holdings has granted, by way of deed poll, indemnities to the
Directors, including former Directors, against certain liabilities arising
in connection with their position as a Director of HSBC Holdings or of
any Group company. Directors are indemnified to the maximum
extent permitted by law.
The indemnities that constitute a ’qualifying third-party indemnity
provision’, as defined by section 234 of the Companies Act 2006,
remained in force for the whole of the financial year (or, in the case of
Directors appointed during 2022, from the date of their appointment).
The deed poll is available for inspection at the registered office of
HSBC Holdings.
Additionally, Directors and pension trustees have the benefit of both
Directors’ and officers’, and pension trustees’, liability insurances.
Qualifying pension scheme indemnities have also been granted to the
trustees of the Group’s pension schemes, which were in force for the
whole of the financial year and remain in force as at the date of this
report.
Contracts of significance
During 2022, none of the Directors had a material interest, directly or
indirectly, in any contract of significance with any HSBC company.
During the year, all Directors were reminded of their obligations in
respect of transacting in HSBC securities and following specific
enquiry all Directors have confirmed that they have complied with
their obligations.
Shareholder engagement and communication
The Board is directly accountable to, and gives high priority to
communicating with, HSBC’s shareholders. Information about HSBC
and its activities is provided to shareholders in its Interim Reports and
the Annual Report and Accounts as well as on www.hsbc.com.
As set out in the Section 172(1) statement on page 20, the Board
seeks to understand investor needs through ongoing dialogue
between members of the Board and institutional investors throughout
the year. For examples of such engagement, see ’Board decision
making and engagement with stakeholders’ on page 20, the Board’s
engagement with shareholders on page 256 and the Group
Remuneration Committee Chair's letter on page 276. During 2022,
approximately 570 meetings were held with institutional investors and
analysts globally.
Our shareholder communications policy summarises how we
communicate with our shareholders, including through financial
reporting, general shareholder meetings, investor and analyst
meetings and our website. The policy is reviewed annually by the
Board, and in 2022 the Board confirmed that it was satisfied with its
implementation and effectiveness. The policy can be found at
www.hsbc.com/who-we-are/leadership-and-governance/board-
responsibilities.
We also publish our current and past financial results, investor
presentations and shareholder information such as dividend payments
and shareholder meeting details. Stock exchange announcements are
also accessible on our website along with information for fixed
income investors. For further details, see www.hsbc.com/investors.
Directors are encouraged to develop an understanding of the views of
shareholders. Enquiries from individuals on matters relating to their
shareholdings and HSBC’s business are welcomed.
Any individual or institutional investor can make an enquiry by
contacting the investor relations team, Group Chairman, Group Chief
Executive, Group Chief Financial Officer and Group Company
Secretary and Chief Governance Officer. Our Senior Independent
Director is also available to shareholders if they have concerns that
cannot be resolved or for which the normal channels would not be
appropriate. He can be contacted via the Group Company Secretary
and Chief Governance Officer at 8 Canada Square, London E14 5HQ.
Annual General Meeting
The AGM in 2023 is planned to be held in Birmingham, UK at
11:00am on Friday, 5 May 2023. Information on how to vote and
participate, both in advance and on the day, can be found in the
Notice of the 2023 AGM, which will be sent to shareholders on 24
March 2023 and be available on www.hsbc.com/agm. A live webcast
will be available on www.hsbc.com. A recording of the proceedings
will be available on www.hsbc.com shortly after the conclusion of the
AGM. Shareholders should monitor our website and announcements
for any changes to these arrangements. Shareholders may send
enquiries to the Board in writing via the Group Company Secretary
and Chief Governance Officer, HSBC Holdings plc, 8 Canada Square,
London E14 5HQ or by sending an email to
shareholderquestions@hsbc.com.
HSBC Holdings plc Annual Report and Accounts 2022
305
Corporate governance Report of the Directors | Corporate governance report
General meetings and resolutions
Shareholders may require the Directors to call a general meeting
other than an AGM, as provided by the UK Companies Act 2006. A
valid request to call a general meeting may be made by members
representing at least 5% of the paid-up capital of HSBC Holdings as
carries the right of voting at its general meetings (excluding any paid-
up capital held as treasury shares). A request must state the general
nature of the business to be dealt with at the meeting and may
include the text of a resolution that may properly be moved and is
intended to be moved at the meeting. At any general meeting
convened on such request, no business may be transacted except
that stated by the requisition or proposed by the Board.
Shareholders may request the Directors to send a resolution to
shareholders for consideration at an AGM, as provided by the UK
Companies Act 2006. A valid request must be made by
(i) members representing at least 5% of the paid-up capital of HSBC
Holdings as carries the right of voting at its general meetings
(excluding any paid-up capital held as treasury shares), or (ii) at least
100 members who have a right to vote on the resolution at the AGM
in question and hold shares in HSBC Holdings on which there has
been paid up an average sum, per member, of at least £100.
The request must be received by HSBC Holdings not later than (i) six
weeks before the AGM in question; or (ii) if later, the time at which
the notice of AGM is published.
A request may be in hard copy form or in electronic form, and must
be authenticated by the person or persons making it. A request may
be made in writing to HSBC Holdings at its UK address, referred to in
the paragraph above or by sending an email to
shareholderquestions@hsbc.com.
Articles of Association
New Articles of Association were approved at the 2022 AGM. The
principal changes included updates and changes to articles on hybrid
meetings, general meetings, untraceable shareholders, Director share
qualification, Directors’ reappointment, Directors’ written resolutions,
distribution in specie and dividend forfeiture. The Articles of
Association can be found at www.hsbc.com/who-we-are/leadership-
and-governance/board-responsibilities. For further details of the 2022
Notice of AGM, see www.hsbc.com/agm.
Events after the balance sheet date
For details of events after the balance sheet date, see Note 37 on the
financial statements.
Change of control
The Group is not party to any significant agreements that take effect,
alter or terminate following a change of control of the Group. The
Group does not have agreements with any Director or employee that
would provide compensation for loss of office or employment
resulting from a takeover bid.
Branches
The Group provides a wide range of banking and financial services
through branches and offices in the UK and overseas.
Research and development activities
During the ordinary course of business, the Group develops new
products and services within the global businesses.
Political donations
HSBC does not make any political donations or incur political
expenditure within the ordinary meaning of those words. We have no
intention of altering this policy. However, the definitions of political
donations, political parties, political organisations and political
expenditure used in the UK Companies Act 2006 are very wide. As a
result, they may cover routine activities that form part of the normal
business activities of the Group and are an accepted part of engaging
with stakeholders. To ensure that neither the Group nor any of its
subsidiaries inadvertently breaches the UK Companies Act 2006,
authority is sought from shareholders at the AGM to make political
donations.
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HSBC Holdings plc Annual Report and Accounts 2022
HSBC provides administrative support to two political action
committees (’PACs’) in the US funded by voluntary political
contributions by eligible employees. We do not control the PACs, and
all decisions regarding the amounts and recipients of contributions are
directed by a voluntary Board Finance Committee, which consists of
contributing eligible employees. The PACs recorded combined
political donations of $100,250 during 2022 (2021: $15,500).
Charitable contributions
For details of charitable contributions, see page 84.
Internal control
The Board is responsible for maintaining and reviewing the
effectiveness of risk management and internal control systems, and
for determining the level and type of risks the Group is willing to take
in achieving its strategic objectives.
To meet this requirement and to discharge its obligations under the
FCA Handbook and the PRA Handbook, procedures have been
designed: for safeguarding assets against unauthorised use or
disposal; for maintaining proper accounting records; and for ensuring
the reliability and usefulness of financial information used within the
business or for publication.
These procedures provide reasonable assurance against material
misstatement, errors, losses or fraud. They are designed to provide
effective internal control within the Group and accord with the
Financial Reporting Council‘s guidance for Directors issued in 2014,
on risk management, internal control and related financial and
business reporting. The procedures have been in place throughout the
year and up to 21 February 2023, the date of approval of the Annual
Report and Accounts 2022.
The key risk management and internal control procedures include the
following:
Global Principles
The Group’s Global Principles set an overarching standard for all
policies and procedures and are fundamental to the Group’s risk
management structure. They inform and connect our purpose, values,
strategy and risk management principles, guiding us to do the right
thing and treat our customers and our colleagues fairly at all times.
Risk management framework
The risk management framework supports our Global Principles. It
outlines the key principles and practices that we employ in managing
material risks. It applies to all categories of risk and supports a
consistent approach in identifying, assessing, managing and reporting
the risks we accept and incur in our activities.
Delegation of authority within limits set by the Board
Subject to certain matters reserved for the Board, the Group Chief
Executive has been delegated authority limits and powers within
which to manage the day-to-day affairs of the Group, including the
right to sub-delegate those limits and powers. Each relevant Group
Executive Committee member or executive Director has delegated
authority within which to manage the day-to-day affairs of the
business or function for which he or she is accountable.
Delegation of authority from the Board requires those individuals to
maintain a clear and appropriate apportionment of significant
responsibilities and to oversee the establishment and maintenance of
systems of control that are appropriate to their business or function.
Authorities to enter into credit and market risk exposures
are delegated with limits to line management of Group companies.
However, credit proposals with specified higher-risk characteristics
require the concurrence of the appropriate global function. Credit and
market risks are measured and reported at subsidiary company level
and aggregated for risk concentration analysis on a Group-wide basis.
Risk identification and monitoring
Systems and procedures are in place to identify, assess, control and
monitor the material risk types facing HSBC as set out in the risk
management framework. The Group‘s risk measurement and
reporting systems are designed to help ensure that material risks are
captured with all the attributes necessary to support well-founded
decisions, that those attributes are accurately assessed and that
information is delivered in a timely manner for those risks to be
successfully managed and mitigated.
Changes in market conditions/practices
Processes are in place to identify new risks arising from changes in
market conditions/practices or customer behaviours, which could
expose the Group to heightened risk of loss or reputational damage.
The Group employs a top and emerging risks process to provide
forward-looking views of issues with the potential to threaten the
execution of our strategy or operations over the medium to long term.
We remain committed to investing in the reliability and resilience of
our IT systems and critical services, including those provided by third
parties, that support all parts of our business. We do so to help
protect our customers, affiliates and counterparties, and to help
ensure that we minimise any disruption to services that could result in
reputational and regulatory consequences. In our approach to defend
against these threats, we invest in business and technical controls to
help us detect, manage and recover from issues, including data loss,
in a timely manner.
We continue our focus on the quality and timeliness of the data used
to inform management decisions, through measures such as early
warning indicators, prudent active risk management of our risk
appetite, and ensuring regular communication with our Board and
other key stakeholders.
Responsibility for risk management
All employees are responsible for identifying and managing risk within
the scope of their role as part of the three lines of defence model.
This is an activity-based model to delineate management
accountabilities and responsibilities for risk management and the
control environment. The second line of defence sets the policy and
guidelines for managing specific risk areas, provides advice and
guidance in relation to the risk, and challenges the first line of defence
(the risk owners) on effective risk management.
The Board delegated authority to the GAC and it reviewed the
independence, autonomy and effectiveness of the Group’s policies
and procedures on whistleblowing, including the procedures for the
protection of staff who raise concerns of detrimental treatment.
Strategic plans
Strategic plans are prepared for global businesses, global functions
and geographical regions within the framework of the Group’s overall
strategy. Financial resource plans, informed by detailed analysis of
risk appetite describing the types and quantum of risk that the Group
is prepared to take in executing its strategy, are prepared and adopted
by all major Group operating companies and set out the key business
initiatives and the likely financial effects of those initiatives.
The effectiveness of the Group’s system of risk management and
internal control is reviewed regularly by the Board, the GRC and the
GAC.
During 2022, the GRC continued to focus on the oversight of risk
transformation activities to strengthen our risk management
capabilities and to develop a best-in-class Risk function. In 2023, the
GRC will continue to focus on overseeing emerging risks and
potential risks arising from new products and offerings.
The GRC and the GAC received assurance from executive
management that a thorough risk assessment had been undertaken
and controls were in place to mitigate the risks arising from the
Group’s key activities. Necessary actions will be taken to remedy any
failings or weaknesses identified from these activities.
Internal control over financial reporting
HSBC is required to comply with section 404 of the US Sarbanes-
Oxley Act of 2002 and assess its effectiveness of internal control over
financial reporting at 31 December 2022. In 2014, the GAC endorsed
the adoption of the principles of the Committee of Sponsoring
Organizations of the Treadway Commission (’COSO’) 2013
framework for the monitoring of risk management and internal control
systems to satisfy the requirements of section 404 of the Sarbanes-
Oxley Act.
The key risk management and internal control procedures over
financial reporting include the following:
Entity level controls
The primary mechanism through which comfort over risk
management and internal control systems is achieved is through
assessments of the effectiveness of controls to manage risk, and the
reporting of issues on a regular basis through the various risk
management and risk governance forums. Entity level controls are a
defined suite of internal controls that have a pervasive influence over
the entity as a whole and meet the principles of the COSO
framework. They include controls related to the control environment,
such as the Group's values and ethics, the promotion of effective risk
management and the overarching governance exercised by the Board
and its non-executive committees. The design and operational
effectiveness of entity level controls are assessed annually as part of
the assessment of the effectiveness of internal controls over financial
reporting. If issues are significant to the Group, they are escalated to
the GRC and also to the GAC, if concerning financial reporting
matters.
Process level transactional controls
Key process level controls that mitigate the risk of financial
misstatement are identified, recorded and monitored in accordance
with the risk framework. This includes the identification and
assessment of relevant control issues against which action plans are
tracked through to remediation. Further details of HSBC’s approach to
risk management can be found on page 132. The GAC has continued
to receive regular updates on HSBC’s ongoing activities for improving
the effective oversight of end-to-end business processes, and
management continued to identify opportunities for enhancing key
controls, such as through the use of automation technologies.
Financial reporting
The Group’s financial reporting process is controlled using
documented accounting policies and reporting formats, supported by
detailed instructions and guidance on reporting requirements, issued
to all reporting entities within the Group in advance of each reporting
period end. The submission of financial information from each
reporting entity is supported by a certification by the responsible
financial officer and analytical review procedures at reporting entity
and Group levels.
Group Disclosure and Controls Committee
Chaired by the Group Chief Financial Officer, the Group Disclosure
and Controls Committee supports the discharge of the Group’s
obligations under relevant legislation and regulation including the UK
and Hong Kong listing rules, the UK Market Abuse Regulation and US
Securities and Exchange Commission rules. In so doing, the Group
Disclosure and Controls Committee is empowered to determine
whether a new event or circumstance should be disclosed, including
the form and timing of such disclosure, and review certain material
disclosures made or to be made by the Group. The membership of
the Group Disclosure and Controls Committee consists of senior
management, including the Group Chief Financial Officer, Group Chief
Risk and Compliance Officer, Group Chief Legal Officer, and Group
Company Secretary and Chief Governance Officer. The Group’s
brokers, external auditors and its external legal counsel also attend as
required. The integrity of disclosures is underpinned by structures and
processes within the Global Finance and Group Risk and Compliance
functions that support rigorous analytical review of financial reporting
and the maintenance of proper accounting records. As required by the
Sarbanes-Oxley Act, the Group Chief Executive and the Group Chief
Financial Officer have certified that the Group’s disclosure controls
and procedures were effective as at the end of the period covered by
the Annual Report and Accounts 2022.
The annual review of the effectiveness of the Group’s system of risk
management and internal control over financial reporting was
conducted with reference to the COSO 2013 framework. Based on
the assessment performed, the Directors concluded that for the year
ended 31 December 2022, the Group’s internal control over financial
reporting was effective.
PwC has audited the effectiveness of HSBC’s internal control over
financial reporting and has given an unqualified opinion.
HSBC Holdings plc Annual Report and Accounts 2022
307
Corporate governance Report of the Directors | Corporate governance report
Other information included in the Annual
Report and Accounts 2022
We include other non-statutory information in the Annual Report and
Accounts to enable a broader perspective of our performance for the
period, including ESG and regulatory capital and liquidity information.
We highlight on pages 14 and 264 that we are seeking to enhance our
governance, process, systems and controls in both areas, although
the scale and nature of the challenges differ between reporting areas.
Our improvements in regulatory reporting are to ensure this reporting
is produced to a comparable standard of control as our financial
reporting. ESG reporting is fast evolving, with few globally consistent
reporting standards and a high reliance on external data. The GAC
provides oversight to our reporting improvements in both areas, and
is also focused on increasing the level of internal and external
assurance in these areas, in line with wider market developments (set
out on page 264).
Going concern
The Board, having made appropriate enquiries, is satisfied that the
Group as a whole has adequate resources to continue operations for a
period of at least 12 months from the date of this report, and it
therefore continues to adopt the going concern basis in preparing the
financial statements.
For further details, see page 42.
Employees
At 31 December 2022, HSBC had a total workforce equivalent to
219,000 full-time employees compared with 220,000 at the end of
2021. Our main centres of employment were India with
approximately 39,000 employees, the UK with 33,000, mainland
China with 32,000, Hong Kong with 27,000, Mexico with 17,000 and
France with 6,000.
Our business spans many cultures, communities and continents. We
aspire to provide a high-performing environment where our
colleagues can fulfil their potential by building their skills and
capabilities while focusing on the development of a diverse and
inclusive culture. We use employee surveys to assess progress and
make changes. We want to provide an open culture, where our
colleagues feel connected and supported to speak up, and where our
leaders encourage and use feedback. Where we make organisational
changes, we support our colleagues, in particular where there are job
impacts.
Employee relations
We consult with and, where appropriate, negotiate with employee
representative bodies where we have them. It is our policy to
maintain well-developed communications and consultation
programmes with all employee representative bodies. There have
been no material disruptions to our operations from labour disputes
during the past five years.
We are committed to complying with the applicable employment laws
and regulations in the jurisdictions in which we operate, including in
relation to working hours and rest periods. HSBC’s global
employment practices and relations policy provides the framework
and controls through which we seek to uphold that commitment.
Diversity and inclusion
Our customers, colleagues and communities span many cultures and
continents. We value difference and believe that diversity makes us
stronger. We are dedicated to building a diverse and connected
workforce where everyone feels a sense of belonging. In 2022, we
introduced a social well-being index that measures the
connectedness of our colleagues as we embrace hybrid working
practices.
Our Group People Committee, which is made up of Group Executive
Committee members, governs our diversity and inclusion agenda. It
meets regularly to agree actions to improve diverse representation
and build a more inclusive culture where our colleagues can bring
their best selves to work. Members of our Group Executive
Committee are held to account for the actions they take on diversity
via aspirational targets contained within their performance scorecards.
308
HSBC Holdings plc Annual Report and Accounts 2022
We expect all colleagues at HSBC to treat each other with dignity and
respect to ensure an inclusive environment. Our policies make it clear
that we do not tolerate unlawful discrimination, bullying or
harassment on any grounds.
To align our approach to inclusion best practices, we participate in
global diversity benchmarks that help us to identify improvement
opportunities. We also track a large number of diversity and inclusion
metrics, including those included in the Group executive scorecards,
which enable us to pinpoint inclusion barriers and enable us to take
action where required. Our approach to diversity and inclusion is set
out on page 74 alongside our goals and progress.
Further details of our diversity and inclusion activity, alongside our
Gender and Ethnicity Pay Gap Reports 2022, can be found at
www.hsbc.com/diversitycommitments.
Employment of people with a disability
We strongly believe in providing equal opportunities for all employees.
The employment of people with a disability is included in this
commitment. The recruitment, training, development and promotion
of people with a disability are based on the aptitudes and abilities of
the individual. Should employees become disabled during their
employment with us, efforts are made to continue their employment.
Where necessary, we will provide appropriate training, facilities and
reasonable equipment.
Employee development
We aim to build a dynamic, inclusive culture where the best want to
develop the skills and experiences that help them fulfil their potential.
This determines how we develop our people and recruit, identify and
nurture talent. A range of resources bring this to life including:
• HSBC University, our platform for learning and development with
specific business and technical academies;
• our My HSBC Career portal, which offers career development
information and resources; and
• HSBC Talent Marketplace, our new online platform that uses AI to
provide opportunities to learn as we work.
Everyone at HSBC annually completes global mandatory training. It
plays a critical role in shaping our culture by ensuring everyone is
focused on issues that are fundamental to working at HSBC, from
sustainability, to financial crime risk, to our intolerance of bullying and
harassment.
As the opportunities we face change, we provide development to key
groups of colleagues through business and technical academies. This
includes our risk academy, which helps us to develop broad
capabilities in traditional areas of risk like financial crime but also in
emerging risk issues like climate risk and the ethics of AI and data.
Our approach to learning is skills based. Our academies work with our
businesses to identify the key skills and capabilities we need in the
future. Alongside this, we help colleagues identify, assess and
develop the skills that match their ambition and aspirations.
Our platform for learning content is Degreed. This helps colleagues
identify, assess and develop key skills through internal and external
training materials in a way that suits them. Content can range from
quick videos, articles or podcasts to packaged programmes or
learning pathways.
In 2021, we launched the HSBC Talent MarketPlace, an AI-based
platform, which matches colleagues to projects and experiences
based on their aspirations. In 2022, we rolled the platform out to an
additional 83,000 colleagues and we will continue the global roll-out in
2023.
Effective people management and impactful leadership remain critical
to our ability to energise for growth. Following the success of our
refreshed executive development curriculum in 2021, we launched a
new programme for our Managing Director colleagues in 2022. This
combines internal programmes and business school activities with
targeted technical programmes on key topics and skills.
Health and safety
We are committed to providing a safe and healthy working
environment for everyone. We have adopted global policies,
mandatory procedures, and incident and information reporting
systems across the organisation that reflect our core values and are
aligned to international standards. Our global health and safety
performance is subject to ongoing monitoring and assurance to
ensure we are compliant with relevant laws and regulations.
Our chief operating officers have overall responsibility for engendering
a positive health and safety culture and ensuring that global policies,
procedures and systems are put into practice locally. They also have
responsibility for ensuring all local legal requirements are met.
We delivered a range of programmes in 2022 to help us understand
and manage our health and safety risks:
• We continued to provide enhancements to our workplaces globally
to minimise the risks of Covid-19, including enhanced cleaning,
improved ventilation and social distancing measures, as well as
reviewing and adjusting our risk control measures as government
restrictions were lifted.
• We reinforced our advice and risk assessment and control
methodology on working from home for employees adopting a
hybrid work style, providing more awareness and best practices on
good ergonomics and well-being.
• We delivered health and safety training and awareness to 240,000
of our employees and contractors globally, ensuring roles and
responsibilities were clear and understood.
• We completed the annual safety inspection on all of our buildings
globally, subject to local Covid-19 restrictions, to ensure we were
meeting our standards and continuously improving our safety
performance.
• We continued to focus on enhancing the safety culture in our
supply chain through our SAFER Together programme, covering
the five key elements of best practice safety culture, including
speaking up about safety, and recognising excellence. Our 2022
safety climate survey results showed that we continue to maintain
a positive safety culture that is significantly above the industry
average. A particular strength that the survey identified is our
encouragement of colleagues to make suggestions on how to
improve health and safety.
• We expanded our guidance and training programme for our
construction partners, focusing on our key markets globally, to
reduce the likelihood of accidents occurring by helping them
understand and deliver industry-leading health and safety
performance. More than 3,400 construction workers received
safety passporting training across 20 countries.
• Our Eat Well Live Well programme continued educating and
informing our colleagues on how to make healthy food and drink
choices. Launched in 2019, and now live in 12 markets across all
regions, the programme has helped to shift HSBC employee diets
towards more sustainable choices, with a more than 50% rise in
healthy food options being selected in our workplace catering
outlets since launch. Furthermore, with digital health tools and
over 50 healthy and plant-forward recipes created by chefs
available online, employees are supported to continue to make
healthy choices when away from the workplace.
• Protection of our colleagues and operations is of critical
importance and we have effective controls in place to protect our
people from natural disasters (such as storms and earthquakes). In
2022, there were 38 named storms that passed over 1,667 of our
buildings, resulting in no injuries or material business impact.
Employee health and safety
Rate of workplace fatalities per 100,000 employees
Number of major injuries to employees1
All injury rate per 100,000 employees
Lost days due to work injury
2022 2021 2020
—
—
15
88
449
—
14
64
485 358
7
70
Remuneration
HSBC’s pay and performance strategy is designed to reward
competitively the achievement of long-term sustainable performance
and attract and motivate the very best people, regardless of gender,
ethnicity, age, disability or any other factor unrelated to performance
or experience with the Group, while performing their role in the long-
term interests of our stakeholders.
For further details of the Group’s approach to remuneration, see
page 292.
Employee share plans
Share options and discretionary awards of shares granted under
HSBC share plans align the interests of employees with the creation
of shareholder value. The following table sets out the particulars of
outstanding options, including those held by employees working
under employment contracts that are regarded as ‘continuous
contracts’ for the purposes of the Hong Kong Employment Ordinance.
The options were granted at nil consideration. No options have been
granted to substantial shareholders and suppliers of goods or
services, nor in excess of the individual limit for each share plan. No
options were cancelled by HSBC during the year.
A summary for each plan of the total number of the options that were
granted, exercised or lapsed during 2022 is shown in the following
table. Further details required to be disclosed pursuant to Chapter 17
of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited are available on our website at
www.hsbc.com/who-we-are/leadership-and-governance/remuneration
and on the website of The Stock Exchange of Hong Kong Limited at
www.hkex.com.hk, or can be obtained upon request from the Group
Company Secretary and Chief Governance Officer, 8 Canada Square,
London E14 5HQ.
Particulars of options held by Directors of HSBC Holdings are set out
on page 287.
Note 5 on the financial statements gives details of share-based
payments, including discretionary awards of shares granted under
HSBC share plans.
All-employee share plans
HSBC operates all-employee share option plans under which options
are granted over HSBC ordinary shares. Subject to leaver provisions,
options are normally exercisable after three or five years. During
2022, options were granted by reference to the average market value
of HSBC Holdings ordinary shares on the five business days
immediately preceding the invitation date, then applying a discount of
20%. The closing price for HSBC Holdings ordinary shares quoted on
the London Stock Exchange on 26 September 2022, the day before
the options were granted and as derived from the Daily Official List,
was £5.0160.
The HSBC Holdings Savings-Related Share Option Plan (UK) will
expire on 24 April 2030, by which time the plan may be extended with
approval from shareholders, unless the Directors resolve to terminate
the plan at an earlier date.
The HSBC International Employee Share Purchase Plan was
introduced in 2013 and now includes employees based in
31 jurisdictions, although no options are granted under this plan.
During 2022, approximately 189,000 employees were offered
participation in these plans.
1 Fractures, dislocation, concussion, loss of consciousness, overnight
admission to hospital.
HSBC Holdings Savings-Related Share Option Plan (UK)
Dates of awards
Exercise price
Usually exercisable
from
to
from
(£)
to
(£)
from
to
HSBC Holdings ordinary shares
At
1 Jan 2022
Granted
Exercised
during year1 during year2
Lapsed
At
during year 31 Dec 2022
22 Sep 2015 27 Sep 2022 2.6270 5.9640 1 Nov 2020 28 Apr 2028
123,196,850
8,928,527
3,483,332 12,991,322 115,650,723
1 Options over HSBC ordinary shares granted in response to approximately 9,564 applications from HSBC employees in the UK on 27 September 2022.
2 The weighted average closing price of the shares immediately before the dates on which options were exercised was £5.0534.
HSBC Holdings plc Annual Report and Accounts 2022
309
Corporate governance
Report of the Directors | Corporate governance report
Statement of compliance
The statement of corporate governance practices set out on pages
239 to 311 and the information referred to therein constitutes the
’Corporate governance report’ and ’Report of the Directors’ of HSBC
Holdings. The websites referred to do not form part of this report.
Relevant corporate governance codes, role profiles and policies
UK Corporate Governance Code www.frc.org.uk
Hong Kong Corporate
Governance Code (set out in
Appendix 14 to the Rules
Governing the Listing of
Securities on the Stock
Exchange of Hong Kong Limited
('HKEx'))
Descriptions of the roles and
responsibilities of the:
– Group Chairman
– Group Chief Executive
– Senior Independent Director
– Board
Board and senior management
Roles and responsibilities of the
Board’s committees
Board’s policies on:
– diversity and inclusion
– shareholder communication
– human rights
– remuneration practices and
governance
Global Internal Audit Charter
www.hkex.com.hk
www.hsbc.com/who-we-are/
leadership-and-governance/board-
responsibilities
www.hsbc.com/who-we-are/
leadership-and-governance
www.hsbc.com/who-we-are/
leadership-and-governance/board-
committees
www.hsbc.com/who-we-are/
leadership-and-governance/board-
responsibilities
www.hsbc.com/who-we-are/
leadership-and-governance/
corporate-governance-codes/
internal-control
HSBC is subject to corporate governance requirements in both the UK
and Hong Kong. During 2022, save to the extent referred to in the
next paragraph, HSBC complied with the provisions and requirements
of both the UK and Hong Kong Corporate Governance Codes.
Dame Carolyn Fairbairn was appointed as Chair to the Group
Remuneration Committee on 29 April 2022 and has been a member
of such committee since September 2021. In approving Dame
Carolyn Fairbairn's appointment, the Board considered the UK
Corporate Governance Code expectation that the Chair has served at
least 12 months as a member on the committee before assuming the
position of Chair. Before her appointment she had served on the
Group Remuneration Committee for eight months. However, given
her previous experience as both a member and chair of the
remuneration committees of other UK listed companies, the Board
approved the appointment of Dame Carolyn Fairbairn as Chair.
Under the Hong Kong Code, the audit committee should be
responsible for the oversight of all risk management and internal
control systems. HSBC’s Group Risk Committee is responsible for
oversight of internal control, other than internal control over financial
reporting, and risk management systems. This is permitted under the
UK Corporate Governance Code.
HSBC Holdings has codified obligations for transactions in Group
securities in accordance with the requirements of the UK Market
Abuse Regulation and the rules governing the listing of securities on
HKEx, save that the HKEx has granted waivers from strict compliance
with the rules that take into account accepted practices in the UK,
particularly in respect of employee share plans. During the year, all
Directors were reminded of their obligations in respect of transacting
in HSBC Group securities. Following specific enquiry all Directors
have confirmed that they have complied with their obligations.
On behalf of the Board
Mark E Tucker
Group Chairman
HSBC Holdings plc
Registered number 617987
21 February 2023
310
HSBC Holdings plc Annual Report and Accounts 2022
Directors’ responsibility statement
The Directors are responsible for preparing the Annual Report and
Accounts 2022, the Directors’ remuneration report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law, the Directors have prepared
the parent company (‘Company’) and Group financial statements in
accordance with UK-adopted international accounting standards. The
company has also prepared financial statements in accordance with
international financial reporting standards adopted pursuant to
Regulation (EC) N0 1606/2002 as it applies in the European Union. In
preparing these financial statements, the Directors have also elected
to comply with International Financial Reporting Standards issued by
the International Accounting Standards Board (IFRSs as issued by
IASB). Under company law, the Directors must not approve the
financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Company and Group, and of the
profit or loss of the Company and Group for that period. In preparing
these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
• state whether applicable UK-adopted international accounting
standards, international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union and IFRSs issued by IASB have been followed,
subject to any material departures disclosed and explained in the
financial statements; and
• prepare the financial statements on a going concern basis unless it
is inappropriate to presume that the Company and Group will
continue in business.
The Directors are also responsible for safeguarding the assets of the
Company and the Group and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions, and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable them to
ensure that the financial statements and the Directors’ remuneration
report comply with the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
The Directors are responsible for the maintenance and integrity of the
Annual Report and Accounts 2022 as they appear on the Company’s
website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation
in other jurisdictions.
The Directors consider that the Annual Report and Accounts 2022,
taken as a whole, is fair, balanced and understandable, and provides
the information necessary for shareholders to assess the Company’s
position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the
‘Report of the Directors: Corporate governance report’ on pages 240
to 243 of the Annual Report and Accounts 2022, confirms that, to the
best of their knowledge:
• the Group financial statements, which have been prepared in
accordance with UK-adopted international accounting standards,
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
and IFRSs issued by IASB, give a true and fair view of the assets,
liabilities, financial position, and profit or loss of the Group; and
• the management report represented by the Report of the
Directors includes a fair review of the development and
performance of the business and the position of the Group,
together with a description of the principal risks and uncertainties
that it faces.
The Group Audit Committee has responsibility, delegated to it from
the Board, for overseeing all matters relating to external financial
reporting. The Group Audit Committee report on page 262 sets out
how the Group Audit Committee discharges its responsibilities.
Disclosure of information to auditors
In accordance with section 418 of the Companies Act 2006, the
Directors’ report includes a statement, in the case of each Director in
office as at the date the Report of the Directors is approved, that:
• so far as the Director is aware, there is no relevant audit
information of which the Company’s auditors are unaware; and
• they have taken all the steps they ought to have taken as a
Director in order to make themselves aware of any relevant audit
information and to establish that the Company’s auditors are
aware of that information.
On behalf of the Board
Mark E Tucker
Group Chairman
HSBC Holdings plc
Registered number 617987
21 February 2023
HSBC Holdings plc Annual Report and Accounts 2022
311
Corporate governance Financial
statements
The financial statements provide detailed
information and notes on our income,
balance sheet, cash flows and changes
in equity, alongside a report from our
independent auditors.
313
Report of Independent Registered Public
Accounting Firm to the Board of Directors
and Shareholders of HSBC Holdings plc
324 Financial statements
335 Notes on the financial statements
Building on our international
connections
We aim to collaborate internationally to make a difference
for our customers. In May 2022, we supported a Hong
Kong-based client with its investment in one of London’s
tallest skyscrapers. We helped C C Land Holdings Limited
with a £605m refinancing of The Leadenhall Building in the
City of London financial district. The international property
development and investment company bought the 225-metre
tall tower in 2017 for £1.15bn, in what was the second biggest
sale of a UK building at the time. The refinancing was co-
ordinated by colleagues from our UK and Hong Kong
teams, and incorporated support from three other banks.
312
HSBC Holdings plc Annual Report and Accounts 2022
Independent auditors’ report to the members of HSBC
Holdings plc
Report on the audit of the financial statements
Opinion
In our opinion, HSBC Holdings plc’s group financial statements and company financial statements (the “financial statements”)
•
•
•
give a true and fair view of the state of the group’s and of the company’s affairs as at 31 December 2022 and of the group’s and company’s
profit and the group’s and company’s cash flows for the year then ended;
have been properly prepared in accordance with UK-adopted international accounting standards; and
have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Accounts 2022 (the “Annual Report”), which comprise: the
consolidated and company balance sheets as at 31 December 2022; the consolidated and company income statements and the consolidated and
company statements of comprehensive income for the year then ended, the consolidated and company statements of cash flows for the year
then ended, the consolidated and company statements of changes in equity for the year then ended; and the notes to the financial statements,
which include a description of the significant accounting policies and other explanatory information. Certain notes to the financial statements
have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the
financial statements and are identified as ‘(Audited)’. The relevant disclosures are included in the Risk review section on pages 131 to 238 and
the Directors remuneration report disclosures on pages 276 to 301.
Our opinion is consistent with our reporting to the Group Audit Committee ('GAC').
Separate opinion in relation to international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union
As explained in note 1.1(a) to the financial statements, the group and company, in addition to applying UK-adopted international accounting
standards, have also applied international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.
In our opinion, the group and company financial statements have been properly prepared in accordance with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
Separate opinion in relation to IFRSs as issued by the IASB
As explained in note 1.1(a) to the financial statements, the group and company, in addition to applying UK-adopted international accounting
standards, have also applied international financial reporting standards (IFRSs) as issued by the International Accounting Standards Board (IASB).
In our opinion, the group and company financial statements have been properly prepared in accordance with IFRSs as issued by the IASB.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”), International Standards on Auditing issued by
the International Auditing and Assurance Standards Board (“ISAs”) and applicable law. Our responsibilities under ISAs (UK) and ISAs are further
described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in
the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and the International Code of Ethics for
Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants
(IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by either the FRC’s Ethical Standard or Article 5(1) of
Regulation (EU) No 537/2014 were not provided to the company or its controlled undertakings.
Other than those disclosed in note 6, we have provided no non-audit services to the company or its controlled undertakings in the period under
audit.
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Financial statements Report of Independent Registered Public Accounting Firm to the Board of Directors and
Shareholders of HSBC Holdings plc
Our audit approach
Overview
Audit scope
•
This was the fourth year that it has been my responsibility to form this opinion on behalf of PricewaterhouseCoopers LLP, who you first
appointed on 31 March 2015 in relation to that year's audit. In addition to forming this opinion, in this report we have also provided
information on how we approached the audit, how it changed from the previous year and details of the significant discussions that we had
with the GAC.
Key audit matters
•
•
•
•
•
Expected credit losses - Impairment of loans and advances (group)
Impairment of investment in associate - Bank of Communications Co., Ltd ('BoCom') (group)
Investments in subsidiaries (company)
Valuation of defined benefit pension obligations (group)
Held for sale accounting (group)
Materiality
•
•
Overall group materiality: US$1bn (2021: US$970m) based on 5% of adjusted profit before tax.
Overall company materiality: US$950m (2021: US$920m) based on 0.75% of total assets. This would result in an overall materiality of
US$2bn and was therefore reduced below the group materiality.
Performance materiality: US$750m (2021: US$725m) (group) and US$712m (2021: US$690m) (company).
•
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were
addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Held for sale accounting (group) is a new key audit matter this year. Otherwise, the key audit matters below are consistent with last year.
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HSBC Holdings plc Annual Report and Accounts 2022
Expected credit losses – Impairment of loans and advances (group)
Nature of the key audit matter
Determining expected credit losses (‘ECL’) involves management judgement and is subject to a high degree of estimation uncertainty.
Management makes various assumptions when estimating ECL. The significant assumptions that we focused on in our audit included those with
greater levels of management judgement and for which variations had the most significant impact on ECL. These included assumptions made in
determining forward looking economic scenarios and their probability weightings (specifically the central and downside scenarios given these have the
most material impact on ECL) and estimating management judgemental adjustments and significant discounted cash flows for material credit impaired
exposures in relation to the China offshore unsecured commercial real estate portfolio.
The level of estimation uncertainty and judgement has remained high during 2022 as a result of the uncertain macroeconomic and geopolitical
environment, high levels of inflation and a rising global interest rate environment, as well as developments in China’s commercial real estate sector.
Macroeconomic conditions vary between territories and industries, leading to uncertainty around judgements made in determining the severity and
probability weighting of macroeconomic variable forecasts across the different economic scenarios used in ECL models.
The modelling methodologies used to estimate ECL are developed using historical experience. The impact of the prevailing macroeconomic conditions
has also resulted in certain limitations in the reliability of these methodologies to forecast the extent and timing of future customer defaults and
therefore estimate ECL. In addition, modelling methodologies do not incorporate all factors that are relevant to estimating ECL, such as differentiating
the impact on industry sectors and economic conditions. These limitations are addressed with management judgemental adjustments, the
measurement of which is inherently judgemental and subject to a high level of estimation uncertainty, in particular in relation to the China commercial
real estate offshore portfolio.
Management makes other assumptions which are less judgemental or for which variations have a less significant impact on ECL. These assumptions
include:
• the methodologies used in quantitative scorecards for determining customer risk ratings (‘CRRs’);
• estimating expected cash flows and collateral valuations for credit impaired corporate exposures, other than in relation to the China commercial real
estate offshore portfolio;
• model methodologies themselves; and
• quantitative and qualitative criteria used to assess significant increases in credit risk.
Matters discussed with the Group Audit Committee
the severity of macroeconomic scenarios, and their related probability weightings, across territories;
We held discussions with the GAC covering governance and controls over ECL, with a significant focus on the uncertain prevailing macroeconomic
conditions and developments in China’s commercial real estate sector. We discussed a number of areas, including:
•
• management judgemental adjustments and the nature and extent of analysis used to support those adjustments;
•
significant assumptions used to estimate the discounted cash inflow projections for defaulted exposures in relation to unsecured offshore China
commercial real estate;
• management’s policies, governance and controls over model validation and monitoring; and
•
the disclosures made in relation to ECL, in particular, the impact of adjustments on determining ECL.
How our audit addressed the Key Audit Matter
We assessed the design and effectiveness of governance and controls over the estimation of ECL. We observed management’s review and challenge
in governance forums for (1) the determination of macroeconomic scenarios and their probability weightings, and (2) the assessment of ECL for Retail
and Wholesale portfolios, including the assessment of model limitations and any resulting management judgemental adjustments.
We also tested controls over:
• model validation and monitoring;
•
•
•
credit reviews that determine customer risk ratings for wholesale customers;
the identification of credit impaired triggers;
the input of critical data into source systems and the flow and transformation of critical data from source systems to impairment models and
management judgemental adjustments;
the calculation and approval of management judgemental adjustments to modelled outcomes; and
approval of significant individual impairments.
•
•
We involved our economic experts in assessing the significant assumptions made in determining the severity and probability weighting of
macroeconomic variables (“MEV”) forecasts. These assessments considered the sensitivity of ECL to variations in the severity and probability
weighting of MEV forecasts. We involved our modelling experts in assessing the appropriateness of the significant assumptions and methodologies
used for models and certain management judgemental adjustments. We independently re-performed the calculations for a sample of those models
and certain management judgemental adjustments. In respect of unsecured offshore China commercial real estate, we involved our business recovery
experts in assessing certain significant management judgemental adjustments and discounted cash flows for a sample of credit impaired exposures.
We further considered whether the judgements made in selecting the significant assumptions would give rise to indicators of possible management
bias.
In addition, we performed substantive testing over:
• the compliance of ECL methodologies and assumptions with the requirements of IFRS 9;
• the appropriateness and application of the quantitative and qualitative criteria used to assess significant increases in credit risk;
• a sample of critical data used in ECL models and to estimate management judgemental adjustments;
• assumptions and critical data for a sample of credit impaired wholesale exposures; and
• a sample of CRRs applied to the wholesale exposures.
We evaluated and tested the Credit Risk disclosures made in the Annual Report.
Relevant references in the Annual Report and Accounts 2022
• Credit risk disclosures, page 145.
• Group Audit Committee Report, page 262.
• Note 1.2(d):Financial instruments measured at amortised cost, page 340.
• Note 1.2(i): Impairment of amortised cost and FVOCI financial assets, page 341.
HSBC Holdings plc Annual Report and Accounts 2022
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Financial statements Report of Independent Registered Public Accounting Firm to the Board of Directors and
Shareholders of HSBC Holdings plc
Impairment of investment in associate – Bank of Communications Co., Ltd (‘BoCom’) (group)
Nature of the key audit matter
At 31 December 2022, the fair value of the investment in BoCom, based on the share price, was US$15.2bn lower than the carrying value (‘CV’) of
US$23.3bn.
This is an indicator of potential impairment. An impairment test was performed by management, with supporting sensitivity analysis, using the higher
of fair value and value in use (‘VIU’). The VIU was $0.2bn in excess of the CV. On this basis, management concluded no impairment was required.
The methodology in the VIU model is dependent on various assumptions, both short term and long term in nature. These assumptions, which are
subject to estimation uncertainty, are derived from a combination of management’s judgement, analysts’ forecasts and market data. The significant
assumptions that we focused our audit on were those with greater levels of management judgement and for which variations had the most significant
impact on the VIU. Specifically, these included:
• the discount rate;
• short term assumptions for operating income growth rate, cost-income ratio, and expected credit losses;
• long term assumptions for profit and asset growth rates, expected credit losses, and effective tax rates; and
• capital related assumptions (risk-weighted assets as a percentage of total assets, capital adequacy ratio and tier 1 capital adequacy ratio).
Matters discussed with the Group Audit Committee
We discussed the appropriateness of the VIU methodology and significant assumptions with the GAC, giving consideration to the macroeconomic
environment, the outlook for the Chinese banking market and the fair value, which has been lower than the carrying value for approximately 11 years.
We also discussed the disclosures made in relation to BoCom, including reasonably possible alternatives for the significant assumptions, the use of
sensitivity analysis to explain estimation uncertainty and the changes in certain assumptions that would result in the VIU being equal to the CV.
How our audit addressed the Key Audit Matter
We tested controls in place over the significant assumptions and the model used to determine the VIU. We assessed the appropriateness of the
methodology used, and the mathematical accuracy of the calculations, to estimate the VIU. In respect of the significant assumptions, our testing
included the following:
•
• obtaining evidence for data supporting significant assumptions including historic experience, external market information, third-party sources
challenging the appropriateness of the significant assumptions and, where relevant, their interrelationships;
including analysts reports, information from BoCom management and historically available BoCom public information;
assessing the impact on the VIU of reasonable variations in certain significant assumptions, both individually and in aggregate;
•
• determining a reasonable range for the discount rate used within the model, with the assistance of our valuation experts, and comparing it to the
discount rate used by management; and
•
assessing whether the judgements made in deriving the significant assumptions give rise to indicators of possible management bias.
We observed the meetings between management and BoCom management, held specifically to identify facts and circumstances impacting
assumptions relevant to the determination of the VIU.
Representations were obtained from management that assumptions used were consistent with information currently available to the group.
We evaluated and tested the disclosures made in the Annual Report in relation to BoCom.
Relevant references in the Annual Report and Accounts 2022
• Group Audit Committee Report, page 262.
• Note 1.2(a): Critical accounting estimates and judgements, page 338.
• Note 18: Interests in associates and joint ventures, page 379.
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HSBC Holdings plc Annual Report and Accounts 2022
Investments in subsidiaries (company)
Nature of the key audit matter
Management reviewed investments in subsidiaries for indicators of impairment and indicators that impairment charges recognised in prior periods may
no longer exist or may have decreased in accordance with IAS 36 as at 31 December 2022. Where indicators have been identified management
estimated the recoverable amount using the higher of value in use (‘VIU’) or fair value less cost to sell. Management’s assessment resulted in a partial
reversal of an impairment charge of US$2.5bn in relation to the investment in HSBC Overseas Holdings (UK) Limited (‘HOHU’), which is an immediate
holding company of certain businesses in North America. This resulted in investment in subsidiaries of $US167.5bn at 31 December 2022.
The methodology used to estimate the recoverable amount is dependent on various assumptions, both short term and long term in nature. These
assumptions, which are subject to estimation uncertainty, are derived from a combination of management’s judgement, experts engaged by
management and market data. The significant assumptions that we focused our audit on were those with greater levels of management judgement
and for which variations had the most significant impact on the recoverable amount. Specifically, these included:
• HSBC’s business plan for 2023 to 2027 focusing on revenue, cost and ECL forecasts including the impact of climate change risk;
• regulatory capital requirements;
• long term growth rates; and
• discount rates.
Matters discussed with the Group Audit Committee
We discussed the partial reversal of the impairment charge for HOHU, the appropriateness of methodologies used and significant assumptions with
the GAC, giving consideration to the macroeconomic outlook and HSBC’s strategy. We considered reasonable possible alternatives for significant
assumptions.
How our audit addressed the Key Audit Matter
We tested controls in place over significant assumptions and the model used to determine the recoverable amounts. We assessed the
appropriateness of the methodology used, and tested the mathematical accuracy of the calculations, to estimate the recoverable amounts. In respect
of the significant assumptions, our testing included the following:
•
challenging the achievability of management’s business plan and the prospects for HSBC’s businesses, as well as considering the achievement of
historic forecasts;
• obtaining and evaluating evidence relating to significant assumptions, from a combination of historical experience and external market and other
financial information;
assessing whether the cash flows included in the model were in accordance with the relevant accounting standard;
assessing the sensitivity of the VIU to reasonable variations in significant assumptions, both individually and in aggregate; and
•
•
• determining a reasonable range for the discount rate used within the model, with the assistance of our valuation experts, and comparing it to the
discount rate used by management.
We evaluated and tested the disclosures made in the Annual Report in relation to investment in subsidiaries.
Relevant references in the Annual Report and Accounts 2022
• Note 19: Investments in subsidiaries, page 382.
Valuation of defined benefit pensions obligations (group)
Nature of the key audit matter
The group has a defined benefit obligation of US$25.7bn, of which US$18.8bn relates to HSBC Bank (UK) pension scheme.
The valuation of the defined benefit obligation for HSBC Bank (UK) pension scheme is dependent on a number of actuarial assumptions. Management
uses an actuarial expert to determine the valuation of the defined benefit obligations. The valuation methodology uses a number of market based
inputs and other financial and demographic assumptions. The significant assumptions that we focused our audit on were those with greater levels of
management judgement and for which variations had the most significant impact on the liability. Specifically, these included the discount rate, inflation
rate and mortality rate.
Matters discussed with the Group Audit Committee
We discussed with the GAC the methodologies and significant assumptions used by management to determine the value of the defined benefit
obligation.
How our audit addressed the Key Audit Matter
We tested governance and controls in place over the methodologies and the significant assumptions, including those in relation to the use of
management’s experts. We also evaluated the objectivity and competence of management’s expert involved in the valuation of the defined benefit
obligation.
We assessed the appropriateness of the methodology used, and tested the accuracy of the calculation, to estimate the liability. In respect of the
significant assumptions, we used our actuarial experts to understand the judgements made by management and their actuarial expert in determining
the significant assumptions and compared these assumptions to our independently compiled expected ranges based on market observable indices and
the knowledge and opinions of our actuarial experts.
We evaluated and tested the disclosures made in the Annual Report in relation to the defined benefit pension obligation.
Relevant references in the Annual Report and Accounts 2022
• Group Audit Committee Report, page 262.
• Note 1.2(k): Critical accounting estimates and judgements, page 345.
• Note 5: Employee compensation and benefits, page 351.
HSBC Holdings plc Annual Report and Accounts 2022
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Financial statements
Report of Independent Registered Public Accounting Firm to the Board of Directors and
Shareholders of HSBC Holdings plc
Held for sale accounting (group)
Nature of the key audit matter
The group has agreements to sell a number of businesses as part of executing its strategy. This has resulted in US$115.9bn of assets and US$114.6bn
of liabilities being classified as held for sale as at 31 December 2022, in relation to businesses in France, Canada, Russia and Greece. In addition to the
assets and liabilities classified as held for sale, a loss of US$2.4bn has also been recognised in 2022 in relation to the sale of the business in France.
For the assets and liabilities to be classified as held for sale, the sale needs to be considered highly probable and expected to complete within 12
months of the date of classification. We focused our audit on the areas with greater levels of management judgement relating to the highly probable
threshold being met including the expected timing of completion, the appropriateness of disclosures relating to the highly probable assessment and
the loss recognised in relation to the sale of the business in France.
Matters discussed with the Group Audit Committee
We discussed with the GAC the judgements made by management in determining if the highly probable thresholds were met as at 31 December
2022. We also discussed the appropriateness of the disclosure made in the Annual Report which explained how management had concluded that
transactions met the highly probable threshold as at 31 December 2022.
How our audit addressed the Key Audit Matter
We tested governance and controls in place over the management process to determine if the highly probable threshold had been met on assets and
liabilities classified as held for sale.
We assessed the key judgments made by management to determine whether the highly probable thresholds were met as at 31 December 2022,
including their assessment of remaining actions to complete the transactions, any regulatory requirements that need to be met, and the likelihood and
expected timing of the transactions being approved by relevant regulators and shareholders.
We also tested the completeness and accuracy of the assets and liabilities that were classified as held for sale and the loss on sale recognised in
relation to the French business. We evaluated and tested the disclosures made in the Annual Report in relation to assets and liabilities classified as
held for sale.
Relevant references in the Annual Report and Accounts 2022
• Group Audit Committee Report, page 262.
• Note 1.2(o): Critical accounting estimates and judgements, page 347.
• Note 23: Assets held for sale and liabilities of disposal groups held for sale, page 389.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a
whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry in which they
operate.
The risks that HSBC faces are diverse, with the interdependencies between them being numerous and complex. In performing our risk
assessment we engaged with a number of stakeholders to ensure we appropriately understood and considered these risks and their
interrelationships. This includes stakeholders within HSBC and our own experts within PwC. This engagement covered external factors across
the geopolitical, macroeconomic and regulatory and accounting landscape, the impact of climate change risk as well as the internal environment
at HSBC, driven by strategy and transformation.
We evaluated and challenged management's assessment of the impact of climate change risk, which is set out on page 46, including their
conclusion that there is no material impact on the financial statements. In making this evaluation we considered management’s use of stress
testing and scenario analysis to arrive at the conclusion that there is no material impact on the financial statements. We considered
management's assessment on the areas in the financial statements most likely to be impacted by climate risk, including:
• the impact on ECL on loans and advances to customers, for both physical and transition risk;
• the forecast cashflows from management’s five year business plan and long term growth rates used in estimating recoverable amounts as
part of impairment assessments of investments in subsidiaries, goodwill and intangible assets;
• the impact of climate related terms on the solely payments of principal and interest test for classification and measurement of loans and
advances to customers; and
• climate risks relating to contingent liabilities as HSBC faces increased reputational, legal and regulatory risk as it progresses towards its
climate ambition.
HSBC’s progress on their ESG targets is not included within the scope of this audit. We were engaged separately to provide independent limited
assurance to the Directors over the following ESG data:
• the 2019 and 2020 on-balance sheet financed emissions for 6 sectors in total (page 50);
• the cumulative progress made by HSBC on providing and facilitating sustainable financing and investments (page 57); and
• HSBC’s own operations’ scope 1, 2 and 3 (limited to business travel) greenhouse gas emissions data for 2022 (page 62); and supply chain
greenhouse gas emissions for purchased goods and services, and capital goods for 2021 and 2022 (page 64).
The independent limited assurance reports, which explain the scope of our work and the procedures undertaken can be found on:
www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre. The work performed for a limited assurance report is
substantially less than the work performed for our financial audit, which provides reasonable assurance.
Through our risk assessment, we tailored our determination as to which entities and balances we needed to perform testing over to support our
Group opinion, taking into consideration the complex and disaggregated group structure, the accounting processes and controls as well as the
industry in which they operate. The risks of material misstatement can be reduced to an acceptable level by testing the most financially
significant entities within the Group and those that drive particular significant risks identified as part of our risk assessment. This ensures that
sufficient coverage has been obtained for each financial statement line item (FSLI). We continually assessed risks and changed the scope of our
audit where necessary.
Our risk assessment and scoping identified certain entities (collectively the Significant Subsidiaries) for which we obtained audit opinions. We
obtained full scope audit opinions for the consolidated financial position and performance of The Hongkong and Shanghai Banking Corporation
Limited, HSBC Bank plc, and HSBC North America Holdings Inc. We also obtained full scope audit opinions for the company financial position
and performance of HSBC UK Bank plc, HSBC Bank Canada and HSBC Mexico S.A. Banco. We obtained audit opinions over specific balances for
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HSBC Holdings plc Annual Report and Accounts 2022
HSBC Bank Middle East Limited - UAE Operations. The audits for HSBC Bank plc and HSBC UK Bank plc were performed by other PwC teams in
the UK. All other audits were performed by other PwC network firms.
We continued to incorporate elements of unpredictability into our audit scoping, extending the scope of work performed for both The Hongkong
and Shanghai Banking Corporation India Branch, and HSBC Bank (China) Limited. These entities are also in scope for The Hongkong and
Shanghai Banking Corporation Limited. This was undertaken with consideration of both the relative profitability of these entities in the region and
the Group’s strategy.
Group-wide audit approach
HSBC has entity level controls that have a pervasive influence across the group, as well as other global and regional governance and controls
over aspects of financial reporting, such as those operated by the Global Risk function for expected credit losses. A significant amount of IT and
operational processes and controls relevant to financial reporting are undertaken in operations centres run by Digital Business Services ('DBS').
Whilst these operations centres are not separate components, the IT and operational processes and controls are relevant to the financial
information of the Significant Subsidiaries. Financial reporting processes and controls are also performed centrally in HSBC's Group Finance
function and finance operation centres (‘Finance Operations’), including the impairment assessment of goodwill and intangible assets, the
consolidation of the group's results, the preparation of financial statements, and management's oversight controls relevant to the group's
financial reporting.
Group-wide processes or processes in DBS and Finance Operations are subject to specified audit procedures or an audit over specific FSLIs.
These procedures primarily relate to testing of IT general controls, forward looking economic scenarios for ECL, operating expenses, intangible
assets, valuation of financial instruments, intercompany eliminations, reconciliations and consolidation as well as payroll. For these areas, we
either performed audit work ourselves, or directed and provided oversight of the audit work performed by PwC teams in the UK, Poland, China,
Sri Lanka, Malaysia, India, Mexico and the Philippines. Some of this work was relied upon by the PwC teams auditing the Significant
Subsidiaries. This audit work, together with analytical review procedures and assessing the outcome of local external audits, also mitigated the
risk of material misstatement for balances in entities that were not part of a Significant Subsidiary.
Significant Subsidiaries audit approach
In March 2022, we held a meeting in Dubai with the partners and senior staff from the Group audit team and the PwC teams who undertake
audits of the Significant Subsidiaries and the Operations Centres. The meeting focused primarily on reconnecting as a team after virtual
interactions throughout the Covid-19 pandemic, reassessing our approach to auditing HSBC’s businesses, changes at HSBC and in our PwC
teams, and how we continue to innovate and improve the quality of the audit. We also discussed our significant audit risks.
We asked the partners and teams reporting to us on the Significant Subsidiaries to work to assigned materiality levels reflecting the size of the
operations they audited. The performance materiality levels ranged from US$712m to US$50m. Certain Significant Subsidiaries were audited to a
local statutory audit materiality that was a lower level than our allocated group materiality.
We designed global audit approaches for the products and services that substantially make up HSBC's global businesses, such as lending,
deposits and derivatives. These approaches were provided to the partners and teams performing audit testing for the Significant Subsidiaries.
We were in active dialogue throughout the year with the partners and teams responsible for the audits of the Significant Subsidiaries, including
consideration of how they planned and performed their work. Senior members of our team undertook at least one in-person site visit prior to the
year end where a full scope audit was requested. We attended Audit Committee meetings for some of the Significant Subsidiaries. We also
attended meetings with management for each of these Significant Subsidiaries at the year-end.
The audit of The Hongkong and Shanghai Banking Corporation Limited in Hong Kong relied upon work performed by other teams in Hong Kong
and the PwC network firms in India, mainland China and Singapore. Similarly, the audit of HSBC Bank plc in the UK relied upon work performed
by other teams in the UK and the PwC network firms in France and Germany. We considered how the audit partners and teams for the
Significant Subsidiaries instructed and provided oversight to the work performed in these locations. Collectively, Significant Subsidiaries covered
84% of total assets and 69% of total operating income.
Using the work of others
We have increased our use of evidence provided by others through our reliance on management assurance testing of controls across the group.
This included testing of controls performed by management themselves in certain low risk areas including reconciliations, footnote disclosure
controls and certain automated controls. We re-performed a portion of the testing to ensure appropriate quality of testing, as well as assessing
the competence and objectivity of those performing the testing.
We also used the work of PwC experts, for example economic experts for our work around the severity and probability weighting of
macroeconomics variables as part of the expected credit loss allowance and actuaries on the estimates used in determining pension liabilities.
An increasing number of controls are operated on behalf of HSBC by third parties. We obtained audit evidence from work that is scoped and
provided by other auditors that are engaged by those third parties. For example, we obtained a report evidencing the testing of external systems
and controls supporting HSBC's payroll and HR processes.
HSBC Holdings plc Annual Report and Accounts 2022
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Financial statements Report of Independent Registered Public Accounting Firm to the Board of Directors and
Shareholders of HSBC Holdings plc
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the
financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Financial statements – group
Overall materiality
US$1bn (2021: US$970m).
How we determined it
5% of adjusted profit before tax.
Rationale for benchmark
applied
We believe a standard benchmark of 5% of adjusted profit
before tax is an appropriate qualitative indicator of
materiality, although certain items could also be material for
qualitative reasons. This benchmark is standard for listed
entities and consistent with the wider industry. We
selected adjusted profit because, as discussed on page 29,
management believes it best reflects the performance of
HSBC and how the group is run. We excluded the
adjustments made by management on page 29 for certain
customer redress programmes and fair value movements
of financial instruments, as in our opinion they are recurring
items that form part of ongoing business performance.
Financial statements – company
US$950m (2021: US$920m).
0.75% of total assets. This would result in an overall
materiality of US$2bn and was therefore reduced below the
group materiality.
A benchmark of total assets has been used, as the
company's primary purpose is to act as a holding company
with investments in the group's subsidiaries, not to
generate operating profits and therefore a profit based
measure is not relevant.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and
extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance
materiality was 75% (2021: 75%) of overall materiality, amounting to US$750m (2021: US$725m) for the group financial statements and
US$712m (2021: US$690m) for the company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation
risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate.
We agreed with the GAC that we would report to them misstatements identified during our audit above US$50m (group audit) (2021: US$48m)
and US$50m (company audit) (2021: US$48m) as well as misstatements below those amounts that, in our view, warranted reporting for
qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group's and the company’s ability to continue to adopt the going concern basis of accounting
included:
• performing a risk assessment to identify factors that could impact the going concern basis of accounting, including both internal risks (i.e.
strategy execution) and external risks (i.e. macroeconomic conditions);
• understanding and evaluating the group's financial forecasts and the group's stress testing of liquidity and regulatory capital, including the
severity of the stress scenarios that were used;
• understanding and evaluating credit rating agency ratings and actions; and
• reading and evaluating the adequacy of the disclosures made in the financial statements in relation to going concern.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the group's and the company’s ability to continue as a going concern for a period of at least twelve
months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group's and the company's
ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the
going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.
The directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to
the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material
inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the
financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
320
HSBC Holdings plc Annual Report and Accounts 2022
With respect to the Strategic Report and Report of the Directors, we also considered whether the disclosures required by the UK Companies Act
2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as
described below.
Strategic report and Report of the Directors
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Report of the Directors
for the year ended 31 December 2022 is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic Report and Report of the Directors.
Directors’ Remuneration
In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act
2006.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate
governance statement relating to the company’s compliance with the provisions of the UK Corporate Governance Code specified for our review.
Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting on other
information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance
statement is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material to
add or draw attention to in relation to:
• the directors’ confirmation that they have carried out an appropriate assessment of the emerging and principal risks;
• the disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated;
• the directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material uncertainties to the group’s and company’s ability to continue to do so
over a period of at least twelve months from the date of approval of the financial statements;
• the directors’ explanation as to their assessment of the group's and company’s prospects, the period this assessment covers and why the
period is appropriate; and
• the directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in operation and meet its
liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications
or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the group and company was substantially less in scope than an audit
and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is in
alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the
financial statements and our knowledge and understanding of the group and company and their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• the directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the group’s and company's position, performance, business model and strategy;
• the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
• the section of the Annual Report describing the work of the GAC.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the company’s compliance with the
Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors' responsibility statement, the directors are responsible for the preparation of the financial statements in
accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such
internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’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 the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with ISAs (UK) and ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.
HSBC Holdings plc Annual Report and Accounts 2022
321
Financial statements Report of Independent Registered Public Accounting Firm to the Board of Directors and
Shareholders of HSBC Holdings plc
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related
to breaches of financial crime laws and regulations and regulatory compliance, including regulatory reporting requirements and conduct of
business, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered
those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006. We evaluated management’s
incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined
that the principal risks were related to posting inappropriate journal entries in relation to cost targets, and management bias in accounting
estimates. The group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit
procedures in response to such risks in their work. Audit procedures performed by the group engagement team and/or component auditors
included:
• review of correspondence with and reports from regulators, including the Prudential Regulation Authority ('PRA') and Financial Conduct
Authority ('FCA');
• reviewed reporting to the GAC and GRC in respect of compliance and legal matters;
• enquiries of management and review of internal audit reports, insofar as they related to the financial statements;
• obtain legal confirmations from legal advisors relating to material litigation and compliance matters;
• assessment of matters reported on the group's whistleblowing programmes and the results of management's investigation of such matters,
insofar as they related to the financial statements;
• challenging assumptions and judgements made by management in its significant accounting estimates, in particular in relation to the
determination of expected credit losses, the impairment assessment of the investment in BoCom, valuation of defined benefit pensions
obligations, investment in subsidiaries and valuation of financial instruments;
• obtaining confirmations from third parties to confirm the existence of a sample of transactions and balances; and
• identifying and testing journal entries, including those posted with certain descriptions, posted and approved by the same individual,
backdated journals or posted by infrequent and unexpected users.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with
laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a
material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment
by, for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques.
However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to
target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a
conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements in accordance with ISAs (UK) is located on the FRC’s website
at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We
also:
• identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
• obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Group’s and company’s internal controls;
• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by
management;
• conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and company’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the
related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to
cease to continue as a going concern;
• evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the
consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation; and
• obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group and
company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance
of the Group and company audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence,
and where applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit
of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s
report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a
matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh
the public interest benefits of such communication.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part
16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other
322
HSBC Holdings plc Annual Report and Accounts 2022
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.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not obtained all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches
not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting
records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Group Audit Committee ('GAC'), we were appointed by the members on 31 March 2015 to audit the
financial statements for the year ended 31 December 2015 and subsequent financial periods. The period of total uninterrupted engagement is
eight years, covering the years ended 31 December 2015 to 31 December 2022.
Other matter
As required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements form part of the
ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in accordance with the ESEF
Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance over whether the annual financial report has been
prepared using the single electronic format specified in the ESEF RTS.
Scott Berryman (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
21 February 2023
HSBC Holdings plc Annual Report and Accounts 2022
323
Financial statements Financial statements
Financial statements
Contents
324
Consolidated income statement
325
326
327
328
331
331
332
333
334
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of cash flows
Consolidated statement of changes in equity
HSBC Holdings income statement
HSBC Holdings statement of comprehensive income
HSBC Holdings balance sheet
HSBC Holdings statement of cash flows
HSBC Holdings statement of changes in equity
Consolidated income statement
for the year ended 31 December
Net interest income
– interest income1,2
– interest expense3
Net fee income
– fee income
– fee expense
Net income from financial instruments held for trading or managed on a fair value basis
Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives,
measured at fair value through profit or loss
Changes in fair value of designated debt and related derivatives4
Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss
Gains less losses from financial investments
Net insurance premium income
Impairment loss relating to the planned sale of our retail banking operations in France5
Other operating income/(loss)6
Total operating income
Net insurance claims and benefits paid and movement in liabilities to policyholders
Net operating income before change in expected credit losses and other credit impairment charges
Change in expected credit losses and other credit impairment charges
Net operating income
Employee compensation and benefits
General and administrative expenses
Depreciation and impairment of property, plant and equipment and right-of-use assets7
Amortisation and impairment of intangible assets
Goodwill impairment
Total operating expenses
Operating profit
Share of profit in associates and joint ventures
Profit before tax
Tax expense
Profit for the year
Attributable to:
– ordinary shareholders of the parent company
– preference shareholders of the parent company
– other equity holders
– non-controlling interests
Profit for the year
Basic earnings per ordinary share
Diluted earnings per ordinary share
Notes*
2
3
3
3
3
4
4
5
21
18
7
9
9
2022
$m
32,610
55,059
(22,449)
11,451
15,213
(3,762)
10,469
(3,394)
(77)
226
(3)
12,825
(2,378)
(133)
61,596
(9,869)
51,727
(3,592)
48,135
(18,366)
(11,091)
(2,157)
(1,716)
—
(33,330)
14,805
2,723
17,528
(858)
16,670
14,822
—
1,213
635
16,670
$
0.75
0.74
2021
$m
26,489
36,188
(9,699)
13,097
16,788
(3,691)
7,744
2020
$m
27,578
41,756
(14,178)
11,874
15,051
(3,177)
9,582
4,053
2,081
(182)
798
569
10,870
—
502
63,940
(14,388)
49,552
928
50,480
(18,742)
(11,592)
(2,261)
(1,438)
(587)
(34,620)
15,860
3,046
18,906
(4,213)
14,693
12,607
7
1,303
776
14,693
$
0.62
0.62
231
455
653
10,093
—
527
63,074
(12,645)
50,429
(8,817)
41,612
(18,076)
(11,115)
(2,681)
(2,519)
(41)
(34,432)
7,180
1,597
8,777
(2,678)
6,099
3,898
90
1,241
870
6,099
$
0.19
0.19
* For Notes on the financial statements, see page 335.
1
Interest income includes $48,134m (2021: $30,916m; 2020: $35,293m) of interest recognised on financial assets measured at amortised cost and
$6,386m (2021: $4,337m; 2020: $5,614m) of interest recognised on financial assets measured at fair value through other comprehensive income.
Interest income is calculated using the effective interest method and comprises interest recognised on financial assets measured at either amortised
cost or fair value through other comprehensive income.
Interest expense includes $20,798m (2021: $8,227m; 2020: $12,426m) of interest on financial instruments, excluding interest on financial liabilities
held for trading or designated or otherwise mandatorily measured at fair value.
2
3
4 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.
5 Includes impairment of goodwill of $425m.
6 Other operating income includes a loss on net monetary positions of $678m (2021: $224m, 2020: $128m) as a result of applying IAS 29 ‘Financial
Reporting in Hyperinflationary Economies’.
Includes depreciation of the right-of-use assets of $723m (2021: $878m; 2020: $1,029m).
7
324
HSBC Holdings plc Annual Report and Accounts 2022
Consolidated statement of comprehensive income
for the year ended 31 December
Profit for the year
Other comprehensive income/(expense)
Items that will be reclassified subsequently to profit or loss when specific conditions are met:
Debt instruments at fair value through other comprehensive income
– fair value gains/(losses)
– fair value gains transferred to the income statement on disposal
– expected credit (recoveries)/losses recognised in the income statement
– income taxes
Cash flow hedges
– fair value gains/(losses)
– fair value (gains)/losses reclassified to the income statement
– income taxes
Share of other comprehensive income/(expense) of associates and joint ventures
– share for the year
Exchange differences
Items that will not be reclassified subsequently to profit or loss:
Fair value gains on property revaluation
Remeasurement of defined benefit asset/liability
– before income taxes
– income taxes
Changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes in
own credit risk
– before income taxes
– income taxes
Equity instruments designated at fair value through other comprehensive income
– fair value gains/(losses)
– income taxes
Effects of hyperinflation
Other comprehensive income/(expense) for the year, net of tax
Total comprehensive income/(expense) for the year
Attributable to:
– ordinary shareholders of the parent company
– preference shareholders of the parent company
– other equity holders
– non-controlling interests
Total comprehensive income/(expense) for the year
2022
$m
16,670
2021
$m
14,693
(5,468)
(7,261)
(20)
67
1,746
(3,655)
(4,207)
(758)
1,310
(367)
(367)
(9,931)
280
(1,031)
(1,723)
692
1,922
2,573
(651)
107
107
—
842
(17,301)
(631)
(2,393)
—
1,213
549
(631)
(2,139)
(2,270)
(464)
(49)
644
(664)
595
(1,514)
255
103
103
(2,393)
—
(274)
(107)
(167)
531
512
19
(446)
(443)
(3)
315
(4,967)
9,726
7,765
7
1,303
651
9,726
2020
$m
6,099
1,750
2,947
(668)
48
(577)
471
(157)
769
(141)
(73)
(73)
4,855
—
834
1,223
(389)
167
190
(23)
212
212
—
193
8,409
14,508
12,146
90
1,241
1,031
14,508
HSBC Holdings plc Annual Report and Accounts 2022
325
Financial statements
Financial statements
Consolidated balance sheet
Assets
Cash and balances at central banks
Items in the course of collection from other banks
Hong Kong Government certificates of indebtedness
Trading assets
Financial assets designated and otherwise mandatorily measured at fair value through profit or loss
Derivatives
Loans and advances to banks
Loans and advances to customers
Reverse repurchase agreements – non-trading
Financial investments
Assets held for sale1
Prepayments, accrued income and other assets
Current tax assets
Interests in associates and joint ventures
Goodwill and intangible assets
Deferred tax assets
Total assets
Liabilities and equity
Liabilities
Hong Kong currency notes in circulation
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Items in the course of transmission to other banks
Trading liabilities
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Liabilities of disposal groups held for sale1
Accruals, deferred income and other liabilities
Current tax liabilities
Liabilities under insurance contracts
Provisions
Deferred tax liabilities
Subordinated liabilities
Total liabilities
Equity
Called up share capital
Share premium account
Other equity instruments
Other reserves
Retained earnings
Total shareholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
Notes*
11
14
15
16
23
22
18
21
7
24
25
15
26
23
27
4
28
7
29
32
32
19
At
31 Dec
2022
$m
327,002
7,297
43,787
218,093
45,063
284,146
104,882
924,854
253,754
425,564
115,919
156,866
1,230
29,254
21,321
7,498
2,966,530
43,787
66,722
1,570,303
127,747
7,864
72,353
127,327
285,764
78,149
114,597
133,240
1,135
114,844
1,958
2,422
22,290
2,770,502
10,147
14,664
19,746
(9,141)
152,068
187,484
8,544
196,028
2,966,530
31 Dec
2021
$m
403,018
4,136
42,578
248,842
49,804
196,882
83,136
1,045,814
241,648
446,274
3,411
136,571
970
29,609
20,622
4,624
2,957,939
42,578
101,152
1,710,574
126,670
5,214
84,904
145,502
191,064
78,557
9,005
114,773
698
112,745
2,566
4,673
20,487
2,751,162
10,316
14,602
22,414
6,460
144,458
198,250
8,527
206,777
2,957,939
1
‘Assets held for sale’ in 2021, including $2.4bn of loans and advances to customers in relation to our exit of mass market retail banking business in the
US, were reported within ‘Prepayments, accrued income and other assets’ in the Annual Report and Accounts 2021. Similarly, $8.8bn of customer
accounts classified as ‘Liabilities of disposal groups’ were previously presented within ‘Accruals, deferred income and other liabilities’.
* For Notes on the financial statements, see page 335.
The accompanying notes on pages 335 to 417 and the audited sections in the Risk review on pages 131 to 238 (including ‘Measurement
uncertainty and sensitivity analysis of ECL estimates’ on pages 153 to 162, and ‘Directors’ remuneration report’ on pages 276 to 301 form an
integral part of these financial statements.
These financial statements were approved by the Board of Directors on 21 February 2023 and signed on its behalf by:
Mark E Tucker
Group Chairman
Georges Elhedery
Group Chief Financial Officer
326
HSBC Holdings plc Annual Report and Accounts 2022
Consolidated statement of cash flows
for the year ended 31 December
Profit before tax
Adjustments for non-cash items:
Depreciation, amortisation and impairment
Net loss/(gain) from investing activities
Share of profits in associates and joint ventures
Loss on disposal of subsidiaries, businesses, associates and joint ventures
Change in expected credit losses gross of recoveries and other credit impairment charges
Provisions including pensions
Share-based payment expense
Other non-cash items included in profit before tax
Elimination of exchange differences1
Changes in operating assets and liabilities
Change in net trading securities and derivatives
Change in loans and advances to banks and customers
Change in reverse repurchase agreements – non-trading
Change in financial assets designated and otherwise mandatorily measured at fair value
Change in other assets
Change in deposits by banks and customer accounts
Change in repurchase agreements – non-trading
Change in debt securities in issue
Change in financial liabilities designated at fair value
Change in other liabilities
Dividends received from associates
Contributions paid to defined benefit plans
Tax paid
Net cash from operating activities
Purchase of financial investments
Proceeds from the sale and maturity of financial investments
Net cash flows from the purchase and sale of property, plant and equipment
Net cash flows from purchase/(disposal) of customer and loan portfolios
Net investment in intangible assets
Net cash flow from acquisition and disposal of subsidiaries, businesses, associates and joint ventures
Net cash from investing activities
Issue of ordinary share capital and other equity instruments
Cancellation of shares
Net purchases of own shares for market-making and investment purposes
Net cash flow from change in stake of subsidiaries
Redemption of preference shares and other equity instruments
Subordinated loan capital issued
Subordinated loan capital repaid2
Dividends paid to shareholders of the parent company and non-controlling interests
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 Jan
Exchange differences in respect of cash and cash equivalents
Cash and cash equivalents at 31 Dec3
Cash and cash equivalents comprise:
– cash and balances at central banks
– items in the course of collection from other banks
– loans and advances to banks of one month or less
– reverse repurchase agreements with banks of one month or less
– treasury bills, other bills and certificates of deposit less than three months
– cash collateral and net settlement accounts
– cash and cash equivalents held for sale4
– less: items in the course of transmission to other banks
Cash and cash equivalents at 31 Dec3
2022
$m
17,528
3,873
11
(2,723)
2,639
3,907
635
400
(1,084)
49,127
20,181
31,799
(23,405)
8,344
(10,771)
(91,194)
4,344
12,518
(13,647)
15,978
944
(194)
(2,776)
26,434
(520,600)
495,049
(1,285)
(3,530)
(3,125)
(989)
(34,480)
—
(2,285)
(91)
(197)
(2,266)
7,300
(1,777)
(6,970)
(6,286)
(14,332)
574,032
(38,029)
521,671
327,002
7,297
72,295
68,682
26,727
19,445
8,087
(7,864)
521,671
2021
$m
18,906
4,286
(647)
(3,046)
—
(519)
1,063
467
510
18,937
(9,226)
(11,014)
552
(4,254)
19,899
95,703
14,769
(16,936)
(11,425)
(10,935)
808
(509)
(3,077)
104,312
(493,042)
521,190
(1,086)
3,059
(2,479)
(106)
27,536
1,996
(707)
(1,386)
—
(3,450)
—
(864)
(6,383)
(10,794)
121,054
468,323
(15,345)
574,032
403,018
4,136
55,705
76,658
28,488
11,241
—
(5,214)
574,032
2020
$m
8,777
5,241
(541)
(1,597)
—
9,096
1,164
433
(906)
(25,749)
13,150
(14,131)
9,950
(1,962)
(19,610)
226,723
(28,443)
(9,075)
(6,630)
20,323
761
(495)
(4,259)
182,220
(496,669)
476,990
(1,446)
1,362
(2,064)
(603)
(22,430)
1,497
—
(181)
—
(398)
—
(3,538)
(2,023)
(4,643)
155,147
293,742
19,434
468,323
304,481
4,094
51,788
65,086
30,023
17,194
—
(4,343)
468,323
Interest received was $55,664m (2021: $40,175m; 2020: $45,578m), interest paid was $22,856m (2021: $12,695m; 2020: $17,440m) and
dividends received (excluding dividends received from associates, which are presented separately above) were $1,638m (2021: $1,898m; 2020:
$1,158m).
1 Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis, as details
cannot be determined without unreasonable expense.
2 Subordinated liabilities changes during the year are attributable to repayments of $(1.8)bn (2021: $(0.9)bn; 2020: $(3.5)bn) of securities. Non-cash
changes during the year included foreign exchange gains/(losses) of $(1.1)bn (2021: $(0.3)bn; 2020: $0.5bn) and fair value gains/(losses) of $(3.1)bn
(2021: $(1.0)bn; 2020: $1.1bn).
3 At 31 December 2022, $59.3bn (2021: $33.6bn; 2020: $41.9bn) was not available for use by HSBC, due to a range of restrictions, including currency
exchange and other restrictions, of which $22.1bn (2021: $15.4bn; 2020: $16.9bn) related to mandatory deposits at central banks.
4 Includes $6.5bn of cash and balances at central banks (excluding the expected cash contribution as part of the planned sale of our retail banking
operations in France. For further details, see Note 23); $1.3bn of reverse repurchase agreements with banks of one month or less and $0.2bn of loans
and advances to banks of one month or less.
HSBC Holdings plc Annual Report and Accounts 2022
327
Financial statements
Financial statements
Consolidated statement of changes in equity
for the year ended 31 December
Called up
share
capital
and
share
premium
Other
equity
instru-
ments
$m
$m
24,918 22,414
—
—
Retained
earnings3,4
$m
144,458
16,035
Other reserves
Cash
flow
hedging
reserve
Foreign
exchange
reserve
Financial
assets
at
FVOCI
reserve
$m
(634)
—
$m
(197)
—
$m
(22,769)
—
Merger
and other
reserves4,5
$m
Total
share-
holders’
equity
$m
30,060 198,250
— 16,035
Non-
controlling
interests
Total
equity
$m
$m
8,527 206,777
635 16,670
—
—
1,368
(5,325)
(3,613)
(9,819)
174 (17,215)
(86) (17,301)
—
—
—
(5,417)
—
—
—
(5,417)
(51)
(5,468)
—
—
—
—
—
—
92
—
—
(3,613)
—
—
—
—
1,922
—
—
—
—
—
—
—
(1,029)
—
—
—
—
—
—
—
—
92
15
107
—
(3,613)
(42)
(3,655)
—
174
1,922
174
—
106
1,922
280
—
(1,029)
(2)
(1,031)
—
—
—
—
—
—
(367)
842
—
—
—
—
—
—
—
—
—
(9,819)
—
—
—
(367)
842
(9,819)
—
(367)
—
(112)
842
(9,931)
—
—
17,403
(5,325)
(3,613)
(9,819)
174
(1,180)
549
(631)
67
—
—
—
— (2,668)
—
—
(67)
(6,544)
402
(2,499)
—
—
—
—
—
—
—
—
—
—
400
—
—
—
—
—
—
—
—
—
—
—
—
—
2,499
(6,544)
(2,266)
—
(426)
—
—
(6,970)
(2,266)
—
—
400
—
400
(174)
—
—
—
24,811 19,746
(1,000)
(485)
152,068
—
3
(5,956)
—
2
(3,808)
—
—
(32,588)
174
304
(1,000)
(176)
33,211 187,484
(1,000)
—
(106)
(282)
8,544 196,028
At 1 Jan 2022
Profit for the year
Other comprehensive income (net of
tax)
– debt instruments at fair value
through other comprehensive
income
– equity instruments designated at fair
value through other comprehensive
income
– cash flow hedges
– changes in fair value of financial
liabilities designated at fair value
upon initial recognition arising from
changes in own credit risk
– property revaluation
– remeasurement of defined benefit
asset/liability
– share of other comprehensive
income of associates and joint
ventures
– effects of hyperinflation
– exchange differences
Total comprehensive income for the
year
Shares issued under employee
remuneration and share plans
Dividends to shareholders
Redemption of securities2
Transfers6
Cost of share-based payment
arrangements
Cancellation of shares7
Other movements
At 31 Dec 2022
328
HSBC Holdings plc Annual Report and Accounts 2022
Consolidated statement of changes in equity (continued)
for the year ended 31 December
Other reserves
Called up
share
capital and
share
premium
Other
equity
instru-
ments
$m
$m
Retained
earnings3,4
$m
24,624 22,414
—
—
140,572
13,917
Financial
assets at
FVOCI
reserve
Cash
flow
hedging
reserve
Foreign
exchange
reserve
$m
1,816
—
$m
457
—
$m
(20,375)
—
Merger
and other
reserves4,5
$m
Total
share-
holders’
equity
$m
26,935 196,443
— 13,917
Non-
controlling
interests
Total
equity
$m
$m
8,552 204,995
776 14,693
—
—
661
(2,455)
(654)
(2,394)
—
(4,842)
(125)
(4,967)
—
—
—
(2,105)
—
—
—
(2,105)
(34)
(2,139)
—
—
—
—
—
—
(350)
—
—
(654)
—
—
—
—
(350)
(654)
(96)
(10)
(446)
(664)
—
—
531
—
—
—
—
531
—
531
—
—
(288)
—
—
—
—
(288)
14
(274)
—
—
—
—
—
—
103
315
—
—
—
—
—
—
—
—
—
(2,394)
—
—
—
103
315
(2,394)
—
—
1
103
315
(2,393)
—
—
14,578
(2,455)
(654)
(2,394)
—
9,075
651
9,726
354
—
— 2,000
—
—
— (2,000)
—
—
(336)
(4)
(5,790)
—
(3,065)
—
—
—
—
—
—
—
—
—
—
—
—
467
(60)
—
—
—
24,918 22,414
(2,004)
40
144,458
—
—
5
(634)
—
—
—
(197)
—
—
—
—
—
—
—
18
—
18
—
—
—
3,065
1,996
(5,790)
(2,000)
—
—
(593)
—
—
1,996
(6,383)
(2,000)
—
—
467
—
467
—
—
(22,769)
60
—
(2,004)
45
30,060 198,250
—
(83)
(2,004)
(38)
8,527 206,777
At 1 Jan 2021
Profit for the year
Other comprehensive income (net of
tax)
– debt instruments at fair value
through other comprehensive
income
– equity instruments designated at fair
value through other comprehensive
income
– cash flow hedges
– changes in fair value of financial
liabilities designated at fair value
upon initial recognition arising from
changes in own credit risk
– remeasurement of defined benefit
asset/liability
– share of other comprehensive
income of associates and joint
ventures
– effects of hyperinflation
– exchange differences
Total comprehensive income for the
year
Shares issued under employee
remuneration and share plans
Capital securities issued1
Dividends to shareholders
Redemption of securities2
Transfers6
Cost of share-based payment
arrangements
Cancellation of shares7
Other movements
At 31 Dec 2021
HSBC Holdings plc Annual Report and Accounts 2022
329
Financial statements
Financial statements
Consolidated statement of changes in equity (continued)
for the year ended 31 December
Other reserves
Called up
share
capital and
share
premium
Other
equity
instru-
ments
$m
$m
Retained
earnings3,4
$m
24,278 20,871
—
—
136,679
5,229
Financial
assets at
FVOCI
reserve
Cash
flow
hedging
reserve
Foreign
exchange
reserve
$m
(108)
—
$m
(2)
—
$m
(25,133)
—
Merger
and other
reserves4,5
$m
Total
share-
holders’
equity
$m
27,370 183,955
5,229
—
Non-
controlling
interests
Total
equity
$m
$m
8,713 192,668
6,099
870
—
—
1,118
1,913
459
4,758
—
8,248
161
8,409
—
—
—
1,746
—
—
—
1,746
4
1,750
—
—
—
—
—
—
167
—
459
—
—
167
—
—
—
—
831
—
—
—
—
—
—
—
—
167
459
45
12
212
471
—
167
—
167
—
831
3
834
—
—
—
—
—
—
(73)
193
—
—
—
—
—
—
—
—
—
4,758
—
—
—
(73)
193
4,758
—
—
97
(73)
193
4,855
—
—
6,347
1,913
459
4,758
— 13,477
1,031 14,508
346
—
— 1,500
—
—
—
—
—
—
(339)
(3)
(1,331)
(1,450)
435
—
—
434
—
—
—
—
—
—
—
43
24,624 22,414
(200)
140,572
11
1,816
—
—
—
—
—
—
—
457
—
—
—
—
—
—
—
—
—
—
(435)
7
1,497
(1,331)
(1,450)
—
—
—
(692)
—
—
7
1,497
(2,023)
(1,450)
—
—
434
—
434
—
(20,375)
—
(146)
26,935 196,443
(500)
(646)
8,552 204,995
At 1 Jan 2020
Profit for the year
Other comprehensive income (net of
tax)
– debt instruments at fair value
through other comprehensive
income
– equity instruments designated at fair
value through other comprehensive
income
– cash flow hedges
– changes in fair value of financial
liabilities designated at fair value due
to movement in own credit risk
– remeasurement of defined benefit
asset/liability
– share of other comprehensive
income of associates and joint
ventures
– effects of hyperinflation
– exchange differences
Total comprehensive income for the
year
Shares issued under employee
remuneration and share plans
Capital securities issued1
Dividends to shareholders
Redemption of securities2
Transfers6
Cost of share-based payment
arrangements
Other movements
At 31 Dec 2020
1
In 2021, HSBC Holdings issued $2,000m of additional tier 1 instruments on which there were $4m of external issue costs. In 2020, HSBC Holdings
issued $1,500m of additional tier 1 instruments.
2 During 2022, HSBC Holdings redeemed €1,500m 5.250% perpetual subordinated contingent convertible capital securities and SGD1,000m 5.875%
perpetual subordinated contingent convertible capital securities. For further details, see Note 32. In 2021, HSBC Holdings redeemed $2,000m 6.875%
perpetual subordinated contingent convertible capital securities. In 2020, HSBC Holdings called and later redeemed $1,450m 6.20% non-cumulative US
dollar preference shares.
3 At 31 December 2022, retained earnings included 554,452,437 treasury shares (2021: 558,397,704; 2020: 509,825,249). These include treasury shares
held within HSBC’s insurance business’s retirement funds for the benefit of policyholders or beneficiaries within employee trusts for the settlement of
shares expected to be delivered under employee share schemes or bonus plans, and the market-making activities in Markets and Securities Services.
4 Cumulative goodwill amounting to $5,138m has been charged against reserves in respect of acquisitions of subsidiaries prior to 1 January 1998,
including $3,469m charged against the merger reserve arising on the acquisition of HSBC Bank plc. The balance of $1,669m has been charged against
retained earnings.
5 Statutory share premium relief under section 131 of the Companies Act 1985 was taken in respect of the acquisition of HSBC Bank plc in 1992, HSBC
Continental Europe in 2000 and HSBC Finance Corporation in 2003, and the shares issued were recorded at their nominal value only. In HSBC’s
consolidated financial statements, the fair value differences of $8,290m in respect of HSBC Continental Europe and $12,768m in respect of HSBC
Finance Corporation were recognised in the merger reserve. The merger reserve created on the acquisition of HSBC Finance Corporation subsequently
became attached to HSBC Overseas Holdings (UK) Limited, following a number of intra-Group reorganisations. During 2009, pursuant to section 131 of
the Companies Act 1985, statutory share premium relief was taken in respect of the rights issue and $15,796m was recognised in the merger reserve.
6 Permitted transfers from the merger reserve to retained earnings were made when the investment in HSBC Overseas Holdings (UK) Limited was
previously impaired. In 2020, an impairment of $435m was recognised and a permitted transfer of this amount was made from the merger reserve to
retained earnings. During 2022 and 2021, part-reversals of these impairments resulted in transfers from retained earnings back to the merger reserve
of $2,499m and $3,065m respectively.
7 For further details, see Note 32. In October 2021, HSBC announced a share buy-back of up to $2.0bn, which was completed in April 2022. Additionally,
HSBC announced a share buy-back of up to $1.0bn in February 2022, which concluded on 28 July 2022.
330
HSBC Holdings plc Annual Report and Accounts 2022
HSBC Holdings income statement
for the year ended 31 December
Net interest expense
– interest income
– interest expense
Fee (expense)/income
Net income from financial instruments held for trading or managed on a fair value basis
Changes in fair value of designated debt and related derivatives1
Changes in fair value of other financial instruments mandatorily measured at fair value through profit
or loss
Gains less losses from financial investments
Dividend income from subsidiaries
Other operating income
Total operating income
Employee compensation and benefits
General and administrative expenses
Reversal of impairment/(impairment) of subsidiaries
Total operating expenses
Profit before tax
Tax (charge)/credit2
Profit for the year
Notes*
3
3
3
5
2022
$m
(3,074)
937
(4,011)
(3)
2,129
2,144
(2,409)
58
9,478
91
8,414
(41)
(1,586)
2,493
866
9,280
3,077
12,357
2021
$m
(2,367)
380
(2,747)
(5)
110
349
(420)
—
11,404
230
9,301
(30)
(1,845)
3,065
1,190
10,491
343
10,834
2020
$m
(2,632)
473
(3,105)
(12)
801
(326)
1,141
—
8,156
1,889
9,017
(56)
(4,276)
(435)
(4,767)
4,250
(165)
4,085
* For Notes on the financial statements, see page 335.
1 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.
2 The tax credit includes $2.2bn arising from the recognition of a deferred tax asset from historical tax losses in HSBC Holdings. This was a result of
improved profit forecasts for the UK tax group, which accelerated the expected utilisation of these losses and reduced uncertainty regarding their
recoverability. The amounts recorded within profit before tax with respect to dividend income from subsidiaries and reversal of impairment of
subsidiaries are not subject to tax.
HSBC Holdings statement of comprehensive income
for the year ended 31 December
Profit for the year
Other comprehensive income/(expense)
Items that will not be reclassified subsequently to profit or loss:
Changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes
in own credit risk
– before income taxes
– income taxes
Other comprehensive income/(expense) for the year, net of tax
Total comprehensive income for the year
2022
$m
12,357
2021
$m
10,834
326
435
(109)
326
12,683
267
259
8
267
11,101
2020
$m
4,085
176
176
—
176
4,261
HSBC Holdings plc Annual Report and Accounts 2022
331
Financial statements
Financial statements
HSBC Holdings balance sheet
Assets
Cash and balances with HSBC undertakings
Financial assets with HSBC undertakings designated and otherwise mandatorily measured at fair value
Derivatives
Loans and advances to HSBC undertakings
Financial investments
Prepayments, accrued income and other assets
Current tax assets
Investments in subsidiaries
Intangible assets
Deferred tax assets
Total assets at 31 Dec
Liabilities and equity
Liabilities
Amounts owed to HSBC undertakings
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Accruals, deferred income and other liabilities
Subordinated liabilities
Deferred tax liabilities
Total liabilities
Equity
Called up share capital
Share premium account
Other equity instruments
Merger and other reserves
Retained earnings
Total equity
Total liabilities and equity at 31 Dec
* For Notes on the financial statements, see page 335.
Notes*
31 Dec 2022
$m
31 Dec 2021
$m
15
25
15
26
29
32
3,210
52,322
3,801
26,765
19,466
5,242
464
167,542
189
2,100
281,101
314
32,123
6,922
66,938
1,969
19,727
—
127,993
10,147
14,664
19,746
40,555
67,996
153,108
281,101
2,590
51,408
2,811
25,108
26,194
1,513
122
163,211
215
—
273,172
111
32,418
1,220
67,483
4,240
17,059
311
122,842
10,316
14,602
22,414
37,882
65,116
150,330
273,172
The accompanying notes on pages 335 to 417 and the audited sections in the Risk review on pages 131 to 238 (including ‘Measurement
uncertainty and sensitivity analysis of ECL estimates’ on pages 153 to 162), and ‘Directors’ remuneration report’ on pages 276 to 301 form an
integral part of these financial statements.
These financial statements were approved by the Board of Directors on 21 February 2023 and signed on its behalf by:
Mark E Tucker
Group Chairman
Georges Elhedery
Group Chief Financial Officer
332
HSBC Holdings plc Annual Report and Accounts 2022
HSBC Holdings statement of cash flows
for the year ended 31 December
Profit before tax
Adjustments for non-cash items
– depreciation, amortisation and impairment/expected credit losses
– share-based payment expense
– other non-cash items included in profit before tax
Changes in operating assets and liabilities
Change in loans to HSBC undertakings
Change in financial assets with HSBC undertakings designated and otherwise mandatorily measured at fair value
Change in net trading securities and net derivatives
Change in other assets
Change in financial investments
Change in debt securities in issue
Change in financial liabilities designated at fair value
Change in other liabilities
Tax received
Net cash from operating activities
Purchase of financial investments
Proceeds from the sale and maturity of financial investments
Net cash outflow from acquisition of or increase in stake of subsidiaries
Repayment of capital from subsidiaries
Net investment in intangible assets
Net cash from investing activities
Issue of ordinary share capital and other equity instruments
Redemption of preference shares and other equity instruments
Purchase of treasury shares
Cancellation of shares
Subordinated loan capital issued
Subordinated loan capital repaid
Debt securities issued
Debt securities repaid
Dividends paid on ordinary shares
Dividends paid to holders of other equity instruments
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 Dec
Cash and cash equivalents comprise:
– cash at bank with HSBC undertakings
– cash collateral and net settlement accounts
– treasury and other eligible bills
2022
$m
9,280
(2,500)
(2,428)
1
(73)
(1,657)
(914)
4,712
51
196
(5,625)
(4,755)
(3,394)
215
(4,391)
(21,481)
17,165
(5,696)
3,860
(39)
(6,191)
67
(2,266)
(438)
(2,298)
7,300
—
18,076
(10,094)
(5,330)
(1,214)
3,803
(6,779)
13,535
6,756
3,210
3,544
2
2021
$m
10,491
(2,954)
(2,976)
2
20
3,364
(4,409)
47
(226)
20
(2,833)
(1,396)
(691)
32
1,445
(16,966)
16,074
(1,337)
2,000
(26)
(255)
2,334
(3,450)
(28)
(707)
—
—
19,379
(5,569)
(4,480)
(1,310)
6,169
7,359
6,176
13,535
2,590
93
10,852
2020
$m
4,250
442
87
1
354
(327)
(3,289)
(1,657)
(633)
449
3,063
1,258
1,366
270
5,192
(11,652)
9,342
(2,558)
1,516
(33)
(3,385)
1,846
—
—
—
—
(1,500)
15,951
(16,577)
—
(1,331)
(1,611)
196
5,980
6,176
2,913
249
3,014
Interest received was $2,410m (2021: $1,636m; 2020: $1,952m), interest paid was $3,813m (2021: $2,724m; 2020: $3,166m) and dividends
received were $9,478m (2021: $11,404m; 2020: $8,156m).
HSBC Holdings plc Annual Report and Accounts 2022
333
Financial statements
Financial statements
HSBC Holdings statement of changes in equity
for the year ended 31 December
At 1 Jan 2022
Profit for the year
Other comprehensive income (net of tax)
– changes in fair value of financial liabilities designated at fair value due to
movement in own credit risk
Total comprehensive income for the year
Shares issued under employee share plans
Capital securities issued
Cancellation of shares2,3
Dividends to shareholders
Redemption of capital securities
Transfers4
Other movements
At 31 Dec 2022
At 1 Jan 2021
Profit for the year
Other comprehensive income (net of tax)
– changes in fair value of financial liabilities designated at fair value due to
movement in own credit risk
Total comprehensive income for the year
Shares issued under employee share plans
Capital securities issued
Cancellation of shares2
Dividends to shareholders
Redemption of capital securities
Transfers4
Other movements
At 31 Dec 2021
At 1 Jan 2020
Profit for the year
Other comprehensive income (net of tax)
– changes in fair value of financial liabilities designated at fair value due to
movement in own credit risk
Total comprehensive income for the year
Shares issued under employee share plans
Capital securities issued
Dividends to shareholders
Redemption of capital securities
Transfers4
Other movements5
At 31 Dec 2020
Other
reserves
Called up
share
capital
$m
Share
premium
$m
Other
equity
instruments
$m
Retained
earnings1
$m
Merger
and other
reserves
$m
Total
shareholders’
equity
$m
10,316
—
—
14,602
—
—
22,414
—
—
—
—
5
—
(174)
—
—
—
—
—
—
62
—
—
—
—
—
—
—
—
—
—
—
—
(2,668)
—
—
10,147
14,664
19,746
65,116
12,357
326
326
12,683
(161)
—
(1,001)
(6,544)
402
(2,499)
—
67,996
10,347
—
—
14,277
—
—
22,414
—
—
65,005
10,834
267
37,882
—
—
—
—
—
—
174
—
—
2,499
—
40,555
34,757
—
—
—
—
—
267
—
—
29
—
(60)
—
—
—
—
10,316
—
325
—
—
—
—
—
—
14,602
—
—
2,000
—
—
(2,000)
—
—
22,414
11,101
(103)
(20)
(2,004)
(5,790)
—
(3,065)
(8)
65,116
10,319
—
—
13,959
—
—
20,743
—
—
62,484
4,085
176
—
—
—
60
—
—
3,065
—
37,882
37,539
—
—
—
—
—
176
—
—
28
—
—
—
—
—
10,347
—
318
—
—
—
—
—
14,277
—
—
1,500
—
—
—
171
22,414
4,261
2,540
(15)
(1,331)
(1,450)
435
(1,919)
65,005
—
(2,347)
—
—
—
(435)
—
34,757
150,330
12,357
326
326
12,683
(94)
—
(1,001)
(6,544)
(2,266)
—
—
153,108
146,800
10,834
267
267
11,101
251
1,980
(2,004)
(5,790)
(2,000)
—
(8)
150,330
145,044
4,085
176
176
4,261
539
1,485
(1,331)
(1,450)
—
(1,748)
146,800
Dividends per ordinary share at 31 December 2022 were $0.27 (2021: $0.22; 2020: nil).
1 At 31 December 2022, retained earnings included 331,874,221 ($2,615m) treasury shares (2021: 329,871,829 ($2,542m); 2020: 326,766,253
($2,521m)).
2 On 26 October 2021, HSBC announced a share buy-back of up to $2.0bn, which was completed on 20 April 2022.
3 On 3 May 2022, HSBC announced a share buy-back of up to $1.0bn, which was completed on 28 July 2022.
4 Permitted transfers from the merger reserve to retained earnings were made when the investment in HSBC Overseas Holdings (UK) Limited was
previously impaired. In 2022, a part-reversal of this impairment resulted in a transfer from retained earnings back to the merger reserve of $2,499m
(2021: $3,065m). At 31 December 2020, an additional impairment of $435m was recognised and a permitted transfer of this amount was made from
the merger reserve to retained earnings.
Includes an adjustment to retained earnings for a repayment of capital by a subsidiary of $1,650m, which had been recognised as dividend income in
2019.
5
334
HSBC Holdings plc Annual Report and Accounts 2022
Notes on the financial statements
Contents
335
1 Basis of preparation and significant accounting
policies
2 Net fee income
3 Net income from financial instruments measured at fair
value through profit or loss
4 Insurance business
5 Employee compensation and benefits
6 Auditors’ remuneration
7 Tax
8 Dividends
9 Earnings per share
10 Segmental analysis
11 Trading assets
12 Fair values of financial instruments carried at fair value
13 Fair values of financial instruments not carried at fair value
14 Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss
15 Derivatives
16 Financial investments
17 Assets pledged, collateral received and assets
transferred
18 Interests in associates and joint ventures
19 Investments in subsidiaries
20 Structured entities
348
349
349
351
356
357
359
360
360
363
363
370
371
372
376
378
379
382
384
386
389
389
391
391
392
392
392
393
396
401
402
404
405
405
408
409
409
21 Goodwill and intangible assets
22 Prepayments, accrued income and other assets
23 Assets held for sale and liabilities of disposal groups held for sale
24 Trading liabilities
25 Financial liabilities designated at fair value
26 Debt securities in issue
27 Accruals, deferred income and other liabilities
28 Provisions
29 Subordinated liabilities
30 Maturity analysis of assets, liabilities and off-balance sheet
commitments
31 Offsetting of financial assets and financial liabilities
32 Called up share capital and other equity instruments
33 Contingent liabilities, contractual commitments and guarantees
34 Finance lease receivables
35 Legal proceedings and regulatory matters
36 Related party transactions
37 Events after the balance sheet date
38 HSBC Holdings’ subsidiaries, joint ventures and associates
1 Basis of preparation and significant accounting policies
1.1 Basis of preparation
(a) Compliance with International Financial Reporting Standards
The consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings comply with UK-adopted international
accounting standards and with the requirements of the Companies Act 2006, and have also applied international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. These financial statements are also prepared in
accordance with International Financial Reporting Standards (‘IFRSs’) as issued by the International Accounting Standards Board (‘IASB’),
including interpretations issued by the IFRS Interpretations Committee, as there are no applicable differences from IFRSs as issued by the IASB
for the periods presented. There were no unendorsed standards effective for the year ended 31 December 2022 affecting these consolidated
and separate financial statements.
Standards adopted during the year ended 31 December 2022
There were no new accounting standards or interpretations that had a significant effect on HSBC in 2022. Accounting policies have been
consistently applied.
(b) Differences between IFRSs and Hong Kong Financial Reporting Standards
There are no significant differences between IFRSs and Hong Kong Financial Reporting Standards in terms of their application to HSBC, and
consequently there would be no significant differences had the financial statements been prepared in accordance with Hong Kong Financial
Reporting Standards. The ‘Notes on the financial statements’, taken together with the ‘Report of the Directors’, include the aggregate of all
disclosures necessary to satisfy IFRSs and Hong Kong reporting requirements.
(c)
Future accounting developments
Minor amendments to IFRSs
The IASB has not published any minor amendments effective from 1 January 2022 that are applicable to HSBC. However, the IASB has
published a number of minor amendments to IFRSs that are effective from 1 January 2023 and 1 January 2024. HSBC expects they will have an
insignificant effect, when adopted, on the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings.
New IFRSs
IFRS 17 ‘Insurance Contracts’
IFRS 17 ‘Insurance Contracts’ was issued in May 2017, with amendments to the standard issued in June 2020 and December 2021. Following
the amendments, IFRS 17 is effective for annual reporting periods beginning on or after 1 January 2023 and is applied retrospectively, with
comparatives restated from 1 January 2022. IFRS 17 has been adopted in its entirety for use in the UK while it has been adopted by the EU
subject to certain optional exemptions.
IFRS 17 sets out the requirements that the Group will apply in accounting for insurance contracts it issues, reinsurance contracts it holds, and
investment contracts with discretionary participation features.
The Group is at an advanced stage in the implementation of IFRS 17, having put in place accounting policies, data and models, and made
progress with preparing 2022 comparative data. We set out below our expectations of the impact of IFRS 17 compared with our current
accounting policy for insurance contracts, which is set out in Note 1.2(j) on page 344.
HSBC Holdings plc Annual Report and Accounts 2022
335
Financial statements
Notes on the financial statements
Under IFRS 17, no present value of in-force business (‘PVIF’) asset is recognised. Instead, the measurement of the insurance contracts liability is
based on groups of insurance contracts and will include fulfilment cash flows, as well as the contractual service margin (‘CSM’), which
represents the unearned profit.
To identify groups of insurance contracts, individual contracts subject to similar dominant risk and managed together are identified as a portfolio
of insurance contracts. Each portfolio is further separated by profitability group and issue date into periodic cohorts.
The fulfilment cash flows comprise:
• the best estimates of future cash flows, including amounts expected to be collected from premiums and payouts for claims, benefits and
expenses, which are projected using assumptions based on demographic and operating experience;
• an adjustment for the time value of money and financial risks associated with the future cash flows; and
• an adjustment for non-financial risk that reflects the uncertainty about the amount and timing of future cash flows.
In contrast to the Group’s IFRS 4 accounting where profits are recognised upfront, the CSM will be systematically recognised in revenue, as
services are provided over the expected coverage period of the group of contracts without any change to the overall profit of the contracts.
Losses resulting from the recognition of onerous contracts are recognised in the income statement immediately.
The CSM is adjusted depending on the measurement model of the group of insurance contracts. While the general measurement model
(‘GMM’) is the default measurement model under IFRS 17, the Group expects that the majority of its contracts will be accounted for under the
variable fee approach (‘VFA’), which is mandatory to apply for insurance contracts with direct participation features upon meeting the eligibility
criteria.
IFRS 17 requires entities to apply the standard retrospectively as if it had always applied, using the full retrospective approach (‘FRA’) unless it is
impracticable. When the FRA is impracticable such as when there is a lack of sufficient and reliable data, an entity has an accounting policy
choice to use either the modified retrospective approach (‘MRA’) or the fair value approach (‘FVA’). HSBC will apply the FRA for new business
from 2018 at the earliest, subject to practicability, and the FVA for the majority of contracts for which the FRA is impracticable. Where the FVA is
used, the measurement takes into account the cost of capital that a market participant within the jurisdiction would be expected to hold based
on the asset and liability positions on the transition date.
The Group will make use of the option to re-designate eligible financial assets held to support insurance liabilities, currently measured at
amortised cost, as financial assets measured at fair value through profit or loss. Following re-designation, interest income earned on these
financial assets will no longer be shown in ‘net interest income’, and will instead form part of ‘net income/(expense) from assets and liabilities of
insurance businesses, including related derivatives, measured at fair value through profit or loss’ in accordance with HSBC’s income and
expense policy set out in Note 1.2(b) on page 339.
The Group will also make use of the risk mitigation option for a number of economic offsets between the VFA contracts and reinsurance
contracts held that meet the requirements, and the other comprehensive income (‘OCI’) option to a limited extent for some contracts.
Impact of IFRS 17
Changes to equity on transition are driven by the elimination of the PVIF asset, the re-designation of certain eligible financial assets in the scope
of IFRS 9, the remeasurement of insurance liabilities and assets under IFRS 17, and the recognition of the CSM.
IFRS 17 requires the use of current market values for the measurement of insurance liabilities. The shareholder’s share of the investment
experience and assumption changes will be absorbed by the CSM and released over time to profit or loss under the VFA. For contracts
measured under GMM, the shareholder’s share of the investment volatility is recorded in profit or loss as it arises. Under IFRS 17, operating
expenses will be lower as directly attributable costs will be incorporated in the CSM and recognised in the insurance service result.
While the profit over the life of an individual contract will be unchanged, its emergence will be later under IFRS 17.
All of these impacts will be subject to deferred tax.
Estimates of the opening balance sheet as at 1 January 2022 have been calculated and are presented below, showing separately the impact on
the total assets, liabilities and equity of our insurance manufacturing operations and Group equity. These estimates are based on accounting
policies, assumptions, judgements and estimation techniques that remain subject to change.
Impact of transition to IFRS 17, at 1 January 2022
Insurance manufacturing operations
Balance sheet values at 1 January 2022 under IFRS 4
Removal of PVIF
Replacement of IFRS 4 liabilities with IFRS 17
Removal of IFRS 4 liabilities and recording of IFRS 17 fulfilment cash
IFRS 17 contractual service margin
Remeasurement effect of IFRS 9 re-designations
Tax effect
Estimated balance sheet values at 1 January 2022 under IFRS 17
Assets
$bn
144.6
(9.5)
(0.4)
(0.3)
(0.1)
4.9
0.6
140.2
Liabilities
$bn
127.6
—
7.3
(2.2)
9.5
—
(1.6)
133.3
Equity
$bn
17.0
(9.5)
(7.7)
1.9
(9.6)
4.9
2.2
6.9
Group
Equity
$bn
206.8
(9.5)
(8.1)
1.9
(10.0)
4.9
2.2
196.3
PVIF of $9.5bn less deferred tax of $1.7bn constitute the overall estimated reduction in intangible assets, after tax, of $7.8bn on transition to
IFRS 17.
The Group’s accounting for insurance contracts considers a broader set of cash flows than those arising within the insurance manufacturing
entities. This includes the effect of eliminating intra-Group fees associated with distribution of policies through the Group’s banking channels and
directly attributable costs incurred by other Group entities. These factors lead to an increase to the Group CSM after inclusion of distribution
activities of approximately $0.4bn, with a consequential reduction to Group’s equity of approximately $0.4bn after the inclusion of deferred tax.
(d)
Foreign currencies
HSBC’s consolidated financial statements are presented in US dollars because the US dollar and currencies linked to it form the major currency
bloc in which HSBC transacts and funds its business. The US dollar is also HSBC Holdings’ functional currency because the US dollar and
currencies linked to it are the most significant currencies relevant to the underlying transactions, events and conditions of its subsidiaries, as well
as representing a significant proportion of its funds generated from financing activities.
336
HSBC Holdings plc Annual Report and Accounts 2022
Transactions in foreign currencies are recorded at the rate of exchange on the date of the transaction. Assets and liabilities denominated in
foreign currencies are translated at the rate of exchange at the balance sheet date, except non-monetary assets and liabilities measured at
historical cost, which are translated using the rate of exchange at the initial transaction date. Exchange differences are included in other
comprehensive income or in the income statement depending on where the gain or loss on the underlying item is recognised. Except for
subsidiaries operating in hyperinflationary economies (see Note 1.2(p)), in the consolidated financial statements, the assets and liabilities of
branches, subsidiaries, joint ventures and associates whose functional currency is not US dollars are translated into the Group’s presentation
currency at the rate of exchange at the balance sheet date, while their results are translated into US dollars at the average rates of exchange for
the reporting period. Exchange differences arising are recognised in other comprehensive income. On disposal of a foreign operation, exchange
differences previously recognised in other comprehensive income are reclassified to the income statement.
(e) Presentation of information
Certain disclosures required by IFRSs have been included in the sections marked as (‘Audited’) in the Annual Report and Accounts 2022 as
follows:
• Disclosures concerning the nature and extent of risks relating to insurance contracts and financial instruments are included in the ‘Risk
review’ on pages 131 to 238.
• The ‘Own funds disclosure’ is included in the ‘Risk review’ on page 206.
• Disclosures relating to HSBC’s securitisation activities and structured products are included in the ‘Risk review’ on pages 131 to238.
HSBC follows the UK Finance Disclosure Code. The UK Finance Disclosure Code aims to increase the quality and comparability of UK banks’
disclosures and sets out five disclosure principles together with supporting guidance agreed in 2010. In line with the principles of the UK Finance
Disclosure Code, HSBC assesses good practice recommendations issued from time to time by relevant regulators and standard setters, and will
assess the applicability and relevance of such guidance, enhancing disclosures where appropriate.
(f) Critical accounting estimates and judgements
The preparation of financial information requires the use of estimates and judgements about future conditions. In view of the inherent
uncertainties and the high level of subjectivity involved in the recognition or measurement of items, highlighted as the ‘critical accounting
estimates and judgements’ in section 1.2 below, it is possible that the outcomes in the next financial year could differ from those on which
management’s estimates are based. This could result in materially different estimates and judgements from those reached by management for
the purposes of these financial statements. Management’s selection of HSBC’s accounting policies that contain critical estimates and
judgements reflects the materiality of the items to which the policies are applied and the high degree of judgement and estimation uncertainty
involved.
Management has considered the impact of climate-related risks on HSBC’s financial position and performance. While the effects of climate
change are a source of uncertainty, as at 31 December 2022 management do not consider there to be a material impact on our critical
judgements and estimates from the physical, transition and other climate-related risks in the short to medium term. In particular management
has considered the known and observable potential impact of climate-related risks of associated judgements and estimates in our value in use
calculations.
(g) Segmental analysis
HSBC’s Chief Operating Decision Maker is the Group Chief Executive, who is supported by the rest of the Group Executive Committee (‘GEC’),
which operates as a general management committee under the direct authority of the Board. Operating segments are reported in a manner
consistent with the internal reporting provided to the Group Chief Executive and the GEC.
Measurement of segmental assets, liabilities, income and expenses is in accordance with the Group’s accounting policies. Segmental income
and expenses include transfers between segments, and these transfers are conducted at arm’s length. Shared costs are included in segments
on the basis of the actual recharges made.
(h) Going concern
The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group and parent company have the
resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of
information relating to present and future conditions, including future projections of profitability, cash flows, capital requirements and capital
resources. These considerations include stressed scenarios that reflect the uncertainty in structural changes from the Covid-19 pandemic, the
Russia-Ukraine war, disrupted supply chains globally, slower Chinese economic activity, climate change and other top and emerging risks, as
well as from the related impacts on profitability, capital and liquidity.
1.2 Summary of significant accounting policies
(a) Consolidation and related policies
Investments in subsidiaries
Where an entity is governed by voting rights, HSBC consolidates when it holds – directly or indirectly – the necessary voting rights to pass
resolutions by the governing body. In all other cases, the assessment of control is more complex and requires judgement of other factors,
including having exposure to variability of returns, power to direct relevant activities, and whether power is held as agent or principal.
Business combinations are accounted for using the acquisition method. The amount of non-controlling interest is measured either at fair value or
at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. This election is made for each business
combination. HSBC Holdings’ investments in subsidiaries are stated at cost less impairment losses.
Impairment testing is performed where there is an indication of impairment, by comparing the recoverable amount of the relevant investment to
its carrying amount.
HSBC Holdings plc Annual Report and Accounts 2022
337
Financial statements
Notes on the financial statements
Critical accounting estimates and judgements
Investments in subsidiaries are tested for impairment when there is an indication that the investment may be impaired, which involves estimations of
value in use reflecting management’s best estimate of the future cash flows of the investment and the rates used to discount these cash flows, both of
which are subject to uncertain factors as follows:
Judgements
• The accuracy of forecast cash flows is subject to a
Estimates
• The future cash flows of each investment are sensitive to the cash flows projected for the
high degree of uncertainty in volatile market
conditions. Where such circumstances are
determined to exist, management re-tests for
impairment more frequently than once a year
when indicators of impairment exist. This ensures
that the assumptions on which the cash flow
forecasts are based continue to reflect current
market conditions and management's best
estimate of future business prospects.
periods for which detailed forecasts are available and to assumptions regarding the long-term
pattern of sustainable cash flows thereafter. Forecasts are compared with actual performance
and verifiable economic data, but they reflect management’s view of future business
prospects at the time of the assessment.
• The rates used to discount future expected cash flows can have a significant effect on their
valuation, and are based on the costs of equity assigned to the investment. The cost of equity
percentage is generally derived from a capital asset pricing model and the market implied cost
of equity, which incorporates inputs reflecting a number of financial and economic variables,
including the risk-free interest rate in the country concerned and a premium for the risk of the
business being evaluated. These variables are subject to fluctuations in external market rates
and economic conditions beyond management’s control.
• Key assumptions used in estimating impairment in subsidiaries are described in Note 19.
Goodwill
Goodwill is allocated to cash-generating units (’CGUs’) for the purpose of impairment testing, which is undertaken at the lowest level at which
goodwill is monitored for internal management purposes. HSBC’s CGUs are based on geographical regions subdivided by global business,
except for Global Banking and Markets, for which goodwill is monitored on a global basis.
Impairment testing is performed at least once a year, or whenever there is an indication of impairment, by comparing the recoverable amount of
a CGU with its carrying amount.
Goodwill is included in a disposal group if the disposal group is a CGU to which goodwill has been allocated or it is an operation within such a
CGU. The amount of goodwill included in a disposal group is measured on the basis of the relative values of the operation disposed of and the
portion of the CGU retained.
Critical accounting estimates and judgements
The review of goodwill and non-financial assets (see Note 1.2(n)) for impairment reflects management’s best estimate of the future cash flows of the
CGUs and the rates used to discount these cash flows, both of which are subject to uncertain factors as follows:
Judgements
• The accuracy of forecast cash flows is subject to
a high degree of uncertainty in volatile market
conditions. Where such circumstances are
determined to exist, management re-tests
goodwill for impairment more frequently than
once a year when indicators of impairment exist.
This ensures that the assumptions on which the
cash flow forecasts are based continue to reflect
current market conditions and management’s
best estimate of future business prospects.
Estimates
• The future cash flows of the CGUs are sensitive to the cash flows projected for the periods for
which detailed forecasts are available and to assumptions regarding the long-term pattern of
sustainable cash flows thereafter. Forecasts are compared with actual performance and
verifiable economic data, but they reflect management’s view of future business prospects at
the time of the assessment.
• The rates used to discount future expected cash flows can have a significant effect on their
valuation, and are based on the costs of equity assigned to individual CGUs. The cost of equity
percentage is generally derived from a capital asset pricing model and market implied cost of
equity, which incorporates inputs reflecting a number of financial and economic variables,
including the risk-free interest rate in the country concerned and a premium for the risk of the
business being evaluated. These variables are subject to fluctuations in external market rates
and economic conditions beyond management’s control.
• Key assumptions used in estimating goodwill and non-financial asset impairment are described
in Note 21.
HSBC sponsored structured entities
HSBC is considered to sponsor another entity if, in addition to ongoing involvement with the entity, it had a key role in establishing that entity or
in bringing together relevant counterparties so the transaction that is the purpose of the entity could occur. HSBC is generally not considered a
sponsor if the only involvement with the entity is merely administrative.
Interests in associates and joint arrangements
Joint arrangements are investments in which HSBC, together with one or more parties, has joint control. Depending on HSBC’s rights and
obligations, the joint arrangement is classified as either a joint operation or a joint venture.
HSBC classifies investments in entities over which it has significant influence, and that are neither subsidiaries nor joint arrangements, as
associates.
HSBC recognises its share of the assets, liabilities and results in a joint operation. Investments in associates and interests in joint ventures are
recognised using the equity method. The attributable share of the results and reserves of joint ventures and associates is included in the
consolidated financial statements of HSBC based on either financial statements made up to 31 December or pro-rated amounts adjusted for any
material transactions or events occurring between the date the financial statements are available and 31 December.
Investments in associates and joint ventures are assessed at each reporting date and tested for impairment when there is an indication that the
investment may be impaired. Goodwill on acquisitions of interests in joint ventures and associates is not tested separately for impairment, but is
assessed as part of the carrying amount of the investment.
338
HSBC Holdings plc Annual Report and Accounts 2022
Critical accounting estimates and judgements
The most significant critical accounting estimates relate to the assessment of impairment of our investment in Bank of Communications Co. Limited
(‘BoCom’), which involves estimations of value in use:
Judgements
(b)
Income and expense
Operating income
Interest income and expense
Estimates
• Management’s best estimate of BoCom’s earnings is based on management’s
explicit forecasts over the short to medium term and the capital maintenance
charge, which is management’s forecast of the earnings that need to be withheld
in order for BoCom to meet capital requirements over the forecast period, both of
which are subject to uncertain factors.
• Key assumptions used in estimating BoCom’s value in use, the sensitivity of the
value in use calculations to different assumptions and a sensitivity analysis that
shows the changes in key assumptions that would reduce the excess of value in
use over the carrying amount (the ‘headroom’) to nil are described in Note 18.
Interest income and expense for all financial instruments, excluding those classified as held for trading or designated at fair value, are recognised
in ‘Interest income’ and ‘Interest expense’ in the income statement using the effective interest method. However, as an exception to this,
interest on debt instruments issued by HSBC for funding purposes that are designated under the fair value option to reduce an accounting
mismatch and on derivatives managed in conjunction with those debt instruments is included in interest expense.
Interest on credit-impaired financial assets is recognised using the rate of interest used to discount the future cash flows for the purpose of
measuring the impairment loss.
Non-interest income and expense
HSBC generates fee income from services provided at a fixed price over time, such as account service and card fees, or when HSBC delivers a
specific transaction at a point in time, such as broking services and import/export services. With the exception of certain fund management and
performance fees, all other fees are generated at a fixed price. Fund management and performance fees can be variable depending on the size
of the customer portfolio and HSBC’s performance as fund manager. Variable fees are recognised when all uncertainties are resolved. Fee
income is generally earned from short-term contracts with payment terms that do not include a significant financing component.
HSBC acts as principal in the majority of contracts with customers, with the exception of broking services. For most brokerage trades, HSBC
acts as agent in the transaction and recognises broking income net of fees payable to other parties in the arrangement.
HSBC recognises fees earned on transaction-based arrangements at a point in time when it has fully provided the service to the customer.
Where the contract requires services to be provided over time, income is recognised on a systematic basis over the life of the agreement.
Where HSBC offers a package of services that contains multiple non-distinct performance obligations, such as those included in account service
packages, the promised services are treated as a single performance obligation. If a package of services contains distinct performance
obligations, such as those including both account and insurance services, the corresponding transaction price is allocated to each performance
obligation based on the estimated stand-alone selling prices.
Dividend income is recognised when the right to receive payment is established. This is the ex-dividend date for listed equity securities, and
usually the date when shareholders approve the dividend for unlisted equity securities.
Net income/(expense) from financial instruments measured at fair value through profit or loss includes the following:
• ‘Net income from financial instruments held for trading or managed on a fair value basis’: This comprises net trading income, which includes
all gains and losses from changes in the fair value of financial assets and financial liabilities held for trading and other financial instruments
managed on a fair value basis, together with the related interest income, expense and dividends, excluding the effect of changes in the credit
risk of liabilities managed on a fair value basis. It also includes all gains and losses from changes in the fair value of derivatives that are
managed in conjunction with financial assets and liabilities measured at fair value through profit or loss.
• ‘Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit
or loss’: This includes interest income, interest expense and dividend income in respect of financial assets and liabilities measured at fair
value through profit or loss; and those derivatives managed in conjunction with the above that can be separately identifiable from other
trading derivatives.
• ‘Changes in fair value of designated debt instruments and related derivatives’: Interest paid on debt instruments and interest cash flows on
related derivatives is presented in interest expense where doing so reduces an accounting mismatch.
• ‘Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss’: This includes interest on
instruments that fail the solely payments of principal and interest test, see (d) below.
The accounting policies for insurance premium income are disclosed in Note 1.2(j).
(c)
Valuation of financial instruments
All financial instruments are initially recognised at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. The fair value of a financial instrument on initial
recognition is generally its transaction price (that is, the fair value of the consideration given or received). However, if there is a difference
between the transaction price and the fair value of financial instruments whose fair value is based on a quoted price in an active market or a
valuation technique that uses only data from observable markets, HSBC recognises the difference as a trading gain or loss at inception (a ‘day 1
gain or loss’). In all other cases, the entire day 1 gain or loss is deferred and recognised in the income statement over the life of the transaction
until the transaction matures, is closed out, the valuation inputs become observable or HSBC enters into an offsetting transaction. The fair value
of financial instruments is generally measured on an individual basis. However, in cases where HSBC manages a group of financial assets and
liabilities according to its net market or credit risk exposure, the fair value of the group of financial instruments is measured on a net basis but the
underlying financial assets and liabilities are presented separately in the financial statements, unless they satisfy the IFRS offsetting criteria.
HSBC Holdings plc Annual Report and Accounts 2022
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Financial statements
Notes on the financial statements
Critical accounting estimates and judgements
The majority of valuation techniques employ only observable market data. However, certain financial instruments are classified on the basis of valuation
techniques that feature one or more significant market inputs that are unobservable, and for them, the measurement of fair value is more judgemental:
Judgements
Estimates
• An instrument in its entirety is classified as valued using significant unobservable
inputs if, in the opinion of management, greater than 5% of the instrument’s
valuation is driven by unobservable inputs.
• ‘Unobservable’ in this context means that there is little or no current market data
available from which to determine the price at which an arm’s length transaction
would be likely to occur. It generally does not mean that there is no data available
at all upon which to base a determination of fair value (consensus pricing data
may, for example, be used).
(d) Financial instruments measured at amortised cost
• Details on the Group’s level 3 financial instruments and the
sensitivity of their valuation to the effect of applying reasonably
possible alternative assumptions in determining their fair value
are set out in Note 12.
Financial assets that are held to collect the contractual cash flows and which contain contractual terms that give rise on specified dates to cash
flows that are solely payments of principal and interest are measured at amortised cost. Such financial assets include most loans and advances
to banks and customers and some debt securities. In addition, most financial liabilities are measured at amortised cost. HSBC accounts for
regular way amortised cost financial instruments using trade date accounting. The carrying value of these financial assets at initial recognition
includes any directly attributable transactions costs.
HSBC may commit to underwriting loans on fixed contractual terms for specified periods of time. When the loan arising from the lending
commitment is expected to be sold shortly after origination, the commitment to lend is recorded as a derivative. When HSBC intends to hold the
loan, the loan commitment is included in the impairment calculations set out below.
Non-trading reverse repurchase, repurchase and similar agreements
When debt securities are sold subject to a commitment to repurchase them at a predetermined price (‘repos’), they remain on the balance sheet
and a liability is recorded in respect of the consideration received. Securities purchased under commitments to resell (‘reverse repos’) are not
recognised on the balance sheet and an asset is recorded in respect of the initial consideration paid. Non-trading repos and reverse repos are
measured at amortised cost. The difference between the sale and repurchase price or between the purchase and resale price is treated as
interest and recognised in net interest income over the life of the agreement.
Contracts that are economically equivalent to reverse repo or repo agreements (such as sales or purchases of debt securities entered into
together with total return swaps with the same counterparty) are accounted for similarly to, and presented together with, reverse repo or repo
agreements.
(e)
Financial assets measured at fair value through other comprehensive income
Financial assets held for a business model that is achieved by both collecting contractual cash flows and selling and which contain contractual
terms that give rise on specified dates to cash flows that are solely payments of principal and interest are measured at fair value through other
comprehensive income (‘FVOCI’). These comprise primarily debt securities. They are recognised on the trade date when HSBC enters into
contractual arrangements to purchase and are normally derecognised when they are either sold or redeemed. They are subsequently
remeasured at fair value and changes therein (except for those relating to impairment, interest income and foreign currency exchange gains and
losses) are recognised in other comprehensive income until the assets are sold. Upon disposal, the cumulative gains or losses in other
comprehensive income are recognised in the income statement as ‘Gains less losses from financial instruments’. Financial assets measured at
FVOCI are included in the impairment calculations set out below and impairment is recognised in profit or loss.
(f)
Equity securities measured at fair value with fair value movements presented in other comprehensive income
The equity securities for which fair value movements are shown in other comprehensive income are business facilitation and other similar
investments where HSBC holds the investments other than to generate a capital return. Dividends from such investments are recognised in
profit or loss. Gains or losses on the derecognition of these equity securities are not transferred to profit or loss. Otherwise, equity securities are
measured at fair value through profit or loss.
(g)
Financial instruments designated at fair value through profit or loss
Financial instruments, other than those held for trading, are classified in this category if they meet one or more of the criteria set out below and
are so designated irrevocably at inception:
• The use of the designation removes or significantly reduces an accounting mismatch.
• A group of financial assets and liabilities or a group of financial liabilities is managed and its performance is evaluated on a fair value basis, in
accordance with a documented risk management or investment strategy.
• The financial liability contains one or more non-closely related embedded derivatives.
Designated financial assets are recognised when HSBC enters into contracts with counterparties, which is generally on trade date, and are
normally derecognised when the rights to the cash flows expire or are transferred. Designated financial liabilities are recognised when HSBC
enters into contracts with counterparties, which is generally on settlement date, and are normally derecognised when extinguished. Subsequent
changes in fair values are recognised in the income statement in ‘Net income from financial instruments held for trading or managed on a fair
value basis’ or ‘Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value
through profit or loss’ or ‘Changes in fair value of designated debt and related derivatives’ except for the effect of changes in the liabilities’ credit
risk, which is presented in ‘Other comprehensive income’, unless that treatment would create or enlarge an accounting mismatch in profit or
loss.
Under the above criteria, the main classes of financial instruments designated by HSBC are:
• Debt instruments for funding purposes that are designated to reduce an accounting mismatch: The interest and/or foreign exchange exposure
on certain fixed-rate debt securities issued has been matched with the interest and/or foreign exchange exposure on certain swaps as part of
a documented risk management strategy.
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HSBC Holdings plc Annual Report and Accounts 2022
• Financial assets and financial liabilities under unit-linked and non-linked investment contracts: A contract under which HSBC does not accept
significant insurance risk from another party is not classified as an insurance contract, other than investment contracts with discretionary
participation features (‘DPF’), but is accounted for as a financial liability. Customer liabilities under linked and certain non-linked investment
contracts issued by insurance subsidiaries are determined based on the fair value of the assets held in the linked funds. If no fair value
designation was made for the related assets, at least some of the assets would otherwise be measured at either fair value through other
comprehensive income or amortised cost. The related financial assets and liabilities are managed and reported to management on a fair value
basis. Designation at fair value of the financial assets and related liabilities allows changes in fair values to be recorded in the income
statement and presented in the same line.
• Financial liabilities that contain both deposit and derivative components: These financial liabilities are managed and their performance
evaluated on a fair value basis.
(h) Derivatives
Derivatives are financial instruments that derive their value from the price of underlying items such as equities, interest rates or other indices.
Derivatives are recognised initially and are subsequently measured at fair value through profit or loss. Derivatives are classified as assets when
their fair value is positive or as liabilities when their fair value is negative. This includes embedded derivatives in financial liabilities, which are
bifurcated from the host contract when they meet the definition of a derivative on a stand-alone basis.
Where the derivatives are managed with debt securities issued by HSBC that are designated at fair value where doing so reduces an accounting
mismatch, the contractual interest is shown in ‘Interest expense’ together with the interest payable on the issued debt.
Hedge accounting
When derivatives are not part of fair value designated relationships, if held for risk management purposes they are designated in hedge
accounting relationships where the required criteria for documentation and hedge effectiveness are met. HSBC uses these derivatives or, where
allowed, other non-derivative hedging instruments in fair value hedges, cash flow hedges or hedges of net investments in foreign operations as
appropriate to the risk being hedged.
Fair value hedge
Fair value hedge accounting does not change the recording of gains and losses on derivatives and other hedging instruments, but results in
recognising changes in the fair value of the hedged assets or liabilities attributable to the hedged risk that would not otherwise be recognised in
the income statement. If a hedge relationship no longer meets the criteria for hedge accounting, hedge accounting is discontinued and the
cumulative adjustment to the carrying amount of the hedged item is amortised to the income statement on a recalculated effective interest rate,
unless the hedged item has been derecognised, in which case it is recognised in the income statement immediately.
Cash flow hedge
The effective portion of gains and losses on hedging instruments is recognised in other comprehensive income and the ineffective portion of the
change in fair value of derivative hedging instruments that are part of a cash flow hedge relationship is recognised immediately in the income
statement within ‘Net income from financial instruments held for trading or managed on a fair value basis’. The accumulated gains and losses
recognised in other comprehensive income are reclassified to the income statement in the same periods in which the hedged item affects profit
or loss. When a hedge relationship is discontinued, or partially discontinued, any cumulative gain or loss recognised in other comprehensive
income remains in equity until the forecast transaction is recognised in the income statement. When a forecast transaction is no longer expected
to occur, the cumulative gain or loss previously recognised in other comprehensive income is immediately reclassified to the income statement.
Net investment hedge
Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. The effective portion of gains and
losses on the hedging instrument is recognised in other comprehensive income and other gains and losses are recognised immediately in the
income statement. Gains and losses previously recognised in other comprehensive income are reclassified to the income statement on the
disposal, or part-disposal, of the foreign operation.
Derivatives that do not qualify for hedge accounting
Non-qualifying hedges are derivatives entered into as economic hedges of assets and liabilities for which hedge accounting was not applied.
(i)
Impairment of amortised cost and FVOCI financial assets
Expected credit losses (‘ECL’) are recognised for loans and advances to banks and customers, non-trading reverse repurchase agreements, other
financial assets held at amortised cost, debt instruments measured at fair value through other comprehensive income (‘FVOCI’), and certain loan
commitments and financial guarantee contracts. At initial recognition, an allowance (or provision in the case of some loan commitments and
financial guarantees) is required for ECL resulting from default events that are possible within the next 12 months, or less, where the remaining
life is less than 12 months (’12-month ECL’). In the event of a significant increase in credit risk, an allowance (or provision) is required for ECL
resulting from all possible default events over the expected life of the financial instrument (‘lifetime ECL’). Financial assets where 12-month ECL
is recognised are considered to be ‘stage 1’; financial assets which are considered to have experienced a significant increase in credit risk are in
‘stage 2’; and financial assets for which there is objective evidence of impairment so are considered to be in default or otherwise credit impaired
are in ‘stage 3’. Purchased or originated credit-impaired financial assets (‘POCI’) are treated differently as set out below.
Credit impaired (stage 3)
HSBC determines that a financial instrument is credit impaired and in stage 3 by considering relevant objective evidence, primarily whether
contractual payments of either principal or interest are past due for more than 90 days, there are other indications that the borrower is unlikely to
pay such as that a concession has been granted to the borrower for economic or legal reasons relating to the borrower’s financial condition, or
the loan is otherwise considered to be in default.
If such unlikeliness to pay is not identified at an earlier stage, it is deemed to occur when an exposure is 90 days past due, even where
regulatory rules permit default to be defined based on 180 days past due. Therefore, the definitions of credit impaired and default are aligned as
far as possible so that stage 3 represents all loans that are considered defaulted or otherwise credit impaired.
Interest income is recognised by applying the effective interest rate to the amortised cost amount, i.e. gross carrying amount less ECL
allowance.
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341
Financial statements Notes on the financial statements
Write-off
Financial assets (and the related impairment allowances) are normally written off, either partially or in full, when there is no realistic prospect of
recovery. Where loans are secured, this is generally after receipt of any proceeds from the realisation of security. In circumstances where the
net realisable value of any collateral has been determined and there is no reasonable expectation of further recovery, write-off may be earlier.
Forbearance
Loans are identified as forborne and classified as either performing or non-performing when HSBC modifies the contractual terms due to
financial difficulty of the borrower. Non-performing forborne loans are stage 3 and classified as non-performing until they meet the cure criteria,
as specified by applicable credit risk policy (for example, when the loan is no longer in default and no other indicators of default have been
present for at least 12 months). Any amount written off as a result of any modification of contractual terms upon entering forbearance would not
be reversed.
In 2022, the Group adopted the EBA Guidelines on the application of definition of default for our retail portfolios, which affect credit risk policies
and our reporting in respect of the status of loans as credit impaired principally due to forbearance (or curing thereof). Further details are provided
under ‘Forborne loans and advances’ on page 146.
Performing forborne loans are initially stage 2 and remain classified as forborne until they meet applicable cure criteria (for example, they
continue to not be in default and no other indicators of default are present for a period of at least 24 months). At this point, the loan is either
stage 1 or stage 2 as determined by comparing the risk of a default occurring at the reporting date (based on the modified contractual terms) and
the risk of a default occurring at initial recognition (based on the original, unmodified contractual terms).
A forborne loan is derecognised if the existing agreement is cancelled and a new agreement is made on substantially different terms, or if the
terms of an existing agreement are modified such that the forborne loan is a substantially different financial instrument. Any new loans that arise
following derecognition events in these circumstances would generally be classified as POCI and will continue to be disclosed as forborne.
Loan modifications other than forborne loans
Loan modifications that are not identified as forborne are considered to be commercial restructurings. Where a commercial restructuring results
in a modification (whether legalised through an amendment to the existing terms or the issuance of a new loan contract) such that HSBC’s rights
to the cash flows under the original contract have expired, the old loan is derecognised and the new loan is recognised at fair value. The rights to
cash flows are generally considered to have expired if the commercial restructure is at market rates and no payment-related concession has
been provided. Modifications of certain higher credit risk wholesale loans are assessed for derecognition, having regard to changes in contractual
terms that either individually or in combination are judged to result in a substantially different financial instrument. Mandatory and general offer
loan modifications that are not borrower specific, for example market-wide customer relief programmes generally do not result in derecognition,
but their stage allocation is determined considering all available and supportable information under our ECL impairment policy. Changes made to
these financial instruments that are economically equivalent and required by interest rate benchmark reform do not result in the derecognition or
a change in the carrying amount of the financial instrument, but instead require the effective interest rate to be updated to reflect the change of
the interest rate benchmark.
Significant increase in credit risk (stage 2)
An assessment of whether credit risk has increased significantly since initial recognition is performed at each reporting period by considering the
change in the risk of default occurring over the remaining life of the financial instrument. The assessment explicitly or implicitly compares the risk
of default occurring at the reporting date compared with that at initial recognition, taking into account reasonable and supportable information,
including information about past events, current conditions and future economic conditions. The assessment is unbiased, probability-weighted,
and to the extent relevant, uses forward-looking information consistent with that used in the measurement of ECL. The analysis of credit risk is
multifactor. The determination of whether a specific factor is relevant and its weight compared with other factors depends on the type of
product, the characteristics of the financial instrument and the borrower, and the geographical region. Therefore, it is not possible to provide a
single set of criteria that will determine what is considered to be a significant increase in credit risk, and these criteria will differ for different
types of lending, particularly between retail and wholesale. However, unless identified at an earlier stage, all financial assets are deemed to have
suffered a significant increase in credit risk when 30 days past due. In addition, wholesale loans that are individually assessed, which are typically
corporate and commercial customers, and included on a watch or worry list, are included in stage 2.
For wholesale portfolios, the quantitative comparison assesses default risk using a lifetime probability of default (‘PD’), which encompasses a
wide range of information including the obligor’s customer risk rating (‘CRR’), macroeconomic condition forecasts and credit transition
probabilities. For origination CRRs up to 3.3, significant increase in credit risk is measured by comparing the average PD for the remaining term
estimated at origination with the equivalent estimation at the reporting date. The quantitative measure of significance varies depending on the
credit quality at origination as follows:
Origination CRR
0.1–1.2
2.1–3.3
Significance trigger – PD to increase by
15bps
30bps
For CRRs greater than 3.3 that are not impaired, a significant increase in credit risk is considered to have occurred when the origination PD has
doubled. The significance of changes in PD was informed by expert credit risk judgement, referenced to historical credit migrations and to
relative changes in external market rates.
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For loans originated prior to the implementation of IFRS 9, the origination PD does not include adjustments to reflect expectations of future
macroeconomic conditions since these are not available without the use of hindsight. In the absence of this data, origination PD must be
approximated assuming through-the-cycle PDs and through-the-cycle migration probabilities, consistent with the instrument’s underlying
modelling approach and the CRR at origination. For these loans, the quantitative comparison is supplemented with additional CRR deterioration-
based thresholds, as set out in the table below:
Origination CRR
0.1
1.1–4.2
4.3–5.1
5.2–7.1
7.2–8.2
8.3
Additional significance criteria – number of CRR grade notches
deterioration required to identify as significant credit
deterioration (stage 2) (> or equal to)
5 notches
4 notches
3 notches
2 notches
1 notch
0 notch
Further information about the 23-grade scale used for CRR can be found on page 146.
For retail portfolios, default risk is assessed using a reporting date 12-month PD derived from credit scores, which incorporate all available
information about the customer. This PD is adjusted for the effect of macroeconomic forecasts for periods longer than 12 months and is
considered to be a reasonable approximation of a lifetime PD measure. Retail exposures are first segmented into homogenous portfolios,
generally by country, product and brand. Within each portfolio, the stage 2 accounts are defined as accounts with an adjusted 12-month PD
greater than the average 12-month PD of loans in that portfolio 12 months before they become 30 days past due. The expert credit risk
judgement is that no prior increase in credit risk is significant. This portfolio-specific threshold therefore identifies loans with a PD higher than
would be expected from loans that are performing as originally expected and higher than that which would have been acceptable at origination. It
therefore approximates a comparison of origination to reporting date PDs.
As additional data becomes available, the retail transfer criteria approach continues to be refined to utilise a more relative approach for certain
portfolios. These enhancements take advantage of the increase in origination-related data in the assessment of significant increases in credit risk
by comparing remaining lifetime PD to the comparable remaining term lifetime PD at origination based on portfolio-specific origination segments.
These enhancements resulted in significant migrations of loans to customers gross carrying amounts from stage 1 to stage 2, but did not have a
significant impact on the overall ECL for these portfolios in 2022 due to low loan-to-value ratios.
Unimpaired and without significant increase in credit risk (stage 1)
ECL resulting from default events that are possible within the next 12 months (‘12-month ECL’) are recognised for financial instruments that
remain in stage 1.
Purchased or originated credit impaired
Financial assets that are purchased or originated at a deep discount that reflects the incurred credit losses are considered to be POCI. This
population includes new financial instruments recognised in most cases following the derecognition of forborne loans. The amount of change in
lifetime ECL for a POCI loan is recognised in profit or loss until the POCI loan is derecognised, even if the lifetime ECL are less than the amount
of ECL included in the estimated cash flows on initial recognition.
Movement between stages
Financial assets can be transferred between the different categories (other than POCI) depending on their relative increase in credit risk since
initial recognition. Financial instruments are transferred out of stage 2 if their credit risk is no longer considered to be significantly increased since
initial recognition based on the assessments described above. In the case of non-performing forborne loans, such financial instruments are
transferred out of stage 3 when they no longer exhibit any evidence of credit impairment and meet the curing criteria as described above.
Measurement of ECL
The assessment of credit risk and the estimation of ECL are unbiased and probability-weighted, and incorporate all available information which is
relevant to the assessment including information about past events, current conditions and reasonable and supportable forecasts of future
events and economic conditions at the reporting date. In addition, the estimation of ECL should take into account the time value of money and
considers other factors such as climate-related risks.
In general, HSBC calculates ECL using three main components: a probability of default (‘PD’), a loss given default (’LGD’) and the exposure at
default (‘EAD’).
The 12-month ECL is calculated by multiplying the 12-month PD, LGD and EAD. Lifetime ECL is calculated using the lifetime PD instead. The
12-month and lifetime PDs represent the probability of default occurring over the next 12 months and the remaining maturity of the instrument
respectively.
The EAD represents the expected balance at default, taking into account the repayment of principal and interest from the balance sheet date to
the default event together with any expected drawdowns of committed facilities. The LGD represents expected losses on the EAD given the
event of default, taking into account, among other attributes, the mitigating effect of collateral value at the time it is expected to be realised and
the time value of money.
HSBC Holdings plc Annual Report and Accounts 2022
343
Financial statements Notes on the financial statements
HSBC makes use of the Basel II IRB framework where possible, with recalibration to meet the differing IFRS 9 requirements as set out in the
following table:
Model
PD
Regulatory capital
• Through the cycle (represents long-run average PD throughout
IFRS 9
• Point in time (based on current conditions, adjusted to take into
a full economic cycle)
• The definition of default includes a backstop of 90+ days past
due, although this has been modified to 180+ days past due
for some portfolios, particularly UK and US mortgages
account estimates of future conditions that will impact PD)
• Default backstop of 90+ days past due for all portfolios
EAD
• Cannot be lower than current balance
• Amortisation captured for term products
• Downturn LGD (consistent losses expected to be suffered
• Expected LGD (based on estimate of loss given default
LGD
Other
during a severe but plausible economic downturn)
• Regulatory floors may apply to mitigate risk of underestimating
downturn LGD due to lack of historical data
• Discounted using cost of capital
• All collection costs included
including the expected impact of future economic conditions
such as changes in value of collateral)
• No floors
• Discounted using the original effective interest rate of the loan
• Only costs associated with obtaining/selling collateral included
• Discounted back from point of default to balance sheet date
While 12-month PDs are recalibrated from Basel II models where possible, the lifetime PDs are determined by projecting the 12-month PD using
a term structure. For the wholesale methodology, the lifetime PD also takes into account credit migration, i.e. a customer migrating through the
CRR bands over its life.
The ECL for wholesale stage 3 is determined on an individual basis using a discounted cash flow (‘DCF’) methodology. The expected future cash
flows are based on the credit risk officer’s estimates as of the reporting date, reflecting reasonable and supportable assumptions and projections
of future recoveries and expected future receipts of interest.
Collateral is taken into account if it is likely that the recovery of the outstanding amount will include realisation of collateral based on its estimated
fair value of collateral at the time of expected realisation, less costs for obtaining and selling the collateral.
The cash flows are discounted at a reasonable approximation of the original effective interest rate. For significant cases, cash flows under four
different scenarios are probability-weighted by reference to the economic scenarios applied more generally by the Group and the judgement of
the credit risk officer in relation to the likelihood of the work-out strategy succeeding or receivership being required. For less significant cases,
the effect of different economic scenarios and work-out strategies is approximated and applied as an adjustment to the most likely outcome.
Period over which ECL is measured
Expected credit loss is measured from the initial recognition of the financial asset. The maximum period considered when measuring ECL (be it
12-month or lifetime ECL) is the maximum contractual period over which HSBC is exposed to credit risk. However, where the financial
instrument includes both a drawn and undrawn commitment and the contractual ability to demand repayment and cancel the undrawn
commitment does not serve to limit HSBC’s exposure to credit risk to the contractual notice period, the contractual period does not determine
the maximum period considered. Instead, ECL is measured over the period HSBC remains exposed to credit risk that is not mitigated by credit
risk management actions. This applies to retail overdrafts and credit cards, where the period is the average time taken for stage 2 exposures to
default or close as performing accounts, determined on a portfolio basis and ranging from between two and six years. In addition, for these
facilities it is not possible to identify the ECL on the loan commitment component separately from the financial asset component. As a result, the
total ECL is recognised in the loss allowance for the financial asset unless the total ECL exceeds the gross carrying amount of the financial asset,
in which case the ECL is recognised as a provision. For wholesale overdraft facilities, credit risk management actions are taken no less frequently
than on an annual basis.
Forward-looking economic inputs
HSBC applies multiple forward-looking global economic scenarios determined with reference to external forecast distributions representative of
its view of forecast economic conditions. This approach is considered sufficient to calculate unbiased expected credit losses in most economic
environments. In certain economic environments, additional analysis may be necessary and may result in additional scenarios or adjustments, to
reflect a range of possible economic outcomes sufficient for an unbiased estimate. The detailed methodology is disclosed in ‘Measurement
uncertainty and sensitivity analysis of ECL estimates’ on page 153.
Critical accounting estimates and judgements
The calculation of the Group’s ECL under IFRS 9 requires the Group to make a number of judgements, assumptions and estimates. The most significant
are set out below:
Judgements
• Defining what is considered to be a significant increase in credit risk
• Determining the lifetime and point of initial recognition of overdrafts and credit cards
• Selecting and calibrating the PD, LGD and EAD models, which support the calculations,
including making reasonable and supportable judgements about how models react to current
and future economic conditions
• Selecting model inputs and economic forecasts, including determining whether sufficient and
appropriately weighted economic forecasts are incorporated to calculate unbiased expected
loss
• Making management adjustments to account for late-breaking events, model and data
limitations and deficiencies, and expert credit judgements
• Selecting applicable recovery strategies for certain wholesale credit-impaired loans
Estimates
• The section ‘Measurement uncertainty and
sensitivity analysis of ECL estimates’, marked as
audited from page 153, sets out the
assumptions used in determining ECL, and
provides an indication of the sensitivity of the
result to the application of different weightings
being applied to different economic assumptions
(j) Insurance contracts
A contract is classified as an insurance contract where HSBC accepts significant insurance risk from another party by agreeing to compensate
that party on the occurrence of a specified uncertain future event. An insurance contract may also transfer financial risk, but is accounted for as
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HSBC Holdings plc Annual Report and Accounts 2022
an insurance contract if the insurance risk is significant. In addition, HSBC issues investment contracts with discretionary participation features
(‘DPF‘), which are also accounted for as insurance contracts as required by IFRS 4 ‘Insurance Contracts’.
Net insurance premium income
Premiums for life insurance contracts are accounted for when receivable, except in unit-linked insurance contracts where premiums are
accounted for when liabilities are established. Reinsurance premiums are accounted for in the same accounting period as the premiums for the
direct insurance contracts to which they relate.
Net insurance claims and benefits paid and movements in liabilities to policyholders
Gross insurance claims for life insurance contracts reflect the total cost of claims arising during the year, including claim handling costs and any
policyholder bonuses allocated in anticipation of a bonus declaration.
Maturity claims are recognised when due for payment. Surrenders are recognised when paid or at an earlier date on which, following notification,
the policy ceases to be included within the calculation of the related insurance liabilities. Death claims are recognised when notified.
Reinsurance recoveries are accounted for in the same period as the related claim.
Liabilities under insurance contracts
Liabilities under non-linked life insurance contracts are calculated by each life insurance operation based on local actuarial principles. Liabilities
under unit-linked life insurance contracts are at least equivalent to the surrender or transfer value, which is calculated by reference to the value of
the relevant underlying funds or indices.
Future profit participation on insurance contracts with DPF
Where contracts provide discretionary profit participation benefits to policyholders, liabilities for these contracts include provisions for the future
discretionary benefits to policyholders. These provisions reflect the actual performance of the investment portfolio to date and management’s
expectation of the future performance of the assets backing the contracts, as well as other experience factors such as mortality, lapses and
operational efficiency, where appropriate. The benefits to policyholders may be determined by the contractual terms, regulation, or past
distribution policy.
Investment contracts with DPF
While investment contracts with DPF are financial instruments, they continue to be treated as insurance contracts as required by IFRS 4. The
Group therefore recognises the premiums for these contracts as revenue and recognises as an expense the resulting increase in the carrying
amount of the liability.
In the case of net unrealised investment gains on these contracts, whose discretionary benefits principally reflect the actual performance of the
investment portfolio, the corresponding increase in the liabilities is recognised in either the income statement or other comprehensive income,
following the treatment of the unrealised gains on the relevant assets. In the case of net unrealised losses, a deferred participating asset is
recognised only to the extent that its recoverability is highly probable. Movements in the liabilities arising from realised gains and losses on
relevant assets are recognised in the income statement.
Present value of in-force long-term insurance business
HSBC recognises the value placed on insurance contracts and investment contracts with DPF, which are classified as long-term and in-force at
the balance sheet date, as an asset. The asset represents the present value of the equity holders’ interest in the issuing insurance companies’
profits expected to emerge from these contracts written at the balance sheet date. The present value of in-force business (‘PVIF’) is determined
by discounting those expected future profits using appropriate assumptions in assessing factors such as future mortality, lapse rates and levels
of expenses, and a risk discount rate that reflects the risk premium attributable to the respective contracts. The PVIF incorporates allowances for
both non-market risk and the value of financial options and guarantees. The PVIF asset is presented gross of attributable tax in the balance sheet
and movements in the PVIF asset are included in ‘Other operating income’ on a gross of tax basis.
(k)
Employee compensation and benefits
Share-based payments
HSBC enters into both equity-settled and cash-settled share-based payment arrangements with its employees as compensation for the provision
of their services.
The vesting period for these schemes may commence before the legal grant date if the employees have started to render services in respect of
the award before the legal grant date, where there is a shared understanding of the terms and conditions of the arrangement. Expenses are
recognised when the employee starts to render service to which the award relates.
Cancellations result from the failure to meet a non-vesting condition during the vesting period, and are treated as an acceleration of vesting
recognised immediately in the income statement. Failure to meet a vesting condition by the employee is not treated as a cancellation, and the
amount of expense recognised for the award is adjusted to reflect the number of awards expected to vest.
Post-employment benefit plans
HSBC operates a number of pension schemes including defined benefit, defined contribution and post-employment benefit schemes.
Payments to defined contribution schemes are charged as an expense as the employees render service.
Defined benefit pension obligations are calculated using the projected unit credit method. The net charge to the income statement mainly
comprises the service cost and the net interest on the net defined benefit asset or liability, and is presented in operating expenses.
Remeasurements of the net defined benefit asset or liability, which comprise actuarial gains and losses, return on plan assets excluding interest
and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income. The net defined
benefit asset or liability represents the present value of defined benefit obligations reduced by the fair value of plan assets (see Note 1.2 (c)),
after applying the asset ceiling test, where the net defined benefit surplus is limited to the present value of available refunds and reductions in
future contributions to the plan.
The costs of obligations arising from other post-employment plans are accounted for on the same basis as defined benefit pension plans.
HSBC Holdings plc Annual Report and Accounts 2022
345
Financial statements Notes on the financial statements
Critical accounting estimates and judgements
The most significant critical accounting estimates relate to the determination of key assumptions applied in calculating the defined benefit pension
obligation for the principal plan.
Judgements
Estimates
• A range of assumptions could be applied, and different assumptions could
significantly alter the defined benefit obligation and the amounts recognised in
profit or loss or OCI.
• The calculation of the defined benefit pension obligation includes assumptions
with regard to the discount rate, inflation rate, pension payments and deferred
pensions, pay and mortality. Management determines these assumptions in
consultation with the plan’s actuaries.
• Key assumptions used in calculating the defined benefit pension obligation for the
principal plan and the sensitivity of the calculation to different assumptions are
described in Note 5.
(l) Tax
Income tax comprises current tax and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to
items recognised in other comprehensive income or directly in equity, in which case the tax is recognised in the same statement as the related
item appears.
Current tax is the tax expected to be payable on the taxable profit for the year and on any adjustment to tax payable in respect of previous years.
HSBC provides for potential current tax liabilities that may arise on the basis of the amounts expected to be paid to the tax authorities.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the balance sheet, and the
amounts attributed to such assets and liabilities for tax purposes. Deferred tax is calculated using the tax rates expected to apply in the periods
in which the assets will be realised or the liabilities settled.
In assessing the probability and sufficiency of future taxable profit, management considers the availability of evidence to support the recognition
of deferred tax assets, taking into account the inherent risks in long-term forecasting, including climate change-related, and drivers of recent
history of tax losses where applicable. Management also considers the future reversal of existing taxable temporary differences and tax planning
strategies, including corporate reorganisations.
Current and deferred tax are calculated based on tax rates and laws enacted, or substantively enacted, by the balance sheet date.
Critical accounting estimates and judgements
The recognition of deferred tax assets depends on judgements and estimates.
Judgements
Estimates
• Specific judgements supporting deferred tax assets are described in
•
Note 7.
The recognition of deferred tax assets is sensitive to estimates of
future cash flows projected for periods for which detailed forecasts
are available and to assumptions regarding the long-term pattern of
cash flows thereafter, on which forecasts of future taxable profit
are based, and which affect the expected recovery periods and the
pattern of utilisation of tax losses and tax credits. See Note 7 for
further detail.
The Group does not consider there to be a significant risk of a material adjustment to the carrying amount of deferred tax assets in the next
financial year but does consider this to be an area that is inherently judgemental.
(m) Provisions, contingent liabilities and guarantees
Provisions
Provisions are recognised when it is probable that an outflow of economic benefits will be required to settle a present legal or constructive
obligation that has arisen as a result of past events and for which a reliable estimate can be made.
Critical accounting estimates and judgements
The recognition and measurement of provisions requires the Group to make a number of judgements, assumptions and estimates. The most significant
are set out below:
Judgements
• Determining whether a present obligation exists. Professional advice is
Estimates
• Provisions for legal proceedings and regulatory matters remain very
sensitive to the assumptions used in the estimate. There could be a
wider range of possible outcomes for any pending legal
proceedings, investigations or inquiries. As a result it is often not
practicable to quantify a range of possible outcomes for individual
matters. It is also not practicable to meaningfully quantify ranges of
potential outcomes in aggregate for these types of provisions
because of the diverse nature and circumstances of such matters
and the wide range of uncertainties involved.
taken on the assessment of litigation and similar obligations.
• Provisions for legal proceedings and regulatory matters typically require a
higher degree of judgement than other types of provisions. When matters
are at an early stage, accounting judgements can be difficult because of
the high degree of uncertainty associated with determining whether a
present obligation exists, and estimating the probability and amount of any
outflows that may arise. As matters progress, management and legal
advisers evaluate on an ongoing basis whether provisions should be
recognised, revising previous estimates as appropriate. At more advanced
stages, it is typically easier to make estimates around a better defined set
of possible outcomes.
346
HSBC Holdings plc Annual Report and Accounts 2022
Contingent liabilities, contractual commitments and guarantees
Contingent liabilities
Contingent liabilities, which include certain guarantees and letters of credit pledged as collateral security, and contingent liabilities related to legal
proceedings or regulatory matters, are not recognised in the financial statements but are disclosed unless the probability of settlement is
remote.
Financial guarantee contracts
Liabilities under financial guarantee contracts that are not classified as insurance contracts are recorded initially at their fair value, which is
generally the fee received or present value of the fee receivable.
HSBC Holdings has issued financial guarantees and similar contracts to other Group entities. HSBC elects to account for certain guarantees as
insurance contracts in HSBC Holdings’ financial statements, in which case they are measured and recognised as insurance liabilities. This
election is made on a contract-by-contract basis, and is irrevocable.
(n)
Impairment of non-financial assets
Software under development is tested for impairment at least annually. Other non-financial assets are property, plant and equipment, intangible
assets (excluding goodwill) and right-of-use assets. They are tested for impairment at the individual asset level when there is indication of
impairment at that level, or at the CGU level for assets that do not have a recoverable amount at the individual asset level. In addition,
impairment is also tested at the CGU level when there is indication of impairment at that level. For this purpose, CGUs are considered to be the
principal operating legal entities divided by global business.
Impairment testing compares the carrying amount of the non-financial asset or CGU with its recoverable amount, which is the higher of the fair
value less costs of disposal or the value in use. The carrying amount of a CGU comprises the carrying value of its assets and liabilities, including
non-financial assets that are directly attributable to it and non-financial assets that can be allocated to it on a reasonable and consistent basis.
Non-financial assets that cannot be allocated to an individual CGU are tested for impairment at an appropriate grouping of CGUs. The recoverable
amount of the CGU is the higher of the fair value less costs of disposal of the CGU, which is determined by independent and qualified valuers
where relevant, and the value in use, which is calculated based on appropriate inputs (see Note 21).
When the recoverable amount of a CGU is less than its carrying amount, an impairment loss is recognised in the income statement to the extent
that the impairment can be allocated on a pro-rata basis to the non-financial assets by reducing their carrying amounts to the higher of their
respective individual recoverable amount or nil. Impairment is not allocated to the financial assets in a CGU.
Impairment losses recognised in prior periods for non-financial assets is reversed when there has been a change in the estimate used to
determine the recoverable amount. The impairment loss is reversed to the extent that the carrying amount of the non-financial assets would not
exceed the amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised in prior
periods.
Critical accounting estimates and judgements
The review of goodwill and other non-financial assets for impairment reflects management’s best estimate of the future cash flows of the CGUs and
the rates used to discount these cash flows, both of which are subject to uncertain factors as described in the Critical accounting estimates and
judgements in Note 1.2(a).
(o) Non-current assets and disposal groups held for sale
HSBC classifies non-current assets or disposal groups (including assets and liabilities) as held for sale when their carrying amounts will be
recovered principally through sale rather than through continuing use. To be classified as held for sale, the non-current asset or disposal group
must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or
disposal groups), and the sale must be highly probable. For a sale to be highly probable, the appropriate level of management must be
committed to a plan to sell the asset (or disposal group) and an active programme to locate a buyer and complete the plan must have been
initiated. Further, the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value.
In addition, the sale should be expected to qualify as a completed sale within one year from the date of classification and actions required to
complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Held for sale assets and disposal groups are measured at the lower of their carrying amount and fair value less costs to sell except for those
assets and liabilities that are not within the scope of the measurement requirements of IFRS 5. If the carrying amount of the non-current asset
(or disposal group) is greater than the fair value less costs to sell, an impairment loss for any initial or subsequent write down of the asset or
disposal group to fair value less costs to sell is recognised. Any such impairment loss is first allocated against the non-current assets that are in
scope of IFRS 5 for measurement. This first reduces the carrying amount of any goodwill allocated to the disposal group, and then to the other
non-current assets of the disposal group pro rata on the basis of the carrying amount of each asset in the disposal group. Thereafter, any
impairment loss in excess of the carrying value of the non-current assets in scope of IFRS 5 for measurement is recognised against the total
assets of the disposal group.
Critical accounting judgements
The classification as held for sale depends on certain judgements:
Judgements
Management judgement is required in determining whether the IFRS 5 held for sale criteria are met, including whether a sale is highly probable and
expected to complete within one year of classification. The exercise of judgement will normally consider the likelihood of successfully securing any
necessary regulatory or political approvals which are almost always required for sales of banking businesses. For large and complex plans judgement
will also include an assessment of the enforceability of any binding sale agreement, the nature and magnitude of any disincentives for non-
performance, and the ability of the counterparty to undertake necessary pre-completion preparatory work, comply with conditions precedent, and
otherwise be able to comply with contractual undertakings to achieve completion within the expected timescale. Once classified as held for sale,
judgement is required to be applied on a continuous basis to ensure that classification remains appropriate in future accounting periods.
(p) Hyperinflationary accounting
Hyperinflationary accounting is applied to those subsidiary operations in countries where the three-year cumulative inflation rate is approaching or
exceeding 100%. In 2022, this affected the Group’s operations in Argentina and Türkiye. The Group applies IAS 29 to the underlying financial
information of relevant subsidiaries to restate their local currency results and financial position so as to be stated in terms of the measuring unit
current at the end of the reporting period. Those restated results are translated into the Group’s presentation currency of US dollars for
HSBC Holdings plc Annual Report and Accounts 2022
347
Financial statements
Notes on the financial statements
consolidation at the closing rate at the balance sheet date. Group comparatives are not restated for inflation and consequential adjustments to
the opening balance sheet in relation to hyperinflationary subsidiaries are presented in other comprehensive income. The hyperinflationary gain
or loss in respect of the net monetary position of the relevant subsidiary is included in profit or loss.
When applying hyperinflation accounting for the first time, the underlying financial information is restated in terms of the measuring unit current
at the end of the reporting period as if the relevant economy had always been hyperinflationary. Group comparatives are not restated for such
historic adjustments.
2 Net fee income
Net fee income by global business
Funds under management
Cards
Credit facilities
Broking income
Account services
Unit trusts
Underwriting
Global custody
Remittances
Imports/exports
Insurance agency commission
Other
Fee income
Less: fee expense
Net fee income
Funds under management
Cards
Credit facilities
Broking income
Account services
Unit trusts
Underwriting
Global custody
Remittances
Imports/exports
Insurance agency commission
Other
Fee income
Less: fee expense
Net fee income
Funds under management
Cards
Credit facilities
Broking income
Account services
Unit trusts
Underwriting
Global custody
Remittances
Imports/exports
Insurance agency commission
Other
Fee income
Less: fee expense
Net fee income
348
HSBC Holdings plc Annual Report and Accounts 2022
Wealth and
Personal
Banking
Commercial
Banking
2022
Global
Banking and
Markets
Corporate
Centre
$m
1,769
2,146
100
575
337
682
1
140
72
—
283
1,423
7,528
(2,497)
5,031
$m
105
313
776
40
718
14
2
14
378
475
16
1,082
3,933
(240)
3,693
$m
503
32
598
634
356
—
443
767
348
159
1
2,382
6,223
(3,464)
2,759
$m
—
—
—
—
1
—
(5)
—
1
—
—
(2,468)
(2,471)
2,439
(32)
Wealth and
Personal
Banking
Commercial
Banking
2021
Global
Banking and
Markets
Corporate
Centre
$m
1,984
1,949
103
863
429
1,065
4
167
75
1
324
1,305
8,269
(2,375)
5,894
$m
126
240
833
69
677
23
6
24
357
474
17
1,077
3,923
(284)
3,639
$m
546
23
690
669
340
—
1,009
787
343
145
—
2,503
7,055
(3,452)
3,603
$m
—
1
1
—
6
—
(2)
—
—
—
—
(2,465)
(2,459)
2,420
(39)
Wealth and
Personal
Banking
Commercial
Banking
2020
Global
Banking and
Markets
Corporate
Centre
$m
1,686
1,564
93
862
431
881
5
189
77
—
307
1,123
7,218
(1,810)
5,408
$m
126
360
740
61
598
18
9
22
313
417
17
893
3,574
(349)
3,225
$m
477
25
626
616
264
—
1,002
723
288
160
1
2,369
6,551
(3,284)
3,267
$m
—
—
—
—
—
—
(1)
—
(1)
—
—
(2,290)
(2,292)
2,266
(26)
Total
$m
2,377
2,491
1,474
1,249
1,412
696
441
921
799
634
300
2,419
15,213
(3,762)
11,451
Total
$m
2,656
2,213
1,627
1,601
1,452
1,088
1,017
978
775
620
341
2,420
16,788
(3,691)
13,097
Total
$m
2,289
1,949
1,459
1,539
1,293
899
1,015
934
677
577
325
2,095
15,051
(3,177)
11,874
Net fee income included $6,410m of fees earned on financial assets that were not at fair value through profit or loss, other than amounts
included in determining the effective interest rate (2021: $6,742m; 2020: $5,858m), $1,613m of fees payable on financial liabilities that were not
at fair value through profit or loss, other than amounts included in determining the effective interest rate (2021: $1,520m; 2020: $1,260m),
$3,506m of fees earned on trust and other fiduciary activities (2021: $3,849m; 2020: $3,426m) and $422m of fees payable relating to trust and
other fiduciary activities (2021: $305m; 2020: $267m).
3 Net income from financial instruments measured at fair value through
profit or loss
Net income/(expense) arising on:
Net trading activities
Other instruments managed on a fair value basis
Net income from financial instruments held for trading or managed on a fair value basis
Financial assets held to meet liabilities under insurance and investment contracts
Liabilities to customers under investment contracts
Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives,
measured at fair value through profit or loss
Derivatives managed in conjunction with HSBC’s issued debt securities
Other changes in fair value
Changes in fair value of designated debt and related derivatives1
Changes in fair value of other financial instruments mandatorily measured at fair value through profit
or loss
Year ended 31 Dec
2022
$m
2,576
7,893
10,469
(3,720)
326
(3,394)
(7,086)
7,009
(77)
226
7,224
2021
$m
6,668
1,076
7,744
4,134
(81)
4,053
(2,811)
2,629
(182)
798
12,413
1 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.
HSBC Holdings
Net income/(expense) arising on:
– trading activities
– other instruments managed on a fair value basis
Net income from financial instruments held for trading or managed on a fair value basis
Derivatives managed in conjunction with HSBC Holdings-issued debt securities
Other changes in fair value
Changes in fair value of designated debt and related derivatives
Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss
Year ended 31 Dec
2022
$m
2,094
35
2,129
(1,529)
3,673
2,144
(2,409)
1,864
2021
$m
87
23
110
(625)
974
349
(420)
39
4
Insurance business
Net insurance premium income1
Gross insurance premium income
Reinsurers’ share of gross insurance premium income
Year ended 31 Dec 2022
Gross insurance premium income
Reinsurers’ share of gross insurance premium income
Year ended 31 Dec 2021
Gross insurance premium income
Reinsurers’ share of gross insurance premium income
Year ended 31 Dec 2020
Non-linked
insurance
Linked life
insurance
$m
11,685
(1,226)
10,459
8,529
(555)
7,974
8,321
(362)
7,959
$m
824
(5)
819
1,027
(4)
1,023
579
(8)
571
Investment
contracts
with DPF2
$m
1,547
—
1,547
1,873
—
1,873
1,563
—
1,563
2020
$m
11,074
(1,492)
9,582
2,481
(400)
2,081
2,619
(2,388)
231
455
12,349
2020
$m
(336)
1,137
801
694
(1,020)
(326)
1,141
1,616
Total
$m
14,056
(1,231)
12,825
11,429
(559)
10,870
10,463
(370)
10,093
1 This table is presented after elimination of inter-company transactions between our insurance manufacturing operations and other Group entities.
2 Discretionary participation features.
HSBC Holdings plc Annual Report and Accounts 2022
349
Financial statements
Notes on the financial statements
Net insurance claims and benefits paid and movement in liabilities to policyholders1
Gross claims and benefits paid and movement in liabilities
– claims, benefits and surrenders paid
– movement in liabilities
Reinsurers’ share of claims and benefits paid and movement in liabilities
– claims, benefits and surrenders paid
– movement in liabilities
Year ended 31 Dec 2022
Gross claims and benefits paid and movement in liabilities
– claims, benefits and surrenders paid
– movement in liabilities
Reinsurers’ share of claims and benefits paid and movement in liabilities
– claims, benefits and surrenders paid
– movement in liabilities
Year ended 31 Dec 2021
Gross claims and benefits paid and movement in liabilities
– claims, benefits and surrenders paid
– movement in liabilities
Reinsurers’ share of claims and benefits paid and movement in liabilities
– claims, benefits and surrenders paid
– movement in liabilities
Year ended 31 Dec 2020
Non-linked
insurance
Linked life
insurance
$m
11,008
4,032
6,976
(1,206)
(1,005)
(201)
9,802
10,474
2,929
7,545
(543)
(343)
(200)
9,931
10,050
3,695
6,355
(366)
(430)
64
9,684
$m
(124)
680
(804)
8
(7)
15
(116)
1,134
1,023
111
(9)
(7)
(2)
1,125
1,112
900
212
(4)
(10)
6
1,108
Investment
contracts
with DPF2
$m
183
1,845
(1,662)
—
—
—
183
3,332
2,142
1,190
—
—
—
3,332
1,853
2,083
(230)
—
—
—
1,853
Total
$m
11,067
6,557
4,510
(1,198)
(1,012)
(186)
9,869
14,940
6,094
8,846
(552)
(350)
(202)
14,388
13,015
6,678
6,337
(370)
(440)
70
12,645
1 This table is presented after elimination of inter-company transactions between our insurance manufacturing operations and other Group entities.
2 Discretionary participation features.
Liabilities under insurance contracts1
Gross liabilities under insurance contracts at 1 Jan 2022
Claims and benefits paid
Increase in liabilities to policyholders
Exchange differences and other movements2
Gross liabilities under insurance contracts at 31 Dec 2022
Reinsurers’ share of liabilities under insurance contracts
Net liabilities under insurance contracts at 31 Dec 2022
Gross liabilities under insurance contracts at 1 Jan 2021
Claims and benefits paid
Increase in liabilities to policyholders
Exchange differences and other movements3
Gross liabilities under insurance contracts at 31 Dec 2021
Reinsurers’ share of liabilities under insurance contracts
Net liabilities under insurance contracts at 31 Dec 2021
Non-linked
insurance
Linked life
insurance
$m
79,475
(4,032)
11,008
2,004
88,455
(4,247)
84,208
72,464
(2,929)
10,474
(534)
79,475
(3,638)
75,837
$m
6,513
(680)
(124)
(313)
5,396
(10)
5,386
6,449
(1,023)
1,134
(47)
6,513
(30)
6,483
Investment
contracts
with DPF2
$m
26,757
(1,845)
183
(4,102)
20,993
—
20,993
28,278
(2,142)
3,332
(2,711)
26,757
—
26,757
Total
$m
112,745
(6,557)
11,067
(2,411)
114,844
(4,257)
110,587
107,191
(6,094)
14,940
(3,292)
112,745
(3,668)
109,077
1 This table is presented after elimination of inter-company transactions between our insurance manufacturing operations and other Group entities.
2 Discretionary participation features.
3 ‘Exchange differences and other movements’ includes movements in liabilities arising from net unrealised investment gains recognised in other
comprehensive income.
The key factors contributing to the movement in liabilities to policyholders included movements in the market value of assets supporting
policyholder liabilities, death claims, surrenders, lapses, new business, the declaration of bonuses and other amounts attributable to
policyholders.
350
HSBC Holdings plc Annual Report and Accounts 2022
5
Employee compensation and benefits
Employee compensation and benefits1
Capitalised wages and salaries
Gross employee compensation and benefits for the year ended 31 Dec
Consists of:
Wages and salaries
Social security costs
Post-employment benefits
Year ended 31 Dec
2022
$m
18,366
922
19,288
16,954
1,413
921
19,288
2021
$m
18,742
870
19,612
17,072
1,503
1,037
19,612
2020
$m
18,076
1,320
19,396
17,072
1,378
946
19,396
1 Employee compensation and benefits are presented net of software capitalisation costs in the income statement.
Average number of persons employed by HSBC during the year by global business1
Wealth and Personal Banking
Commercial Banking
Global Banking and Markets
Corporate Centre
Year ended 31 Dec
2022
135,676
48,004
48,597
365
232,642
2021
138,026
44,992
48,179
359
231,556
2020
144,615
45,631
49,055
411
239,712
1 Average number of persons employed represents the number of persons with contracts of service with the Group.
Average number of persons employed by HSBC during the year by geographical region1
Europe
Asia
Middle East and North Africa
North America
Latin America
Year ended 31 Dec
2022
58,145
132,257
9,541
12,242
20,457
232,642
2021
60,919
127,673
9,329
13,845
19,790
231,556
2020
64,886
129,923
9,550
15,430
19,923
239,712
1 Average number of persons employed represents the number of persons with contracts of service with the Group.
Reconciliation of total incentive awards granted to income statement charge
Total incentive awards approved for the current year
Less: deferred bonuses awarded, expected to be recognised in future periods
Total incentives awarded and recognised in the current year
Add: current year charges for deferred bonuses from previous years
Other
Income statement charge for incentive awards
Share-based payments
2022
$m
3,359
(343)
3,016
239
(22)
3,233
2021
$m
3,495
(379)
3,116
270
4
3,390
‘Wages and salaries’ includes the effect of share-based payments arrangements, of which $400m was equity settled (2021: $467m;
2020: $434m), as follows:
Conditional share awards
Savings-related and other share award option plans
Year ended 31 Dec
2022
$m
402
22
424
2021
$m
479
27
506
2020
$m
2,659
(239)
2,420
286
2
2,708
2020
$m
411
51
462
HSBC share awards
Award
Deferred share awards
(including annual
incentive awards, long-
term incentive (‘LTI’)
awards delivered in
shares) and Group
Performance Share
Plans (‘GPSP’)
International Employee
Share Purchase Plan
(‘ShareMatch’)
Policy
An assessment of performance over the relevant period ending on 31 December is used to determine the amount of the
award to be granted.
• Deferred awards generally require employees to remain in employment over the vesting period and are generally not
subject to performance conditions after the grant date. An exception to these are LTI awards, which are subject to
performance conditions.
• Deferred share awards generally vest over a period of three, four, five or seven years.
• Vested shares may be subject to a retention requirement post-vesting.
• Awards are subject to malus and clawback provisions.
The plan was first introduced in Hong Kong in 2013 and now includes employees based in 31 jurisdictions.
• Shares are purchased in the market each quarter up to a maximum value of £750, or the equivalent in local currency.
• Matching awards are added at a ratio of one free share for every three purchased. In mainland China, matching awards
are settled in cash.
• Matching awards vest subject to continued employment and the retention of the purchased shares for a maximum period
of two years and nine months.
HSBC Holdings plc Annual Report and Accounts 2022
351
Financial statements
Notes on the financial statements
Movement on HSBC share awards
Conditional share awards outstanding at 1 Jan
Additions during the year
Released in the year
Forfeited in the year
Conditional share awards outstanding at 31 Dec
Weighted average fair value of awards granted ($)
2022
Number
(000s)
109,364
90,190
(67,718)
(5,590)
126,246
5.60
2021
Number
(000s)
103,473
75,549
(63,635)
(6,023)
109,364
6.49
HSBC share option plans
Main plans
Savings-related share
option plans (‘Sharesave’)
Policy
• From 2014, employees eligible for the UK plan could save up to £500 per month with the option to use the savings
to acquire shares.
• These are generally exercisable within six months following either the third or fifth anniversary of the
commencement of a three-year or five-year contract, respectively.
• The exercise price is set at a 20% (2021: 20%) discount to the market value immediately preceding the date of
Calculation of fair values
invitation.
The fair values of share options are calculated using a Black-Scholes model. The fair value of a share award is based on the share price at the
date of the grant.
Movement on HSBC share option plans
Outstanding at 1 Jan 2022
Granted during the year2
Exercised during the year3
Expired during the year
Forfeited during the year
Outstanding at 31 Dec 2022
– of which exercisable
Weighted average remaining contractual life (years)
Outstanding at 1 Jan 2021
Granted during the year2
Exercised during the year3
Expired during the year
Forfeited during the year
Outstanding at 31 Dec 2021
– of which exercisable
Weighted average remaining contractual life (years)
Savings-related
share option plans
Number
(000s)
WAEP1
£
123,197
8,928
(3,483)
(9,047)
(3,944)
115,651
4,029
2.26
130,953
15,410
(3,878)
(11,502)
(7,786)
123,197
4,949
3.02
2.85
4.24
3.49
3.55
2.79
2.89
4.11
2.97
3.15
3.80
3.53
3.97
2.85
4.05
1 Weighted average exercise price.
2 The weighted average fair value of options granted during the year was $1.45 (2021: $0.85).
3 The weighted average share price at the date the options were exercised was $6.22 (2021: $5.87).
Post-employment benefit plans
The Group operates pension plans throughout the world for its employees. ‘Pension risk management processes’ on page 205 contains details
of the policies and practices associated with these pension plans, some of which are defined benefit plans. The largest defined benefit plan is
the HBUK section of the HSBC Bank (UK) Pension Scheme (‘the principal plan’), created as a result of the HSBC Bank (UK) Pension Scheme
being fully sectionalised in 2018 to meet the requirements of the Banking Reform Act. For further details of how the trustee of the HSBC Bank
(UK) Pension Scheme manages climate risk, see ’Managing risk for our stakeholders’ on page 64.
HSBC holds on its balance sheet the net surplus or deficit, which is the difference between the fair value of plan assets and the discounted value
of scheme liabilities at the balance sheet date for each plan. Surpluses are only recognised to the extent that they are recoverable through
reduced contributions in the future or through potential future refunds from the schemes. In assessing whether a surplus is recoverable, HSBC
has considered its current right to obtain a future refund or a reduction in future contributions together with the rights of third parties such as
trustees.
The principal plan
The principal plan has a defined benefit section and a defined contribution section. The defined benefit section was closed to future benefit
accrual in 2015, with defined benefits earned by employees at that date continuing to be linked to their salary while they remain employed by
HSBC. The plan is overseen by an independent corporate trustee, who has a fiduciary responsibility for the operation of the plan. Its assets are
held separately from the assets of the Group.
The investment strategy of the plan is to hold the majority of assets in bonds, with the remainder in a diverse range of investments. It also
includes some interest rate swaps to reduce interest rate risk, inflation swaps to reduce inflation risk and longevity swaps to reduce the impact
of longer life expectancy.
352
HSBC Holdings plc Annual Report and Accounts 2022
The principal plan is subject to the statutory funding objective requirements of the UK Pensions Act 2004, which requires that it be funded to at
least the level of technical provisions (an actuarial estimate of the assets needed to provide for the benefits already built up under the plan).
Where a funding valuation is carried out and identifies a deficit, the employer and trustee are required to agree to a deficit recovery plan.
The latest funding valuation of the plan at 31 December 2019 was carried out by Colin G Singer of Willis Towers Watson Limited, who is a
Fellow of the UK Institute and Faculty of Actuaries, using the projected unit credit method. At that date, the market value of the plan’s assets
was £31.1bn ($41.1bn) and this exceeded the value placed on its liabilities on an ongoing basis by £2.5bn ($3.3bn), giving a funding level of
109%. These figures include defined contribution assets amounting to £2.4bn ($3.2bn). The main differences between the assumptions used for
assessing the defined benefit liabilities for this funding valuation and those used for IAS 19 are that an element of prudence is contained in the
funding valuation assumptions for discount rate, inflation rate and life expectancy. The funding valuation is used to judge the amount of cash
contributions the Group needs to put into the pension scheme. It will always be different to the IAS 19 accounting surplus, which is an
accounting rule concerning employee benefits and shown on the balance sheet of our financial statements. The next funding valuation will be
performed in 2023, with an effective date of 31 December 2022. The plan is estimated to remain in a comfortable surplus relative to the funding
liabilities as at the end of 2022, based on assumptions consistent with those used to determine the funding liabilities for the 2019 valuation.
The actuary also assessed the value of the liabilities if the plan were to have been stopped and an insurance company asked to secure all future
pension payments. This is generally larger than the amount needed on the ongoing basis described above because an insurance company would
use more prudent assumption which allow for reserves and include an explicit allowance for the future administrative expenses of the plan.
Under this approach, the amount of assets needed was estimated to be £33bn ($44bn) at 31 December 2019.
The trust deed gives the ability for HSBC UK to take a refund of surplus assets after the plan has been run down such that no further
beneficiaries remain. In assessing whether a surplus is recoverable, HSBC UK has considered its right to obtain a future refund together
with the rights of third parties such as trustees. On this basis, any net surplus in the HBUK section of the plan is recognised in HSBC UK’s
financial statements and the Group’s financial statements,
Guaranteed minimum pension equalisation
Following a judgment issued by the High Court of Justice of England and Wales in 2018, we estimated the financial effect of equalising benefits
in respect of guaranteed minimum pension (‘GMP’) equalisation, and any potential conversion of GMPs into non-GMP benefits, to be an
approximate 0.9% increase in the principal plan’s liabilities, or £187m ($239m). This was recognised in the income statement in 2018. A further
judgment by the High Court on 20 November 2020 ruled that GMPs should also be equalised for those who had previously transferred benefits
from the principal plan to another arrangement, with £13m ($17m) consequently being recognised in 2020. We continue to assess the impact of
GMP equalisation. In 2022, the trustee and HSBC UK agreed to adopt a simplified approach for all members to implement GMP equalisation.
This resulted in an increase to the liabilities of £5m ($6m) and has been recognised as a past service cost through profit and loss.
Income statement charge
Defined benefit pension plans
Defined contribution pension plans
Pension plans
Defined benefit and contribution healthcare plans
Year ended 31 Dec
Net assets/(liabilities) recognised on the balance sheet in respect of defined benefit plans
2022
$m
42
852
894
27
921
2021
$m
243
767
1,010
27
1,037
Fair value of
plan assets
Present value of
defined benefit
obligations
Effect of
limit on plan
surpluses
$m
32,171
96
32,267
$m
(25,693)
(388)
(26,081)
51,431
103
51,534
(42,277)
(572)
(42,849)
$m
—
—
—
(23)
—
(23)
Defined benefit pension plans
Defined benefit healthcare plans
At 31 Dec 2022
Total employee benefit liabilities (within Note 27 ‘Accruals, deferred income and other
liabilities’)
Total employee benefit assets (within Note 22 ‘Prepayments, accrued income and
other assets’)
Defined benefit pension plans
Defined benefit healthcare plans
At 31 Dec 2021
Total employee benefit liabilities (within Note 27 ‘Accruals, deferred income and other
liabilities’)
Total employee benefit assets (within Note 22 ‘Prepayments, accrued income and other
assets’)
HSBC Holdings
2020
$m
146
775
921
25
946
Total
$m
6,478
(292)
6,186
(1,096)
7,282
9,131
(469)
8,662
(1,607)
10,269
Employee compensation and benefit expense in respect of HSBC Holdings’ employees in 2022 amounted to $41m (2021: $30m). The average
number of persons employed during 2022 was 42 (2021: 54). A small number of employees are members of defined benefit pension plans.
These employees are members of the HSBC Bank (UK) Pension Scheme. HSBC Holdings pays contributions to such plan for its own employees
in accordance with the schedules of contributions determined by the trustees of the plan and recognises these contributions as an expense as
they fall due.
HSBC Holdings plc Annual Report and Accounts 2022
353
Financial statements
Notes on the financial statements
Defined benefit pension plans
Net asset/(liability) under defined benefit pension plans
At 1 Jan 2022
Service cost
– current service cost
– past service cost and gains/(losses) from settlements
Net interest income/(cost) on the net defined benefit asset/
(liability)
Remeasurement effects recognised in other
comprehensive income
– return on plan assets (excluding interest income)
– actuarial gains/(losses) financial assumptions
– actuarial gains/(losses) demographic assumptions
– actuarial gains/(losses) experience adjustments
– other changes
Exchange differences
Benefits paid
Other movements2
At 31 Dec 2022
At 1 Jan 2021
Service cost
– current service cost
– past service cost and losses from settlements
Net interest income/(cost) on the net defined benefit asset/
(liability)
Remeasurement effects recognised in other
comprehensive income
– return on plan assets (excluding interest income)
– actuarial gains/(losses) financial assumptions
– actuarial gains/(losses) demographic assumptions
– actuarial gains/(losses) experience adjustments
– other changes
Exchange differences
Benefits paid
Other movements2
At 31 Dec 2021
Fair value of plan
assets
Present value of
defined benefit
obligations
Effect of the asset
ceiling
Net defined benefit
asset/(liability)
Principal1
plan
Other
plans
Principal1
plan
Other
plans
Principal1
plan
Other
plans
Principal1
plan
Other
plans
$m
41,384
—
—
—
$m
10,047
—
—
—
$m
(32,255)
(30)
(12)
(18)
$m
(10,022)
(170)
(161)
(9)
703
198
(546)
(202)
(11,505)
(2,181)
9,532
2,360
(11,505)
—
—
—
—
(4,288)
(1,222)
49
25,121
(2,181)
—
—
—
—
(180)
(616)
(218)
7,050
—
10,543
(123)
(888)
—
3,325
1,222
(35)
(18,787)
—
2,383
24
(47)
—
35
686
407
(6,906)
42,505
—
—
—
10,485
—
—
—
(33,005)
(55)
(14)
(41)
(10,990)
(276)
(206)
(70)
613
172
(473)
(174)
(377)
(377)
—
—
—
—
(361)
(1,396)
400
41,384
7
(271)
471
7
—
—
—
—
(94)
(645)
122
10,047
—
611
(447)
(435)
—
283
1,396
(130)
(32,255)
—
315
64
92
—
138
712
97
(10,022)
$m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$m
(23)
—
—
—
$m
9,129
(30)
(12)
(18)
$m
2
(170)
(161)
(9)
(1)
157
(5)
(3)
—
—
—
—
(3)
2
—
25
—
(44)
—
—
—
(1,973)
176
(11,505)
10,543
(123)
(888)
—
(963)
—
14
6,334
9,500
(55)
(14)
(41)
(2,181)
2,383
24
(47)
(3)
(143)
70
214
144
(549)
(276)
(206)
(70)
(1)
140
(3)
22
—
—
—
—
22
—
—
—
(23)
(648)
(377)
611
(447)
(435)
—
(78)
—
270
9,129
500
7
315
64
92
22
44
67
219
2
1 For further details of the principal plan, see page 352.
2 Other movements include contributions by HSBC, contributions by employees, administrative costs and taxes paid by plan.
HSBC expects to make $129m of contributions to defined benefit pension plans during 2023, consisting of $13m for the principal plan and
$116m for other plans. Benefits expected to be paid from the plans to retirees over each of the next five years, and in aggregate for the five
years thereafter, are as follows:
Benefits expected to be paid from plans
The principal plan1,2
Other plans1
2023
$m
1,234
433
2024
$m
1,275
439
2025
$m
1,317
445
2026
$m
1,359
428
2027
$m
1,403
452
2028-2032
$m
7,737
2,231
1 The duration of the defined benefit obligation is 13.2 years for the principal plan under the disclosure assumptions adopted (2021: 17.3 years) and 10.2
years for all other plans combined (2021: 12.7 years).
2 For further details of the principal plan, see page 352.
354
HSBC Holdings plc Annual Report and Accounts 2022
Fair value of plan assets by asset classes
31 Dec 2022
Quoted
market price
in active
market
No quoted
market price
in active
market
$m
$m
Value
$m
Thereof
HSBC1
$m
25,121
112
14,764
1,203
842
8,200
7,050
639
4,986
4
109
1,312
13,915
—
14,301
—
—
(386)
5,848
486
4,537
(1)
104
722
11,206
112
463
1,203
842
8,586
1,202
153
449
5
5
590
510
—
—
510
—
—
37
2
4
—
—
31
31 Dec 2021
Quoted
market price
in active
market
No quoted
market price
in active
market
$m
$m
36,270
5
35,612
—
—
653
8,248
668
6,490
(13)
119
984
5,114
192
683
1,864
1,094
1,281
1,799
224
590
20
4
961
Value
$m
41,384
197
36,295
1,864
1,094
1,934
10,047
892
7,080
7
123
1,945
Thereof
HSBC1
$m
1,037
—
—
1,037
—
—
52
5
5
—
—
42
The principal plan2
Fair value of plan assets
– equities3
– bonds4
– derivatives
– property
– other5
Other plans
Fair value of plan assets
– equities
– bonds
– derivatives
– property
– other
1 The fair value of plan assets includes derivatives entered into with HSBC Bank plc as detailed in Note 36.
2 For further details on the principal plan, see page 352.
3
4 Principal plan bonds includes fixed income bonds of $5,285m (2021: $18,315m) and index-linked bonds of $9,479m (2021: $18,160m).
5 Other assets within the principal plan includes $8,586m (2021: $1,281m) of unquoted pooled investment vehicles, of which the majority of the
Includes $112m (2021: $192m) in relation to private equities.
underlying assets are invested in bonds.
Post-employment defined benefit plans’ principal actuarial financial assumptions
HSBC determines the discount rates to be applied to its obligations in consultation with the plans’ local actuaries, on the basis of current average
yields of high-quality (AA-rated or equivalent) debt instruments with maturities consistent with those of the defined benefit obligations.
Key actuarial assumptions for the principal plan1
Discount rate
%
Inflation rate (RPI)
%
Inflation rate (CPI) Rate of increase for pensions Rate of pay increase
%
%
%
UK
At 31 Dec 2022
At 31 Dec 2021
4.93
1.90
3.39
3.45
2.84
3.20
3.27
3.30
3.34
3.45
1 For further details on the principal plan, see page 352.
Mortality tables and average life expectancy at age 60 for the principal plan1
UK
At 31 Dec 2022
At 31 Dec 2021
Mortality
table
SAPS S32
SAPS S3
Life expectancy at age 60 for
a male member currently:
Life expectancy at age 60 for
a female member currently:
Aged 60
Aged 40
Aged 60
Aged 40
27.1
27.3
28.6
28.8
28.4
28.5
29.9
30.1
1 For further details of the principal plan, see page 352.
2 Self-administered pension scheme (‘SAPS’) S3 table, with different tables and multipliers adopted based on gender, pension amount and member
status, reflecting the Scheme’s actual mortality experience. Improvements are projected in accordance with the Continuous Mortality Investigation’s
CMI 2021 core projection model with an initial addition to improvement of 0.25% per annum, a long-term rate of improvement of 1.25% per annum,
and a 5% weighting to 2020 and 2021 mortality experience reflecting updated long-term view on mortality improvements post-pandemic.
The effect of changes in key assumptions on the principal plan1
Discount rate – increase/decrease of 0.25%
Inflation rate (RPI and CPI) – increase/decrease of 0.25%
Pension payments and deferred pensions – increase/decrease of 0.25%
Pay – increase/decrease of 0.25%
Change in mortality – increase of 1 year
Impact on HBUK section of the
HSBC Bank (UK) Pension Scheme obligation2
Financial impact of increase
Financial impact of decrease
2022
$m
(582)
466
551
10
470
2021
$m
(1,337)
1,211
1,267
20
1,387
2022
$m
612
(446)
(519)
(10)
N/A
2021
$m
1,425
(980)
(1,177)
(20)
N/A
1 For further details of the principal plan, see page 352.
2 Sensitivities allow for HSBC UK’s convention of rounding pension assumptions during 2022 to the nearest 0.01% (2021: 0.05%). The degree of
rounding has been increased to align with market practice.
HSBC Holdings plc Annual Report and Accounts 2022
355
Financial statements
Notes on the financial statements
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely
to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to
significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit
method at the end of the reporting period) has been applied as when calculating the defined benefit asset recognised in the balance sheet. The
methods and types of assumptions used in preparing the sensitivity analysis did not change compared with the prior period.
Directors’ emoluments
Details of Directors’ emoluments, pensions and their interests are disclosed in the Directors’ remuneration report on page 276.
6 Auditor’s remuneration
Audit fees payable to PwC1
Other audit fees payable
Year ended 31 Dec
Fees payable by HSBC to PwC
Fees for HSBC Holdings’ statutory audit2
Fees for other services provided to HSBC
– audit of HSBC’s subsidiaries
– audit-related assurance services3
– other assurance services4,5
Year ended 31 Dec
2022
$m
97.6
1.6
99.2
2022
$m
21.9
126.2
75.7
26.4
24.1
148.1
2021
$m
88.1
2.0
90.1
2021
$m
19.5
109.9
68.6
18.7
22.6
129.4
2020
$m
92.9
1.0
93.9
2020
$m
21.9
108.3
71.0
17.2
20.1
130.2
1 Audit fees payable to PwC in 2022 included adjustments made to the prior year audit fee after finalisation of the 2021 financial statements.
2 Fees payable to PwC for the statutory audit of the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings.
They include amounts payable for services relating to the consolidation returns of HSBC Holdings’ subsidiaries, which are clearly identifiable as being in
support of the Group audit opinion.
3 Including services for assurance and other services that relate to statutory and regulatory filings, including interim reviews.
4 Including permitted services relating to attestation reports on internal controls of a service organisation primarily prepared for and used by third-party
end user, including comfort letters.
5 Includes reviews of PRA regulatory reporting returns.
No fees were payable by HSBC to PwC as principal auditor for the following types of services: internal audit services and services related to
litigation, recruitment and remuneration.
Fees payable by HSBC’s associated pension schemes to PwC
Audit of HSBC’s associated pension schemes
Year ended 31 Dec
2022
$000
480
480
2021
$000
382
382
2020
$000
316
316
No fees were payable by HSBC’s associated pension schemes to PwC as principal auditor for the following types of services: internal audit
services, other assurance services, services related to corporate finance transactions, valuation and actuarial services, litigation, recruitment and
remuneration, and information technology.
In addition to the above, the estimated fees paid to PwC by third parties associated with HSBC amounted to $13.1m (2021: $6.3m;
2020: $12.3m). In these cases, HSBC was connected with the contracting party and may therefore have been involved in appointing PwC. These
fees arose from services such as auditing mutual funds managed by HSBC and reviewing the financial position of corporate concerns that
borrow from HSBC.
Fees payable for non-audit services for HSBC Holdings are not disclosed separately because such fees are disclosed on a consolidated basis for
the Group.
356
HSBC Holdings plc Annual Report and Accounts 2022
Tax
7
Tax expense
Current tax1
– for this year
– adjustments in respect of prior years
Deferred tax
– origination and reversal of temporary differences
– effect of changes in tax rates
– adjustments in respect of prior years
Year ended 31 Dec2
2022
$m
2,991
3,271
(280)
(2,133)
(2,236)
(293)
396
858
2021
$m
3,250
3,182
68
963
874
132
(43)
4,213
2020
$m
2,700
2,883
(183)
(22)
(341)
58
261
2,678
1 Current tax included Hong Kong profits tax of $604m (2021: $813m; 2020: $888m). The Hong Kong tax rate applying to the profits of subsidiaries
assessable in Hong Kong was 16.5% (2021: 16.5%; 2020: 16.5%).
In addition to amounts recorded in the income statement, a tax credit of $145m (2021: charge of $7m) was recorded directly to equity.
2
Tax reconciliation
The tax charged to the income statement differs from the tax charge that would apply if all profits had been taxed at the UK corporation tax rate
as follows:
Profit before tax
Tax expense
Taxation at UK corporation tax rate of 19.00%
Impact of differently taxed overseas profits in overseas locations
UK banking surcharge
Items increasing tax charge in 2022:
– local taxes and overseas withholding taxes
– other permanent disallowables
– impacts of hyperinflation
– adjustments in respect of prior period liabilities
– tax impact of planned sale of French retail banking business
– bank levy
– movements in provisions for uncertain tax positions
– non-deductible goodwill write-down
– impact of differences between French tax basis and IFRSs
Items reducing tax charge in 2022:
– movements in unrecognised UK deferred tax
– non-taxable income and gains
– effect of profits in associates and joint ventures
– non-UK movements in unrecognised deferred tax
– impact of changes in tax rates
– deductions for AT1 coupon payments
Year ended 31 December 2022
2022
$m
17,528
3,329
374
283
%
2021
$m
18,906
19.0
2.1
1.6
3,592
280
332
550
202
171
116
115
59
27
3
—
(2,191)
(825)
(504)
(312)
(293)
(246)
858
3.1
1.2
1.0
0.7
0.7
0.3
0.2
—
—
(12.5)
(4.7)
(2.9)
(1.8)
(1.7)
(1.4)
4.9
360
236
68
25
(434)
93
15
178
434
294
(641)
(414)
(67)
132
(270)
4,213
%
19.0
1.5
1.8
1.9
1.2
0.4
0.1
(2.3)
0.5
0.1
0.9
2.3
1.6
(3.4)
(2.2)
(0.4)
0.7
(1.4)
22.3
2020
$m
8,777
1,668
178
(113)
228
333
65
78
—
202
4
—
—
444
(515)
(250)
608
58
(310)
2,678
%
19.0
2.0
(1.3)
2.6
3.8
0.7
0.9
—
2.3
—
—
—
5.1
(5.8)
(2.8)
6.9
0.6
(3.5)
30.5
The Group’s profits are taxed at different rates depending on the country or territory in which the profits arise. The key applicable tax rates for
2022 include Hong Kong (16.5%), the US (21%) and the UK (19%). If the Group’s profits were taxed at the statutory rates of the countries in
which the profits arose, then the tax rate for the year would have been 22.7% (2021: 22.3%).
The effective tax rate for the year of 4.9% was lower than in the previous year (2021: 22.3%). The effective tax rate for the year reduced by
14.3% as a result of the recognition of previously unrecognised losses in the UK of $2.2bn and France of $0.3bn, in light of improved forecast
profitability.
During 2022, legislation was enacted to reduce the rate of the UK banking surcharge from 8% to 3% from 1 April 2023, decreasing the Group’s
2022 tax charge by $173m due to the remeasurement of deferred tax balances. The main rate of UK corporation tax will increase from 19% to
25% from 1 April 2023.
Accounting for taxes involves some estimation because tax law is uncertain and its application requires a degree of judgement, which authorities
may dispute. Liabilities are recognised based on best estimates of the probable outcome, taking into account external advice where appropriate.
Exposures relating to legacy tax cases were reassessed during 2022, resulting in a charge of $27m to the income statement. We do not expect
significant liabilities to arise in excess of the amounts provided. HSBC only recognises current and deferred tax assets where recovery is
probable.
HSBC Holdings plc Annual Report and Accounts 2022
357
Financial statements
Notes on the financial statements
Movement of deferred tax assets and liabilities
Assets
Liabilities
At 1 Jan 2022
Income statement
Other comprehensive income
Foreign exchange and other adjustments
At 31 Dec 2022
Assets1
Liabilities1
Assets
Liabilities
At 1 Jan 2021
Income statement
Other comprehensive income
Foreign exchange and other adjustments
At 31 Dec 2021
Assets1
Liabilities1
Loan
impairment
provisions
Unused tax
losses and
tax credits
Financial
assets at
FVOCI
Insurance
business
Cash flow
hedges
Retirement
obligations
$m
1,162
—
1,162
6
—
7
1,175
1,175
—
1,242
—
1,242
(89)
(5)
14
1,162
1,162
—
$m
2,001
—
2,001
2,425
—
(36)
4,390
4,390
—
1,821
—
1,821
161
33
(14)
2,001
2,001
—
$m
84
(254)
(170)
—
1,679
(79)
1,430
1,430
—
99
(896)
(797)
—
634
(7)
(170)
84
(254)
$m
—
(1,640)
(1,640)
170
—
35
(1,435)
—
(1,435)
—
(1,622)
(1,622)
(43)
—
25
(1,640)
—
(1,640)
$m
176
(22)
154
—
1,159
(42)
1,271
1,271
—
25
(70)
(45)
—
212
(13)
154
176
(22)
$m
109
(2,928)
(2,819)
217
692
237
(1,673)
—
(1,673)
—
(2,306)
(2,306)
(336)
(205)
28
(2,819)
109
(2,928)
Other
$m
1,690
(427)
1,263
(685)
(642)
(18)
(82)
1,571
(1,653)
2,850
(973)
1,877
(656)
115
(73)
1,263
1,690
(427)
Total
$m
5,222
(5,271)
(49)
2,133
2,888
104
5,076
9,837
(4,761)
6,037
(5,867)
170
(963)
784
(40)
(49)
5,222
(5,271)
1 After netting off balances within countries, the balances as disclosed in the accounts are as follows: deferred tax assets of $7,498m (2021: $4,624m)
and deferred tax liabilities of $2,422m (2021: $4,673m).
In applying judgement in recognising deferred tax assets, management has assessed all available information, including future business profit
projections and the track record of meeting forecasts. Management’s assessment of the likely availability of future taxable profits against which
to recover deferred tax assets is based on the most recent financial forecasts approved by management, which cover a five-year period and are
extrapolated where necessary, and takes into consideration the reversal of existing taxable temporary differences and past business
performance. When forecasts are extrapolated beyond five years, a number of different scenarios are considered, reflecting difference
downward risk adjustments, in order to assess the sensitivity of our recognition and measurement conclusions in the context of such longer-
term forecasts.
The Group’s deferred tax asset of $7.5bn (2021: $4.6bn) included $3.9bn (2021: $0.8bn) of deferred tax assets relating to the UK, $3.3bn (2021:
$2.6bn) of deferred tax assets relating to the US and a net deferred asset of $0.7bn (2021: $0.0bn) in France.
The net UK deferred tax asset of $3.9bn excluded a $1.8bn deferred tax liability arising on the UK pension scheme surplus, the reversal of which
is not taken into account when estimating future taxable profits. The UK deferred tax assets are supported by forecasts of taxable profit, also
taking into consideration the history of profitability in the relevant businesses. The majority of the deferred tax asset relates to tax attributes
which do not expire and are forecast to be recovered within five years and as such are less sensitive to changes in long-term profit forecasts.
The net UK deferred tax asset includes $2.2bn of previously unrecognised losses that were recognised in the UK in the period in light of
improved forecast profitability in the UK group. Sensitivity regarding the recognition and measurement of that deferred tax asset relates to
ongoing experience outcome of UK profitability versus forecast, taking into account the non-expiring nature of the underlying attributes.
The net US deferred tax asset of $3.3bn included $1.3bn related to US tax losses, of which $1.1bn expire in 10 to 15 years. Management
expects the US deferred tax asset to be substantially recovered within 14 years, with the majority recovered in the first eight years.
The net deferred tax asset in France of $0.7bn included $0.7bn related to tax losses, which are expected to be substantially recovered within
nine to 18 years. Following recognition of $0.3bn of previously unrecognised deferred tax asset on losses, deferred tax is now recognised in full
in respect of France.
Unrecognised deferred tax
The amount of gross temporary differences, unused tax losses and tax credits for which no deferred tax asset is recognised in the balance sheet
was $9.2bn (2021: $16.9bn). This amount included unused UK tax losses of $3.5bn (2021: $10.5bn), which arose prior to 1 April 2017 and can
only be recovered against future taxable profits of HSBC Holdings. No deferred tax was recognised on these losses due to the absence of
convincing evidence regarding the availability of sufficient future taxable profits against which to recover them. Deferred tax asset recognition is
reassessed at each balance sheet date based on the available evidence. Of the total amounts unrecognised, $3.6bn (2021: $10.9bn) had no
expiry date, $1.2bn (2021: $0.7bn) was scheduled to expire within 10 years and the remaining balance is expected to expire after ten years.
Deferred tax is not recognised in respect of the Group’s investments in subsidiaries and branches where HSBC is able to control the timing of
remittance or other realisation and where remittance or realisation is not probable in the foreseeable future. The aggregate temporary differences
relating to unrecognised deferred tax liabilities arising on investments in subsidiaries and branches is $11.7bn (2021: $12.7bn) and the
corresponding unrecognised deferred tax liability was $0.7bn (2021: $0.8bn).
358
HSBC Holdings plc Annual Report and Accounts 2022
8 Dividends
Dividends to shareholders of the parent company
Dividends paid on ordinary shares
In respect of previous year:
– second interim dividend
In respect of current year:
– first interim dividend
Total
Total dividends on preference shares classified as equity (paid quarterly)1
Total coupons on capital securities classified as equity
Dividends to shareholders
2022
Per
share
$
Total
$m
2021
Per
share
$
Total
$m
2020
Per
share
$
Total
$m
0.18
3,576
0.15
3,059
—
—
0.09
0.27
—
1,754
5,330
—
1,214
6,544
0.07
0.22
4.99
1,421
4,480
7
1,303
5,790
—
—
62.00
—
—
90
1,241
1,331
1 HSBC Holdings called $1,450m 6.20% non-cumulative US dollar preference shares on 10 December 2020. The security was redeemed and cancelled
on 13 January 2021.
Total coupons on capital securities classified as equity
Perpetual subordinated contingent convertible securities1
$2,000m issued at 6.875%2
$2,250m issued at 6.375%
$2,450m issued at 6.375%
$3,000m issued at 6.000%
$2,350m issued at 6.250%3
$1,800m issued at 6.500%
$1,500m issued at 4.600%4
$1,000m issued at 4.000%5
$1,000m issued at 4.700%6
€1,500m issued at 5.250%7
€1,000m issued at 6.000%
€1,250m issued at 4.750%
£1,000m issued at 5.875%
SGD1,000m issued at 4.700%8
SGD750m issued at 5.000%
Total
2022
First call date
Per security
Jun 2021
Sep 2024
Mar 2025
May 2027
Mar 2023
Mar 2028
Jun 2031
Mar 2026
Mar 2031
Sep 2022
Sep 2023
Jul 2029
Sep 2026
Jun 2022
Sep 2023
$68.750
$63.750
$63.750
$60.000
$62.500
$65.000
$46.000
$40.000
$47.000
€52.500
€60.000
€47.500
£58.750
SGD47.000
SGD50.000
Total
$m
—
143
156
180
147
117
69
40
47
76
63
65
70
14
27
1,214
2021
Total
$m
69
143
156
180
147
117
69
20
24
93
70
72
80
35
28
1,303
2020
Total
$m
138
143
156
180
147
117
—
—
—
90
67
67
74
35
27
1,241
1 Discretionary coupons are paid semi-annually on the perpetual subordinated contingent convertible securities, in denominations of each security’s
issuance currency 1,000 per security.
2 This security was called by HSBC Holdings on 15 April 2021 and was redeemed and cancelled on 1 June 2021.
3 This security was called by HSBC Holdings on 30 January 2023 and is expected to be redeemed and cancelled on 23 March 2023.
4 This security was issued by HSBC Holdings on 17 December 2020. The first call date commences six calendar months prior to the reset date of
17 June 2031.
5 This security was issued by HSBC Holdings on 9 March 2021. The first call date commences six calendar months prior to the reset date of
9 September 2026.
6 This security was issued by HSBC Holdings on 9 March 2021. The first call date commences six calendar months prior to the reset date of
9 September 2031.
7 This security was called by HSBC Holdings on 9 August 2022 and was redeemed and cancelled on 16 September 2022.
8 This security was called by HSBC Holdings on 4 May 2022 and was redeemed and cancelled on 8 June 2022.
After the end of the year, the Directors approved a second interim dividend in respect of the financial year ended 31 December 2022 of $0.23
per ordinary share, a distribution of approximately $4,593m. The second interim dividend for 2022 will be payable on 27 April 2023 to holders on
the Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register on 3 March 2023. No
liability was recorded in the financial statements in respect of the second interim dividend for 2022.
On 4 January 2023, HSBC paid a coupon on its €1,250m subordinated capital securities, representing a total distribution of €30m ($31m). No
liability was recorded in the balance sheet at 31 December 2022 in respect of this coupon payment.
HSBC Holdings plc Annual Report and Accounts 2022
359
Financial statements
Notes on the financial statements
Earnings per share
9
Basic earnings per ordinary share is calculated by dividing the profit attributable to ordinary shareholders of the parent company by the weighted
average number of ordinary shares outstanding, excluding own shares held. Diluted earnings per ordinary share is calculated by dividing the basic
earnings, which require no adjustment for the effects of dilutive potential ordinary shares, by the weighted average number of ordinary shares
outstanding, excluding own shares held, plus the weighted average number of ordinary shares that would be issued on conversion of dilutive
potential ordinary shares.
Profit attributable to the ordinary shareholders of the parent company
2020
$m
5,229
(90)
(1,241)
3,898
Per
share
$
0.19
Profit attributable to shareholders of the parent company
Dividend payable on preference shares classified as equity
Coupon payable on capital securities classified as equity
Year ended 31 Dec
Basic and diluted earnings per share
2022
$m
16,035
—
(1,213)
14,822
2021
$m
13,917
(7)
(1,303)
12,607
Basic1
Effect of dilutive potential
ordinary shares
Diluted1
2022
Number
of shares
Profit
Per
share
Profit
2021
Number
of shares
$m (millions)
14,822
19,849
$
0.75
$m
12,607
(millions)
20,197
Per
share
$
0.62
Profit
$m
3,898
137
105
2020
Number
of shares
(millions)
20,169
73
14,822
19,986
0.74
12,607
20,302
0.62
3,898
20,242
0.19
1 Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).
The number of anti-dilutive employee share options excluded from the weighted average number of dilutive potential ordinary shares is 9.4
million (2021: 8.6 million; 2020: 14.6 million).
10 Segmental analysis
The Group Chief Executive, supported by the rest of the Group Executive Committee (‘GEC’), is considered the Chief Operating Decision Maker
(‘CODM’) for the purposes of identifying the Group’s reportable segments. Global business results are assessed by the CODM on the basis of
adjusted performance that removes the effects of significant items and currency translation from reported results. Therefore, we present these
results on an adjusted basis as required by IFRSs. The 2021 and 2020 adjusted performance information is presented on a constant currency
basis. The 2021 and 2020 income statements are converted at the average rates of exchange for 2022, and the balance sheets at 31 December
2021 and 31 December 2020 at the prevailing rates of exchange on 31 December 2022.
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 that 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
businesses are presented in Corporate Centre.
Our global businesses
We provide a comprehensive range of banking and related financial services to our customers in our three global businesses. The products and
services offered to customers are organised by these global businesses.
• Wealth and Personal Banking (‘WPB’) provides a full range of retail banking and wealth products to our customers from personal banking to
ultra high net worth individuals. Typically, customer offerings include retail banking products, such as current and savings accounts,
mortgages and personal loans, credit cards, debit cards and local and international payment services. We also provide wealth management
services, including insurance and investment products, global asset management services, investment management and private wealth
solutions for customers with more sophisticated and international requirements.
• Commercial Banking (‘CMB’) offers a broad range of products and services to serve the needs of our commercial customers, including small
and medium-sized enterprises, mid-market enterprises and corporates. These include credit and lending, international trade and receivables
finance, treasury management and liquidity solutions (payments and cash management and commercial cards), commercial insurance and
investments. CMB also offers customers access to products and services offered by other global businesses, such as Global Banking and
Markets, which include foreign exchange products, raising capital on debt and equity markets and advisory services.
• Global Banking and Markets (‘GBM’) provides tailored financial solutions to major government, corporate and institutional clients and private
investors worldwide. The client-focused business lines deliver a full range of banking capabilities including financing, advisory and transaction
services, a markets business that provides services in credit, rates, foreign exchange, equities, money markets and securities services, and
principal investment activities.
360
HSBC Holdings plc Annual Report and Accounts 2022
HSBC adjusted profit before tax and balance sheet data
Net operating income/(expense) before change in expected credit losses
and other credit impairment charges1
– external
– inter-segment
– of which: net interest income/(expense)
Change in expected credit losses and other credit impairment recoveries
Net operating income/(expense)
Total operating expenses
Operating profit/(loss)
Share of profit in associates and joint ventures
Adjusted profit before tax
Share of HSBC’s adjusted profit before tax
Adjusted cost efficiency ratio
Adjusted balance sheet data
Loans and advances to customers (net)
Interests in associates and joint ventures
Total external assets
Customer accounts
Net operating income/(expense) before change in expected credit losses and
other credit impairment charges1
– external
– inter-segment
– of which: net interest income/(expense)
Change in expected credit losses and other credit impairment (charges)/
recoveries
Net operating income/(expense)
Total operating expenses
Operating profit/(loss)
Share of profit in associates and joint ventures
Adjusted profit before tax
Share of HSBC’s adjusted profit before tax
Adjusted cost efficiency ratio
Adjusted balance sheet data
Loans and advances to customers (net)
Interests in associates and joint ventures
Total external assets
Customer accounts
Net operating income/(expense) before change in expected credit losses and
other credit impairment charges1
– external
– inter-segment
– of which: net interest income/(expense)
Change in expected credit losses and other credit impairment (charges)/
recoveries
Net operating income/(expense)
Total operating expenses
Operating profit/(loss)
Share of profit in associates and joint ventures
Adjusted profit before tax
Share of HSBC’s adjusted profit before tax
Adjusted cost efficiency ratio
Adjusted balance sheet data
Loans and advances to customers (net)
Interests in associates and joint ventures
Total external assets
Customer accounts
Wealth and
Personal
Banking
Commercial
Banking
2022
Global
Banking and
Markets
Corporate
Centre
$m
$m
$m
$m
Total
$m
24,367
16,215
15,359
(596)
55,345
21,753
2,614
18,137
(1,137)
23,230
(14,726)
8,504
29
8,533
%
35.5
60.4
$m
423,553
508
889,450
779,310
16,715
(500)
11,867
(1,858)
14,357
(6,642)
7,715
1
7,716
%
32.1
41.0
$m
308,094
15
606,698
458,714
19,598
(4,239)
5,303
(587)
14,772
(9,325)
5,447
(2)
5,445
%
22.7
60.7
$m
192,852
108
1,321,076
331,844
2021
(2,721)
2,125
(2,706)
(10)
(606)
227
(379)
2,695
2,316
%
9.7
38.1
$m
355
28,623
149,306
435
55,345
—
32,601
(3,592)
51,753
(30,466)
21,287
2,723
24,010
%
100.0
55.0
$m
924,854
29,254
2,966,530
1,570,303
20,963
20,725
238
13,458
12,538
12,423
115
8,308
13,982
15,590
(1,608)
3,844
(463)
(1,718)
1,255
(716)
47,020
47,020
—
24,894
213
225
313
3
754
21,176
(14,489)
6,687
34
6,721
%
32.6
69.1
$m
461,047
489
888,028
819,319
12,763
(6,554)
6,209
1
6,210
%
30.1
52.3
$m
330,683
12
586,392
480,201
21,481
19,521
1,960
14,752
12,889
13,278
(389)
8,997
14,295
(9,250)
5,045
—
5,045
%
24.5
66.2
$m
198,779
116
1,157,327
322,435
2020
14,696
17,635
(2,939)
4,314
(460)
189
(271)
2,898
2,627
%
12.8
40.8
$m
688
27,469
174,073
592
47,774
(30,104)
17,670
2,933
20,603
%
100.0
64.0
$m
991,197
28,086
2,805,820
1,622,547
(218)
(1,586)
1,368
(1,324)
48,848
48,848
—
26,739
(2,878)
(4,710)
(1,227)
—
(8,815)
18,603
(14,536)
4,067
6
4,073
%
34.8
67.7
$m
436,105
437
828,309
788,043
8,179
(6,475)
1,704
(1)
1,703
%
14.6
50.2
$m
320,084
15
530,203
439,889
13,469
(8,895)
4,574
—
4,574
%
39.1
60.5
$m
211,510
128
1,238,781
310,757
(218)
(539)
(757)
2,102
1,345
%
11.5
(247.2)
$m
1,151
25,142
184,030
540
40,033
(30,445)
9,588
2,107
11,695
%
100.0
62.3
$m
968,850
25,722
2,781,323
1,539,229
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
HSBC Holdings plc Annual Report and Accounts 2022
361
Financial statements
Revenue1
ECL
Operating expenses
Share of profit in
associates and joint
ventures
Profit/(loss) before tax
Notes on the financial statements
Reported external net operating income is attributed to countries and territories on the basis of the location of the branch responsible for
reporting the results or advancing the funds:
Reported external net operating income by country/territory1
– UK
– Hong Kong
– US
– France
– other countries
2022
$m
51,727
11,767
15,894
3,893
136
20,037
2021
$m
49,552
10,909
14,245
3,795
2,179
18,424
2020
$m
50,429
9,163
15,783
4,474
1,753
19,256
1
Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
Adjusted results reconciliation
2022
Significant
Adjusted
$m
items Reported Adjusted
$m
$m
$m
2021
2020
Currency
translation
$m
Significant
items Reported Adjusted
$m
$m
$m
Currency
translation
$m
55,345
(3,592)
(30,466)
(3,618)
—
(2,864)
51,727 47,020
754
(3,592)
(30,104)
(33,330)
3,074
174
(2,181)
(542)
—
(2,335)
49,552 48,848
(8,815)
(30,445)
928
(34,620)
1,523
(2)
(1,170)
Significant
items Reported
$m
$m
58
—
(2,817)
50,429
(8,817)
(34,432)
2,723
—
2,723
2,933
113
—
3,046
2,107
24,010
(6,482)
17,528 20,603
1,180
(2,877)
18,906 11,695
(48)
303
(462)
(3,221)
1,597
8,777
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
Adjusted balance sheet reconciliation
Loans and advances to customers (net)
Interests in associates and joint ventures
Total external assets
Customer accounts
Adjusted profit reconciliation
2022
Reported and
adjusted
$m
924,854
29,254
2,966,530
1,570,303
2021
Currency
translation
$m
54,617
1,523
152,119
88,027
Adjusted
$m
991,197
28,086
2,805,820
1,622,547
Reported
$m
1,045,814
29,609
2,957,939
1,710,574
Adjusted
$m
968,850
25,722
2,781,323
1,539,229
2020
Currency
translation
$m
69,137
962
202,841
103,551
Reported
$m
1,037,987
26,684
2,984,164
1,642,780
Year ended 31 Dec
Adjusted profit before tax
Significant items
– customer redress programmes (revenue)
– disposals, acquisitions and investment in new businesses (revenue)1
– fair value movements on financial instruments2
– restructuring and other related costs (revenue)3
– customer redress programmes (operating expenses)
– disposals, acquisitions and investment in new businesses (operating expenses)
– impairment of goodwill and other intangible assets
– past service costs of guaranteed minimum pension benefits equalisation
– restructuring and other related costs (operating expenses)4
– settlements and provisions in connection with legal and other regulatory matters
– impairment of goodwill (share of profit in associates and joint ventures)5
– currency translation on significant items
Currency translation
Reported profit before tax
2022
$m
24,010
(6,482)
8
(2,799)
(579)
(248)
31
(18)
4
—
(2,881)
—
—
17,528
2021
$m
20,603
(2,877)
11
—
(242)
(307)
(49)
—
(587)
—
(1,836)
—
—
133
1,180
18,906
2020
$m
11,695
(3,221)
(21)
(10)
264
(170)
54
—
(1,090)
(17)
(1,908)
(12)
(462)
151
303
8,777
Includes losses from classifying businesses as held for sale as part of the broader restructuring of our European business, of which $2.4bn relates
1
to the planned sale of the retail banking operations in France in 2022.
2 Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.
3 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.
4
Includes impairment of software intangible assets of $128m (2021: $21m, 2020: $189m) of the total software intangible asset impairment of $147m
(2021: $146m, 2020: $1,347m) and impairment of tangible assets of $332m (2021: $75m, 2020: $197m).
5 During 2020, The Saudi British Bank (’SABB’), an associate of HSBC, impaired the goodwill that arose following the merger with Alawwal bank in 2020.
HSBC‘s post-tax share of the goodwill impairment was $462m.
362
HSBC Holdings plc Annual Report and Accounts 2022
11 Trading assets
Treasury and other eligible bills
Debt securities
Equity securities
Trading securities
Loans and advances to banks1
Loans and advances to customers1
Year ended 31 Dec
2022
$m
22,897
78,126
88,026
189,049
8,769
20,275
218,093
2021
$m
23,110
89,944
109,614
222,668
7,767
18,407
248,842
1 Loans and advances to banks and customers include reverse repos, stock borrowing and other accounts.
12 Fair values of financial instruments carried at fair value
Control framework
Fair values are subject to a control framework designed to ensure that they are either determined or validated by a function independent of the
risk taker.
Where fair values are determined by reference to externally quoted prices or observable pricing inputs to models, independent price
determination or validation is used. For inactive markets, HSBC sources alternative market information, with greater weight given to information
that is considered to be more relevant and reliable. Examples of the factors considered are price observability, instrument comparability,
consistency of data sources, underlying data accuracy and timing of prices.
For fair values determined using valuation models, the control framework includes development or validation by independent support functions
of the model logic, inputs, model outputs and adjustments. Valuation models are subject to a process of due diligence before becoming
operational and are calibrated against external market data on an ongoing basis.
Changes in fair value are generally subject to a profit and loss analysis process and are disaggregated into high-level categories including portfolio
changes, market movements and other fair value adjustments.
The majority of financial instruments measured at fair value are in GBM. GBM’s fair value governance structure comprises its Finance function,
Valuation Committees and a Valuation Committee Review Group. Finance is responsible for establishing procedures governing valuation and
ensuring fair values are in compliance with accounting standards. The fair values are reviewed by the Valuation Committees, which consist of
independent support functions. These committees are overseen by the Valuation Committee Review Group, which considers all material
subjective valuations.
Financial liabilities measured at fair value
In certain circumstances, HSBC records its own debt in issue at fair value, based on quoted prices in an active market for the specific instrument.
When quoted market prices are unavailable, the own debt in issue is valued using valuation techniques, the inputs for which are either based on
quoted prices in an inactive market for the instrument or are estimated by comparison with quoted prices in an active market for similar
instruments. In both cases, the fair value includes the effect of applying the credit spread that is appropriate to HSBC’s liabilities. The change in
fair value of issued debt securities attributable to the Group’s own credit spread is computed as follows: for each security at each reporting date,
an externally verifiable price is obtained or a price is derived using credit spreads for similar securities for the same issuer. Then, using
discounted cash flow, each security is valued using an appropriate market discount curve. The difference in the valuations is attributable to the
Group’s own credit spread. This methodology is applied consistently across all securities.
Structured notes issued and certain other hybrid instruments are reported as financial liabilities designated at fair value. The credit spread applied
to these instruments is derived from the spreads at which HSBC issues structured notes.
Gains and losses arising from changes in the credit spread of liabilities issued by HSBC, recorded in other comprehensive income, reverse over
the contractual life of the debt, provided that the debt is not repaid at a premium or a discount.
Fair value hierarchy
Fair values of financial assets and liabilities are determined according to the following hierarchy:
• Level 1 – valuation technique using quoted market price. These are financial instruments with quoted prices for identical instruments in active
markets that HSBC can access at the measurement date.
• Level 2 – valuation technique using observable inputs. These are financial instruments with quoted prices for similar instruments in active
markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all
significant inputs are observable.
• Level 3 – valuation technique with significant unobservable inputs. These are financial instruments valued using valuation techniques where
one or more significant inputs are unobservable.
HSBC Holdings plc Annual Report and Accounts 2022
363
Financial statements
Notes on the financial statements
Financial instruments carried at fair value and bases of valuation
Recurring fair value measurements at 31 Dec
Assets
Trading assets
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss
Derivatives
Financial investments
Liabilities
Trading liabilities
Financial liabilities designated at fair value
Derivatives
2022
2021
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
148,592
64,684
4,817 218,093 180,423
65,757
2,662 248,842
15,978
13,019
16,066
45,063
17,937
17,629
14,238
49,804
2,917 279,265
71,621
182,231
1,964 284,146
2,965 256,817 247,745
2,783 191,621
97,838
2,478 196,882
3,389 348,972
44,787
27,092
1,130 115,765
2,400 280,444
474
72,353
10,432 127,327
2,920 285,764
63,437
20,682
1,379 136,243
1,686 186,290
785
84,904
7,880 145,502
3,088 191,064
The table below provides the fair value levelling of assets held for sale and liabilities of disposal groups that have been classified as held for sale
in accordance with IFRS 5. For further details, see Note 23.
Financial instruments carried at fair value and bases of valuation – assets and liabilities held for sale
Recurring fair value measurements at 31 Dec
Assets
Trading assets
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss
Derivatives
Financial investments
Liabilities
Trading liabilities
Financial liabilities designated at fair value
Derivatives
Transfers between Level 1 and Level 2 fair values
2022
2021
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
2,932
244
—
3,176
—
—
11,184
14
866
—
2,572
—
—
182
3,523
813
47
—
—
—
—
—
61
866
11,184
2,754
3,523
813
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Financial
investments
Trading
assets
$m
$m
At 31 Dec 2022
Transfers from Level 1 to Level 2
Transfers from Level 2 to Level 1
At 31 Dec 2021
Transfers from Level 1 to Level 2
Transfers from Level 2 to Level 1
4,721
8,208
5,284
5,964
8,477
6,007
6,553
4,132
Assets
Designated and otherwise
mandatorily measured
at fair value Derivatives
Liabilities
Designated
at fair
value Derivatives
Trading
liabilities
$m
$m
$m
$m
743
1,214
1,277
768
—
—
103
—
113
233
181
638
—
—
—
—
$m
—
—
212
—
Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of
levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency.
Fair value adjustments
We adopt the use of fair value adjustments when we take into consideration additional factors not incorporated within the valuation model that
would otherwise be considered by a market participant. We classify fair value adjustments as either ‘risk-related’ or ‘model-related’. The majority
of these adjustments relate to GBM. Movements in the level of fair value adjustments do not necessarily result in the recognition of profits or
losses within the income statement. For example, as models are enhanced, fair value adjustments may no longer be required. Similarly, fair
value adjustments will decrease when the related positions are unwound, but this may not result in profit or loss.
364
HSBC Holdings plc Annual Report and Accounts 2022
Global Banking and Markets fair value adjustments
Type of adjustment
Risk-related
– bid-offer
– uncertainty
– credit valuation adjustment
– debit valuation adjustment
– funding fair value adjustment
Model-related
– model limitation
Inception profit (Day 1 P&L reserves)
At 31 Dec
2022
GBM
$m
Corporate
Centre
$m
650
426
86
245
(175)
68
61
61
97
808
40
—
—
35
—
5
—
—
—
40
2021
GBM
$m
868
412
66
228
(92)
254
57
57
106
1,031
Corporate
Centre
$m
42
—
1
35
—
6
—
—
—
42
The reduction in fair value adjustments was driven by changes to derivative exposures and the credit environment, including HSBC’s own credit.
Bid-offer
IFRS 13 ‘Fair Value Measurement’ requires the use of the price within the bid-offer spread that is most representative of fair value. Valuation
models will typically generate mid-market values. The bid-offer adjustment reflects the extent to which bid-offer costs would be incurred if
substantially all residual net portfolio market risks were closed using available hedging instruments or by disposing of or unwinding the position.
Uncertainty
Certain model inputs may be less readily determinable from market data and/or the choice of model itself may be more subjective. In these
circumstances, an adjustment may be necessary to reflect the likelihood that market participants would adopt more conservative values for
uncertain parameters and/or model assumptions than those used in HSBC’s valuation model.
Credit and debit valuation adjustments
The credit valuation adjustment (‘CVA’) is an adjustment to the valuation of over-the-counter (‘OTC’) derivative contracts to reflect the possibility
that the counterparty may default and that HSBC may not receive the full market value of the transactions.
The debit valuation adjustment (‘DVA’) is an adjustment to the valuation of OTC derivative contracts to reflect the possibility that HSBC may
default, and that it may not pay the full market value of the transactions.
HSBC calculates a separate CVA and DVA for each legal entity, and for each counterparty to which the entity has exposure. With the exception
of central clearing parties, all third-party counterparties are included in the CVA and DVA calculations, and these adjustments are not netted
across Group entities.
HSBC calculates the CVA by applying the probability of default (‘PD’) of the counterparty, conditional on the non-default of HSBC, to HSBC’s
expected positive exposure to the counterparty and multiplying the result by the loss expected in the event of default. Conversely, HSBC
calculates the DVA by applying the PD of HSBC, conditional on the non-default of the counterparty, to the expected positive exposure of the
counterparty to HSBC and multiplying the result by the loss expected in the event of default. Both calculations are performed over the life of the
potential exposure.
For most products HSBC uses a simulation methodology, which incorporates a range of potential exposures over the life of the portfolio, to
calculate the expected positive exposure to a counterparty. The simulation methodology includes credit mitigants, such as counterparty netting
agreements and collateral agreements with the counterparty.
The methodologies do not, in general, account for ‘wrong-way risk’. Wrong-way risk is an adverse correlation between the counterparty’s
probability of default and the mark-to-market value of the underlying transaction. The risk can either be general, perhaps related to the currency
of the issuer country, or specific to the transaction concerned. When there is significant wrong-way risk, a trade-specific approach is applied to
reflect this risk in the valuation.
Funding fair value adjustment
The funding fair value adjustment (‘FFVA’) is calculated by applying future market funding spreads to the expected future funding exposure of
any uncollateralised component of the OTC derivative portfolio. The expected future funding exposure is calculated by a simulation methodology,
where available, and is adjusted for events that may terminate the exposure, such as the default of HSBC or the counterparty. The FFVA and
DVA are calculated independently.
Model limitation
Models used for portfolio valuation purposes may be based upon a simplified set of assumptions that do not capture all current and future
material market characteristics. In these circumstances, model limitation adjustments are adopted.
Inception profit (Day 1 P&L reserves)
Inception profit adjustments are adopted when the fair value estimated by a valuation model is based on one or more significant unobservable
inputs. The accounting for inception profit adjustments is discussed in Note 1.
HSBC Holdings plc Annual Report and Accounts 2022
365
Financial statements
Notes on the financial statements
Fair value valuation bases
Financial instruments measured at fair value using a valuation technique with significant unobservable inputs – Level 3
Assets
Designated
and otherwise
mandatorily
measured at
fair value
through profit
or loss Derivatives
Financial
investments
Trading
assets
$m
$m
$m
$m
Total
$m
647
438
—
—
1,880
2,965
544
1,008
—
—
1,837
3,389
19
208
—
—
4,590
4,817
2
132
—
—
2,528
2,662
15,652
95
—
—
319
16,066
13,732
1
—
—
505
14,238
— 16,318
—
—
1,964
—
741
—
1,964
6,789
1,964 25,812
— 14,278
—
—
2,478
—
1,141
—
2,478
4,870
2,478 22,767
Private equity including strategic
investments
Asset-backed securities
Structured notes
Other derivatives
Other portfolios
At 31 Dec 2022
Private equity including strategic
investments
Asset-backed securities
Structured notes
Other derivatives
Other portfolios
At 31 Dec 2021
Liabilities
Trading
liabilities
Designated
at fair
value Derivatives
$m
92
—
—
—
382
474
9
—
—
—
776
785
$m
$m
Total
$m
—
—
10,432
—
—
10,432
—
—
7,879
—
1
7,880
—
92
—
—
— 10,432
2,920
382
2,920 13,826
2,920
—
—
9
—
—
3,088
—
—
7,879
3,088
777
3,088 11,753
Level 3 instruments are present in both ongoing and legacy businesses. Loans held for securitisation, derivatives with monolines, certain ‘other
derivatives’ and predominantly all Level 3 asset-backed securities are legacy positions. HSBC has the capability to hold these positions.
Private equity including strategic investments
The fair value of a private equity investment (including strategic investments) is estimated on the basis of an analysis of the investee’s financial
position and results, risk profile, prospects and other factors; by reference to market valuations for similar entities quoted in an active market; the
price at which similar companies have changed ownership; or from published net asset values (‘NAV’) received. If necessary, adjustments are
made to the NAV of funds to obtain the best estimate of fair value.
Asset-backed securities
While quoted market prices are generally used to determine the fair value of the asset-backed securities (‘ABSs’), valuation models are used to
substantiate the reliability of the limited market data available and to identify whether any adjustments to quoted market prices are required. For
certain ABSs, such as residential mortgage-backed securities, the valuation uses an industry standard model with assumptions relating to
prepayment speeds, default rates and loss severity based on collateral type, and performance, as appropriate. The valuations output is
benchmarked for consistency against observable data for securities of a similar nature.
Structured notes
The fair value of Level 3 structured notes is derived from the fair value of the underlying debt security, and the fair value of the embedded
derivative is determined as described in the paragraph below on derivatives. These structured notes comprise principally equity-linked notes
issued by HSBC, which provide the counterparty with a return linked to the performance of equity securities and other portfolios.
Examples of the unobservable parameters include long-dated equity volatilities and correlations between equity prices, and interest and foreign
exchange rates.
Derivatives
OTC derivative valuation models calculate the present value of expected future cash flows, based upon ‘no arbitrage’ principles. For many vanilla
derivative products, the modelling approaches used are standard across the industry. For more complex derivative products, there may be some
differences in market practice. Inputs to valuation models are determined from observable market data wherever possible, including prices
available from exchanges, dealers, brokers or providers of consensus pricing. Certain inputs may not be observable in the market directly, but
can be determined from observable prices via model calibration procedures or estimated from historical data or other sources.
366
HSBC Holdings plc Annual Report and Accounts 2022
Reconciliation of fair value measurements in Level 3 of the fair value hierarchy
Movement in Level 3 financial instruments
Assets
Designated and
otherwise
mandatorily
measured at fair
value through
profit or loss Derivatives
Financial
investments
Trading
assets
Liabilities
Trading
liabilities
Designated
at fair
value Derivatives
$m
3,389
(4)
$m
2,662
(245)
$m
14,238
159
$m
2,478
390
$m
785
(52)
$m
7,880
(1,334)
$m
3,088
1,014
—
(245)
—
390
(52)
—
1,014
—
(4)
—
—
(325)
(137)
(203)
(122)
1,048
1
(245)
(463)
(523)
87
2,965
—
(137)
3,436
—
(1,102)
(1,273)
(442)
1,918
4,817
159
—
(217)
—
(217)
4,330
—
(783)
(1,729)
(39)
107
16,066
—
—
(219)
—
(219)
—
—
—
(918)
(409)
642
1,964
—
(100)
(148)
707
—
(100)
—
707
—
(1,334)
—
—
(345)
82
(427)
—
4,183
(94)
182
(1,296)
1,256
10,432
(11)
—
(11)
178
8
(152)
(644)
(18)
380
474
2
2
—
—
(226)
—
(226)
—
—
—
(993)
(632)
669
2,920
100
2,779
—
2,779
—
—
(148)
—
—
100
—
3,654
(10)
2,499
(378)
11,477
1,753
2,670
2,237
162
16
5,306
(836)
4,188
2,583
—
(378)
—
2,237
16
—
2,583
—
(10)
(521)
(428)
(93)
1,025
—
(580)
(336)
(383)
540
3,389
—
—
—
—
(18)
—
(18)
1,988
—
(473)
(747)
(1,027)
818
2,662
(309)
(309)
1,753
—
(285)
—
(285)
3,692
—
(1,216)
(1,049)
(184)
50
14,238
—
—
(27)
—
(27)
—
—
—
(2,347)
(418)
363
2,478
1,509
1,298
—
1,298
—
—
(8)
—
(8)
1,014
35
(4)
(681)
(7)
258
785
—
—
(836)
—
(61)
—
(61)
1
5,969
(27)
(2,922)
(704)
1,154
7,880
—
—
(26)
—
(26)
—
—
—
(3,962)
(734)
1,039
3,088
166
(969)
—
(969)
—
—
1,509
—
—
166
—
At 1 Jan 2022
Total gains/(losses) recognised in profit or loss
– net income/(losses) from financial instruments held
for trading or managed on a fair value basis
– changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss
– gains less losses from financial investments at fair
value through other comprehensive income
Total gains/(losses) recognised in other comprehensive
income (‘OCI’)1
– financial investments: fair value gains/ (losses)
– exchange differences
Purchases
New issuances
Sales
Settlements
Transfers out
Transfers in
At 31 Dec 2022
Unrealised gains/(losses) recognised in profit or loss
relating to assets and liabilities held at 31 Dec 2021
– net income/(losses) from financial instruments held
for trading or managed on a fair value basis
– changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss
At 1 Jan 2021
Total gains/(losses) recognised in profit or loss
– net income/(losses) from financial instruments held
for trading or managed on a fair value basis
– changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss
– gains less losses from financial investments at fair
value through other comprehensive income
Total gains/(losses) recognised in other comprehensive
income (‘OCI’)1
– financial investments: fair value gains/ (losses)
– exchange differences
Purchases
New issuances
Sales
Settlements
Transfers out
Transfers in
At 31 Dec 2021
Unrealised gains/(losses) recognised in profit or loss
relating to assets and liabilities held at 31 Dec 2020
– net income/(losses) from financial instruments held
for trading or managed on a fair value basis
– changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss
1
Included in ‘financial investments: fair value gains/(losses)’ in the current year and ‘exchange differences’ in the consolidated statement of
comprehensive income.
Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of
levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency.
HSBC Holdings plc Annual Report and Accounts 2022
367
Financial statements
Notes on the financial statements
Effect of changes in significant unobservable assumptions to reasonably possible
alternatives
Sensitivity of fair values to reasonably possible alternative assumptions
2022
2021
Reflected in profit or loss
Un-
favourable
changes
Favourable
changes
Reflected in OCI
Favourable
changes
Un-
favourable
changes
Reflected in profit or loss
Un-
favourable
changes
Favourable
changes
Reflected in OCI
Favourable
changes
Un-
favourable
changes
$m
$m
$m
$m
$m
$m
$m
264
(291)
—
—
143
(146)
—
914
11
1,189
(911)
(11)
(1,213)
—
65
65
—
(55)
(55)
849
20
1,012
(868)
(20)
(1,034)
—
113
113
$m
—
—
(112)
(112)
Derivatives, trading assets and trading
liabilities1
Financial assets and liabilities designated
and otherwise mandatorily measured at
fair value through profit or loss
Financial investments
At 31 Dec
1
‘Derivatives, trading assets and trading liabilities’ are presented as one category to reflect the manner in which these instruments are risk-managed.
The sensitivity analysis aims to measure a range of fair values consistent with the application of a 95% confidence interval. Methodologies take
account of the nature of the valuation technique employed, as well as the availability and reliability of observable proxy and historical data.
When the fair value of a financial instrument is affected by more than one unobservable assumption, the above table reflects the most
favourable or the most unfavourable change from varying the assumptions individually.
Key unobservable inputs to Level 3 financial instruments
The following table lists key unobservable inputs to Level 3 financial instruments and provides the range of those inputs at 31 December 2022.
Quantitative information about significant unobservable inputs in Level 3 valuations
Fair value
Private equity including strategic
investments
Asset-backed securities
– collateralised loan/debt obligation
– other ABSs
Structured notes
– equity-linked notes
– Foreign exchange-linked notes
– other
Derivatives
– interest rate derivatives
securitisation swaps
long-dated swaptions
other
– Foreign exchange derivatives
Foreign exchange options
other
– equity derivatives
long-dated single stock options
other
– credit derivatives
Other portfolios
– repurchase agreements
– other1
At 31 Dec 2022
2022
Full range
of inputs
Lower Higher
2021
Full range
of inputs
Lower Higher
Assets Liabilities Valuation
$m
$m
techniques
Key unobservable
inputs
16,318
92 See below
See below
741
188
553
—
— Market proxy
— Market proxy
—
10,432
—
6,833
Model – Option model
Model – Option model
2,694 Model – Option model
905
Bid quotes
Bid quotes
—
—
92
99
—
—
100
100
Equity volatility
Equity correlation
Foreign exchange
volatility
6% 142%
99%
32%
6% 124%
99%
22%
3%
37%
1%
99%
—
—
1,964
560
259
53
248
445
2,920
710
209 Model – Discounted cash flow Prepayment rate
67 Model – Option model
Interest rate
volatility
5%
8%
10%
5%
10%
53%
15%
35%
434
304
404
274 Model – Option model
Foreign exchange
volatility
1%
46%
1%
99%
41
850
415
435
109
6,789
750
6,039
25,812
30
1,658
502 Model – Option model
Equity volatility
7% 153%
4% 138%
1,156
248
382
328 Model – Discounted cash flow Interest rate curve
54
13,826
1%
9%
1%
5%
1
‘Other’ includes a range of smaller asset holdings.
368
HSBC Holdings plc Annual Report and Accounts 2022
Private equity including strategic investments
Given the bespoke nature of the analysis in respect of each private equity holding, it is not practical to quote a range of key unobservable inputs.
The key unobservable inputs would be price and correlation. The valuation approach includes using a range of inputs that include company
specific financials, traded comparable companies multiples, published net asset values and qualitative assumptions, which are not directly
comparable or quantifiable.
Prepayment rates
Prepayment rates are a measure of the anticipated future speed at which a loan portfolio will be repaid in advance of the due date. They vary
according to the nature of the loan portfolio and expectations of future market conditions, and may be estimated using a variety of evidence,
such as prepayment rates implied from proxy observable security prices, current or historical prepayment rates and macroeconomic modelling.
Market proxy
Market proxy pricing may be used for an instrument when specific market pricing is not available but there is evidence from instruments with
common characteristics. In some cases it might be possible to identify a specific proxy, but more generally evidence across a wider range of
instruments will be used to understand the factors that influence current market pricing and the manner of that influence.
Volatility
Volatility is a measure of the anticipated future variability of a market price. It varies by underlying reference market price, and by strike and
maturity of the option. Certain volatilities, typically those of a longer-dated nature, are unobservable and are estimated from observable data. The
range of unobservable volatilities reflects the wide variation in volatility inputs by reference market price. The core range is significantly narrower
than the full range because these examples with extreme volatilities occur relatively rarely within the HSBC portfolio.
Correlation
Correlation is a measure of the inter-relationship between two market prices and is expressed as a number between minus one and one. It is
used to value more complex instruments where the payout is dependent upon more than one market price. There is a wide range of instruments
for which correlation is an input, and consequently a wide range of both same-asset correlations and cross-asset correlations is used. In general,
the range of same-asset correlations will be narrower than the range of cross-asset correlations.
Unobservable correlations may be estimated based upon a range of evidence, including consensus pricing services, HSBC trade prices, proxy
correlations and examination of historical price relationships. The range of unobservable correlations quoted in the table reflects the wide
variation in correlation inputs by market price pair.
Credit spread
Credit spread is the premium over a benchmark interest rate required by the market to accept lower credit quality. In a discounted cash flow
model, the credit spread increases the discount factors applied to future cash flows, thereby reducing the value of an asset. Credit spreads may
be implied from market prices and may not be observable in more illiquid markets.
Inter-relationships between key unobservable inputs
Key unobservable inputs to Level 3 financial instruments may not be independent of each other. As described above, market variables may be
correlated. This correlation typically reflects the manner in which different markets tend to react to macroeconomic or other events.
Furthermore, the effect of changing market variables on the HSBC portfolio will depend on HSBC’s net risk position in respect of each variable.
HSBC Holdings
Basis of valuing HSBC Holdings’ financial assets and liabilities measured at fair value
Valuation technique using observable inputs: Level 2
Assets at 31 Dec
– derivatives
– designated and otherwise mandatorily measured at fair value through profit or loss
Liabilities at 31 Dec
– designated at fair value
– derivatives
2022
$m
2021
$m
3,801
52,322
32,123
6,922
2,811
51,408
32,418
1,220
HSBC Holdings plc Annual Report and Accounts 2022
369
Financial statements
Notes on the financial statements
13 Fair values of financial instruments not carried at fair value
Fair values of financial instruments not carried at fair value and bases of valuation
At 31 Dec 2022
Assets
Loans and advances to banks
Loans and advances to customers
Reverse repurchase agreements – non-trading
Financial investments – at amortised cost
Liabilities
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Debt securities in issue
Subordinated liabilities
At 31 Dec 2021
Assets
Loans and advances to banks
Loans and advances to customers
Reverse repurchase agreements – non-trading
Financial investments – at amortised cost
Liabilities
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Debt securities in issue
Subordinated liabilities
Fair value
Carrying
amount
Quoted market
price Level 1
Observable
inputs Level 2
Significant
unobservable
inputs Level 3
$m
$m
$m
$m
104,882
924,854
253,754
168,746
66,722
1,570,303
127,747
78,149
22,290
83,136
1,045,814
241,648
97,302
101,152
1,710,574
126,670
78,557
20,487
—
—
—
90,629
—
—
—
—
—
—
—
—
38,722
—
—
—
—
—
104,074
8,768
253,668
67,419
66,831
1,570,209
127,500
76,640
22,723
82,220
10,287
241,531
63,022
101,149
1,710,733
126,670
78,754
26,206
814
904,288
—
626
—
—
—
381
—
1,073
1,034,288
121
523
—
—
—
489
—
Fair values of financial instruments not carried at fair value and bases of valuation – assets and disposal groups held for sale
At 31 Dec 2022
Assets
Loans and advances to banks
Loans and advances to customers
Reverse repurchase agreements – non-trading
Financial investments – at amortised cost
Liabilities
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Debt securities in issue
Subordinated liabilities
At 31 Dec 2021
Assets
Loans and advances to banks
Loans and advances to customers
Liabilities
Deposits by banks
Customer accounts
Fair value
Carrying
amount
Quoted market
price Level 1
Observable
inputs Level 2
Significant
unobservable
inputs Level 3
$m
$m
$m
$m
253
80,687
4,646
6,165
64
85,274
3,266
12,928
8
3
3,056
87
8,750
—
—
—
6,042
—
—
—
—
—
—
—
—
—
257
111
4,646
—
64
85,303
3,266
12,575
7
3
363
87
8,750
—
78,048
—
—
—
—
—
—
—
—
2,808
—
—
Total
$m
104,888
913,056
253,668
158,674
66,831
1,570,209
127,500
77,021
22,723
83,293
1,044,575
241,652
102,267
101,149
1,710,733
126,670
79,243
26,206
Total
$m
257
78,159
4,646
6,042
64
85,303
3,266
12,575
7
3
3,171
87
8,750
Other financial instruments not carried at fair value are typically short term in nature and reprice to current market rates frequently. Accordingly,
their carrying amount is a reasonable approximation of fair value. They include cash and balances at central banks, items in the course of
collection from and transmission to other banks, Hong Kong Government certificates of indebtedness and Hong Kong currency notes in
circulation, all of which are measured at amortised cost.
370
HSBC Holdings plc Annual Report and Accounts 2022
Valuation
Fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. It does not reflect the economic benefits and costs that HSBC expects to flow from an instrument’s cash
flow over its expected future life. Our valuation methodologies and assumptions in determining fair values for which no observable market prices
are available may differ from those of other companies.
Loans and advances to banks and customers
To determine the fair value of loans and advances to banks and customers, loans are segregated, as far as possible, into portfolios of similar
characteristics. Fair values are based on observable market transactions, when available. When they are unavailable, fair values are estimated
using valuation models incorporating a range of input assumptions. These assumptions may include: value estimates from third-party brokers
reflecting over-the-counter trading activity; forward-looking discounted cash flow models, taking account of expected customer prepayment
rates, using assumptions that HSBC believes are consistent with those that would be used by market participants in valuing such loans; new
business rates estimates for similar loans; and trading inputs from other market participants including observed primary and secondary trades.
From time to time, we may engage a third-party valuation specialist to measure the fair value of a pool of loans.
The fair value of loans reflects expected credit losses at the balance sheet date and estimates of market participants’ expectations of credit
losses over the life of the loans, and the fair value effect of repricing between origination and the balance sheet date. For credit-impaired loans,
fair value is estimated by discounting the future cash flows over the time period they are expected to be recovered.
Financial investments
The fair values of listed financial investments are determined using bid market prices. The fair values of unlisted financial investments are
determined using valuation techniques that incorporate the prices and future earnings streams of equivalent quoted securities.
Deposits by banks and customer accounts
The fair values of on-demand deposits are approximated by their carrying value. For deposits with longer-term maturities, fair values are
estimated using discounted cash flows, applying current rates offered for deposits of similar remaining maturities.
Debt securities in issue and subordinated liabilities
Fair values in debt securities in issue and subordinated liabilities are determined using quoted market prices at the balance sheet date where
available, or by reference to quoted market prices for similar instruments.
Repurchase and reverse repurchase agreements – non-trading
Fair values of repurchase and reverse repurchase agreements that are held on a non-trading basis provide approximate carrying amounts. This is
due to the fact that balances are generally short dated.
HSBC Holdings
The methods used by HSBC Holdings to determine fair values of financial instruments for the purposes of measurement and disclosure are
described above.
Fair values of HSBC Holdings’ financial instruments not carried at fair value on the balance sheet
Assets at 31 Dec
Loans and advances to HSBC undertakings
Financial investments – at amortised cost
Liabilities at 31 Dec
Debt securities in issue
Subordinated liabilities
2022
2021
Carrying amount
$m
Fair value1
$m
Carrying amount
$m
Fair value1
$m
26,765
19,466
66,938
19,727
26,962
19,314
65,364
20,644
25,108
26,194
67,483
17,059
25,671
26,176
69,719
21,066
1 Fair values (other than Level 1 financial investments) were determined using valuation techniques with observable inputs (Level 2).
14 Financial assets designated and otherwise mandatorily measured at fair
value through profit or loss
Securities
– treasury and other eligible bills
– debt securities
– equity securities
Loans and advances to banks and customers
Other
At 31 Dec
Designated at
fair value
2022
Mandatorily
measured at
fair value
$m
3,079
649
2,430
—
—
—
3,079
$m
38,529
95
3,969
34,465
1,841
1,614
41,984
Total
$m
41,608
744
6,399
34,465
1,841
1,614
45,063
Designated at
fair value
$m
2,251
599
1,652
—
—
—
2,251
2021
Mandatorily
measured at
fair value
$m
42,062
31
5,177
36,854
4,307
1,184
47,553
Total
$m
44,313
630
6,829
36,854
4,307
1,184
49,804
HSBC Holdings plc Annual Report and Accounts 2022
371
Financial statements
Notes on the financial statements
15 Derivatives
Notional contract amounts and fair values of derivatives by product contract type held by HSBC
Foreign exchange
Interest rate
Equities
Credit
Commodity and other
Gross total fair values
Offset (Note 31)
At 31 Dec 2022
Foreign exchange
Interest rate
Equities
Credit
Commodity and other
Gross total fair values
Offset (Note 31)
At 31 Dec 2021
Fair value – Assets
Fair value – Liabilities
Trading
$m
Notional contract amount
Hedging
$m
38,924
276,589
—
—
—
315,513
8,434,453
15,213,232
570,410
183,995
78,413
24,480,503
Trading
$m
122,203
285,438
9,325
1,091
1,485
419,542
Hedging
$m
525
5,066
—
—
—
5,591
24,480,503
315,513
419,542
5,591
7,723,034
14,470,539
659,142
190,724
74,159
23,117,598
43,839
162,921
—
—
—
206,760
79,801
151,631
12,637
2,175
1,205
247,449
1,062
1,749
—
—
—
2,811
23,117,598
206,760
247,449
2,811
Total
$m
122,728
290,504
9,325
1,091
1,485
425,133
(140,987)
284,146
80,863
153,380
12,637
2,175
1,205
250,260
(53,378)
196,882
Trading
$m
123,088
287,877
9,176
1,264
1,679
423,084
Hedging
$m
166
3,501
—
—
—
3,667
423,084
3,667
77,670
146,808
14,379
3,151
1,261
243,269
207
966
—
—
—
1,173
243,269
1,173
Total
$m
123,254
291,378
9,176
1,264
1,679
426,751
(140,987)
285,764
77,877
147,774
14,379
3,151
1,261
244,442
(53,378)
191,064
The notional contract amounts of derivatives held for trading purposes and derivatives designated in hedge accounting relationships indicate the
nominal value of transactions outstanding at the balance sheet date. They do not represent amounts at risk.
Derivative assets and liabilities increased during 2022, driven by yield curve movements and changes in foreign exchange rates.
Notional contract amounts and fair values of derivatives by product contract type held by HSBC Holdings with subsidiaries
Foreign exchange
Interest rate
At 31 Dec 2022
Foreign exchange
Interest rate
At 31 Dec 2021
Notional contract amount
Hedging
$m
Trading
$m
60,630
34,322
94,952
36,703
35,970
72,673
Trading
$m
502
2,386
2,888
384
712
1,096
Assets
Hedging
$m
—
913
913
—
1,715
1,715
Total
$m
502
3,299
3,801
384
2,427
2,811
Trading
$m
1,683
826
2,509
377
769
1,146
Liabilities
Hedging
$m
—
4,413
4,413
—
74
74
Total
$m
1,683
5,239
6,922
377
843
1,220
—
81,873
81,873
—
45,358
45,358
Use of derivatives
For details regarding the use of derivatives, see page 220 under ‘Market risk’.
Trading derivatives
Most of HSBC’s derivative transactions relate to sales and trading activities. Sales activities include the structuring and marketing of derivative
products to customers to enable them to take, transfer, modify or reduce current or expected risks. Trading activities include market-making and
risk management. Market-making entails quoting bid and offer prices to other market participants for the purpose of generating revenue based
on spread and volume. Risk management activity is undertaken to manage the risk arising from client transactions, with the principal purpose of
retaining client margin. Other derivatives classified as held for trading include non-qualifying hedging derivatives.
Substantially all of HSBC Holdings’ derivatives entered into with subsidiaries are managed in conjunction with financial liabilities designated at fair
value.
Derivatives valued using models with unobservable inputs
The difference between the fair value at initial recognition (the transaction price) and the value that would have been derived had valuation
techniques used for subsequent measurement been applied at initial recognition, less subsequent releases, is as shown in the following table:
Unamortised balance of derivatives valued using models with significant unobservable inputs
Unamortised balance at 1 Jan
Deferral on new transactions
Recognised in the income statement during the year:
– amortisation
– subsequent to unobservable inputs becoming observable
– maturity, termination or offsetting derivative
Exchange differences
Unamortised balance at 31 Dec1
1 This amount is yet to be recognised in the consolidated income statement.
372
HSBC Holdings plc Annual Report and Accounts 2022
2022
$m
106
191
(192)
(112)
(3)
(77)
(8)
97
2021
$m
104
311
(308)
(177)
(4)
(127)
(1)
106
Hedge accounting derivatives
HSBC applies hedge accounting to manage the following risks: interest rate and foreign exchange risks. Further details on how these risks arise
and how they are managed by the Group can be found in the ‘Risk review’.
Hedged risk components
HSBC designates a portion of cash flows of a financial instrument or a group of financial instruments for a specific interest rate or foreign
currency risk component in a fair value or cash flow hedge. The designated risks and portions are either contractually specified or otherwise
separately identifiable components of the financial instrument that are reliably measurable. Risk-free or benchmark interest rates generally are
regarded as being both separately identifiable and reliably measurable, except for the Interest Rate Benchmark Reform Phase 2 transition where
HSBC designates alternative benchmark rates as the hedged risk which may not have been separately identifiable upon initial designation,
provided HSBC reasonably expects it will meet the requirement within 24 months from the first designation date. The designated risk
components account for a significant portion of the overall changes in fair value or cash flows of the hedged items.
HSBC uses net investment hedges to hedge the structural foreign exchange risk related to net investments in foreign operations including
subsidiaries and branches whose functional currencies are different from that of the parent. When hedging with foreign exchange forward
contracts, the spot rate component of the foreign exchange risk is designated as the hedged risk.
Fair value hedges
HSBC enters into fixed-for-floating-interest-rate swaps to manage the exposure to changes in fair value caused by movements in market interest
rates on certain fixed-rate financial instruments that are not measured at fair value through profit or loss, including debt securities held and
issued.
HSBC hedging instrument by hedged risk
Hedged risk
Interest rate3
At 31 Dec 2022
Interest rate3
At 31 Dec 2021
Notional amount1
$m
162,062
162,062
90,556
90,556
Hedging instrument
Carrying amount
Assets
$m
4,973
4,973
1,637
1,637
Liabilities
$m
2,573
2,573
1,410
1,410
Balance sheet
presentation
Derivatives
Change in fair value2
$m
4,064
4,064
Derivatives
1,330
1,330
1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions
outstanding at the balance sheet date. They do not represent amounts at risk.
2 Used in effectiveness testing, which uses the full fair value change of the hedging instrument not excluding any component.
3 The hedged risk ‘interest rate’ includes inflation risk.
HSBC hedged item by hedged risk
Hedged item
Ineffectiveness
Carrying amount
Accumulated fair value hedge adjustments
included in carrying amount2
Hedged risk
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Interest rate3
82,792
3,415
519
(5,100)
(210)
(18)
49,180
83
At 31 Dec 2022
86,726
49,263
(5,328)
Interest rate3
68,059
2
3,066
1,199
(3)
9
14,428
86
At 31 Dec 2021
71,127
14,514
1,205
(2,006)
—
(2,006)
992
1
993
Balance sheet
presentation
Financial investments
measured at fair value
through other
comprehensive income
Loans and advances to
customers
Reverse repos
Debt securities in issue
Deposits by banks
Change in
fair value1
$m
Recognised
in profit
and loss
$m
Profit and loss
presentation
Net income from
financial instruments
held for trading or
managed on a fair
value basis
(59)
(8,005)
(233)
(17)
4,138
(5)
(4,122)
(59)
Financial assets designated
and otherwise mandatorily
measured at fair value through
other comprehensive income
Loans and advances to banks
Loans and advances to
customers
Debt securities in issue
Deposits by banks
(1,932)
(3)
(41)
609
1
(36)
Net income from
financial instruments
held for trading or
managed on a fair
value basis
(1,366)
(36)
1 Used in effectiveness testing, which comprise an amount attributable to the designated hedged risk that can be a risk component.
2 The accumulated amount of fair value adjustments remaining in the statement of financial position for hedged items that have ceased to be adjusted
for hedging gains and losses were assets of $252m (2021: $1,061m) for FVOCI assets and liabilities of $916m (2021: $15m) for debt issued.
3 The hedged risk ‘interest rate’ includes inflation risk.
HSBC Holdings plc Annual Report and Accounts 2022
373
Financial statements
Notes on the financial statements
HSBC Holdings hedging instrument by hedged risk
Hedging instrument
Carrying amount
Hedged risk
Interest rate3
At 31 Dec 2022
Interest rate3
At 31 Dec 2021
Notional amount1,4
$m
81,873
81,873
45,358
45,358
Assets
$m
913
913
1,715
1,715
Liabilities
$m
4,413
4,413
74
74
Balance sheet
presentation
Derivatives
Change in fair value2
$m
(5,599)
(5,599)
Derivatives
(1,515)
(1,515)
1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions
outstanding at the balance sheet date; they do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value change of the hedging instrument not excluding any component.
3 The hedged risk ‘interest rate’ includes foreign exchange risk.
4 The notional amount of non-dynamic fair value hedges is equal to $81,873m (2021: $45,358m), of which the weighted-average maturity date is June
2028 and the weighted-average swap rate is 2.33% (2021: 1.30%). The majority of these hedges are internal to the Group.
HSBC Holdings hedged item by hedged risk
Hedged item
Accumulated fair value
hedge adjustments
included in carrying
amount2
Carrying amount
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Balance sheet
presentation
Debt securities
Change in
fair value1
$m
68,223
(3,829)
in issue
6,258
Hedged risk
Interest rate3
Interest rate3
At 31 Dec 2022
6,812
68,223
6,812
(789)
(789)
(3,829)
Loans and
advances to banks
(693)
5,565
39,154
1,408
in issue
1,599
(21)
Debt securities
At 31 Dec 2021
7,863
39,154
7,863
(104)
(104)
1,408
Loans and
advances to banks
(104)
1,495
(21)
Ineffectiveness
Recognised
in
profit and
loss
$m
(34)
(34)
Profit and loss
presentation
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
1 Used in effectiveness testing; comprising amount attributable to the designated hedged risk that can be a risk component.
2 The accumulated amount of fair value adjustments remaining in the statement of financial position for hedged items that have ceased to be adjusted
for hedging gains and losses were liabilities of $971m (2021: $54.4m) for debt issued.
3 The hedged risk ‘interest rate’ includes foreign exchange risk.
Sources of hedge ineffectiveness may arise from basis risk, including but not limited to the discount rates used for calculating the fair value of
derivatives, hedges using instruments with a non-zero fair value, and notional and timing differences between the hedged items and hedging
instruments.
For some debt securities held, HSBC manages interest rate risk in a dynamic risk management strategy. The assets in scope of this strategy are
high-quality fixed-rate debt securities, which may be sold to meet liquidity and funding requirements.
The interest rate risk of the HSBC fixed-rate debt securities issued is managed in a non-dynamic risk management strategy.
Cash flow hedges
HSBC’s cash flow hedging instruments consist principally of interest rate swaps and cross-currency swaps that are used to manage the
variability in future interest cash flows of non-trading financial assets and liabilities, arising due to changes in market interest rates and foreign-
currency basis.
HSBC applies macro cash flow hedging for interest rate risk exposures on portfolios of replenishing current and forecasted issuances of non-
trading assets and liabilities that bear interest at variable rates, including rolling such instruments. The amounts and timing of future cash flows,
representing both principal and interest flows, are projected for each portfolio of financial assets and liabilities on the basis of their contractual
terms and other relevant factors, including estimates of prepayments and defaults. The aggregate cash flows representing both principal
balances and interest cash flows across all portfolios are used to determine the effectiveness and ineffectiveness. Macro cash flow hedges are
considered to be dynamic hedges.
HSBC also hedges the variability in future cash flows on foreign-denominated financial assets and liabilities arising due to changes in foreign
exchange market rates with cross-currency swaps, which are considered dynamic hedges.
374
HSBC Holdings plc Annual Report and Accounts 2022
Hedging instrument by hedged risk
Hedging instrument
Hedged item
Ineffectiveness
Hedged risk
Notional
amount1
$m
Carrying amount
Assets
Liabilities
$m
$m
Balance
sheet
presentation
Change in
fair value2
$m
Change in fair
value3
$m
Foreign currency
8,781
418
166
Derivatives
659
659
Interest rate
At 31 Dec 2022
114,527
123,308
93
511
950
1,116
Derivatives
(4,997)
(4,338)
(4,973)
(4,314)
Foreign currency
17,930
827
207
Derivatives
987
Interest rate
At 31 Dec 2021
72,365
90,295
112
939
217
424
Derivatives
(519)
468
987
(500)
487
Recognised
in profit and
loss
$m
—
(24)
(24)
—
(19)
(19)
Profit and loss
presentation
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
1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions
outstanding at the balance sheet date. They do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value change of the hedging instrument not excluding any component.
3 Used in effectiveness assessment; comprising amount attributable to the designated hedged risk that can be a risk component.
Sources of hedge ineffectiveness may arise from basis risk, including but not limited to timing differences between the hedged items and
hedging instruments and hedges using instruments with a non-zero fair value.
Reconciliation of equity and analysis of other comprehensive income by risk type
Cash flow hedging reserve at 1 Jan 2022
Fair value gains/(losses)
Fair value (gains)/losses reclassified from the cash flow hedge reserve to the income statement in respect of:
Hedged items that have affected profit or loss1
Income taxes
Others
Cash flow hedging reserve at 31 Dec 2022
Cash flow hedging reserve at 1 Jan 2021
Fair value gains/(losses)
Fair value (gains)/losses reclassified from the cash flow hedge reserve to the income statement in respect of:
Hedged items that have affected profit or loss
Income taxes
Others
Cash flow hedging reserve at 31 Dec 2021
1 Hedged items that have affected profit or loss are primarily recorded within interest income.
Net investment hedges
Interest rate
$m
8
(4,973)
325
1,123
130
(3,387)
495
(500)
(217)
185
45
8
Foreign currency
$m
(205)
659
(926)
28
23
(421)
(37)
987
(1,177)
25
(3)
(205)
The Group applies hedge accounting in respect of certain net investments in non-US dollar functional currency foreign operations for changes in
spot exchange rates only. Hedging could be undertaken for Group structural exposure to changes in the US dollar to foreign currency exchange
rates using forward foreign exchange contracts or by financing with foreign currency borrowings. The aggregate positions at the reporting date
and the performance indicators of both live and de-designated hedges are summarised below. There were no amounts reclassified to the profit
and loss account during the accounting periods presented.
Hedges of net investment in foreign operations
Description of hedged risk
2022
Pound sterling-denominated structural foreign exchange
Swiss franc-denominated structural foreign exchange
Hong Kong dollar-denominated structural foreign exchange
Other structural foreign exchange1
Total
2021
Pound sterling-denominated structural foreign exchange
Swiss franc-denominated structural foreign exchange
Hong Kong dollar-denominated structural foreign exchange
Other structural foreign exchange1
Total
Carrying value
Derivative
assets
Derivative
liabilities
$m
264
—
—
—
264
229
—
7
7
243
$m
—
(21)
(19)
(117)
(157)
—
(8)
—
—
(8)
Nominal
amount
$m
14,000
727
4,597
10,819
30,143
15,717
809
4,992
4,387
25,906
Amounts
recognised in
OCI
Hedge ineffectiveness
recognised in income
statement
$m
1,447
111
(2)
375
1,931
(126)
101
5
6
(14)
$m
—
—
—
—
—
—
—
—
—
—
1 Other currencies include New Taiwan dollar, Singapore dollar, Canadian dollar, Omani rial, South Korean won, Indian rupee, Indonesian rupiah, euro,
Mexican peso, Qatari riyal, Kuwaiti dinar, Saudi riyal and United Arab Emirates dirham.
HSBC Holdings plc Annual Report and Accounts 2022
375
Financial statements
Notes on the financial statements
Interest rate benchmark reform: Amendments to IFRS 9 and IAS 39 ‘Financial Instruments’
HSBC has applied both the first set of amendments (‘Phase 1’) and the second set of amendments (‘Phase 2’) to IFRS 9 and IAS 39 applicable to
hedge accounting. The hedge accounting relationships that are affected by Phase 1 and Phase 2 amendments are presented in the balance
sheet as ‘Financial assets designated and otherwise mandatorily measured at fair value through other comprehensive income’, ‘Loans and
advances to customers’, ‘Debt securities in issue’ and ‘Deposits by banks’. The notional value of the derivatives impacted by the Ibor reform,
including those designated in hedge accounting relationships, is disclosed on page 138 in the section ‘Financial instruments impacted by the Ibor
reform’. For further details on Ibor transition, see ‘Top and emerging risks‘ on page 137.
During 2022, the Group transitioned all of its hedging instruments referencing sterling Libor, European Overnight Index Average rate (‘Eonia’) and
Japanese yen Libor. The Group also transitioned some of the hedging instruments referencing US dollar Libor. There is no significant judgement
applied for these benchmarks to determine whether and when the transition uncertainty has been resolved.
The most significant Ibor benchmark in which the Group continues to have hedging instruments is US dollar Libor. It is expected that the
transition out of US dollar Libor hedging derivatives will be completed by the second quarter of 2023. These transitions do not necessitate new
approaches compared with any of the mechanisms used so far for transition and it will not be necessary to change the transition risk
management strategy.
For some of the Ibors included under the ‘Other’ header in the table below, judgement has been needed to establish whether a transition is
required, since there are Ibor benchmarks that are subject to computation methodology improvements and insertion of fallback provisions
without full clarity being provided by their administrators on whether these Ibor benchmarks will be demised.
The notional amounts of interest rate derivatives designated in hedge accounting relationships do not represent the extent of the risk exposure
managed by the Group but they are expected to be directly affected by market-wide Ibor reform and in scope of Phase 1 amendments and are
shown in the table below. The cross-currency swaps designated in hedge accounting relationships and affected by Ibor reform are not significant
and have not been presented below.
Hedging instrument impacted by Ibor reform
Fair value hedges
Cash flow hedges
At 31 Dec 2022
Fair value hedges
Cash flow hedges
At 31 Dec 2021
Hedging instrument
Impacted by Ibor reform
£
$m
—
—
—
—
—
—
$
$m
2,015
—
2,015
18,525
100
18,625
Other3
$m
12,643
27,830
40,473
6,615
8,632
15,247
€2
$m
12,756
8,865
21,621
6,178
7,954
14,132
Not impacted
by Ibor
reform
$m
134,648
77,832
212,480
59,238
55,679
114,917
Total
$m
27,414
36,695
64,109
31,318
16,686
48,004
Notional
amount1
$m
162,062
114,527
276,589
90,556
72,365
162,921
1 The notional contract amounts of interest rate derivatives designated in qualifying hedge accounting relationships indicate the nominal value of
transactions outstanding at the balance sheet date and they do not represent amounts at risk.
2 The notional contract amounts of euro interest rate derivatives impacted by Ibor reform mainly comprise hedges with a Euribor benchmark, which are
‘Fair value hedges’ of $12,756m (31 December 2021: $6,178m) and ‘Cash flow hedges’ of $8,865m (31 December 2021: $7,954m).
3 Other benchmarks impacted by Ibor reform comprise mainly of Canadian dollar offered rate (‘CDOR’), Hong Kong interbank offered rate (‘HIBOR’) and
Mexican interbank equilibrium interest rate (‘TIIE’) related derivatives.
Hedging instrument impacted by Ibor reform held by HSBC Holdings
Fair value hedges
At 31 Dec 2022
Fair value hedges
At 31 Dec 2021
Hedging instrument
Impacted by Ibor reform
£
$m
—
—
—
—
$
$m
2,000
2,000
20,035
20,035
Other
$m
1,336
1,336
1,458
1,458
€
$m
15,210
15,210
9,944
9,944
16 Financial investments
Carrying amount of financial investments
Financial investments measured at fair value through other comprehensive income
– treasury and other eligible bills
– debt securities
– equity securities
– other instruments
Debt instruments measured at amortised cost
– treasury and other eligible bills
– debt securities
At 31 Dec
376
HSBC Holdings plc Annual Report and Accounts 2022
Not impacted
by Ibor
reform
$m
Total
$m
18,546
18,546
31,437
31,437
63,327
63,327
13,921
13,921
2022
$m
256,817
86,749
168,264
1,696
108
168,747
35,282
133,465
425,564
Notional
amount
$m
81,873
81,873
45,358
45,358
2021
$m
348,972
100,158
246,998
1,770
46
97,302
21,634
75,668
446,274
Equity instruments measured at fair value through other comprehensive income
Type of equity instruments
Investments required by central institutions
Business facilitation
Others
At 31 Dec 2022
Investments required by central institutions
Business facilitation
Others
At 31 Dec 2021
Weighted average yields of investment debt securities
Debt securities measured at fair value through other comprehensive income
US Treasury
US Government agencies
US Government-sponsored agencies
UK Government
Hong Kong Government
Other governments
Asset-backed securities
Corporate debt and other securities
Debt securities measured at amortised cost
US Treasury
US Government agencies
US Government-sponsored agencies
UK Government
Hong Kong Government
Other governments
Asset-backed securities
Corporate debt and other securities
Fair value
Dividends
recognised
$m
690
954
52
1,696
766
954
50
1,770
$m
24
28
2
54
17
24
3
44
Up to 1
year
Yield
%
1 to 5
years
Yield
%
5 to 10
years
Yield
%
Over 10
years
Yield
%
1.0
4.7
1.1
0.5
1.3
2.3
6.7
3.4
10.2
—
2.9
—
1.9
2.1
4.0
3.2
1.3
0.9
1.7
0.8
1.6
3.0
0.2
1.8
3.4
2.9
2.4
—
3.8
4.2
4.7
3.2
1.3
3.2
2.1
0.4
1.7
2.9
2.7
2.5
3.8
7.2
3.2
0.7
2.2
3.6
—
3.3
2.3
2.5
1.7
1.3
—
3.7
2.4
2.2
2.8
3.2
3.3
0.9
4.5
3.8
7.7
4.0
The maturity distributions of ABSs are presented in the above table on the basis of contractual maturity dates. The weighted average yield for
each range of maturities is calculated by dividing the annualised interest income for the year ended 31 December 2022 by the book amount of
debt securities at that date. The yields do not include the effect of related derivatives.
HSBC Holdings
HSBC Holdings carrying amount of financial investments
Debt instruments measured at amortised cost
– treasury and other eligible bills
– debt securities
At 31 Dec
Weighted average yields of investment debt securities
Debt securities measured at amortised cost
US Treasury
2022
$m
12,796
6,670
19,466
2021
$m
19,508
6,686
26,194
Up to 1
year
Yield
%
1 to 5
years
Yield
%
5 to 10
years
Over 10
years
Yield
%
Yield
%
0.3
2.8
—
—
The weighted average yield for each range of maturities is calculated by dividing the annualised interest income for the year ended 31 December
2022 by the book amount of debt securities at that date. The yields do not include the effect of related derivatives.
HSBC Holdings plc Annual Report and Accounts 2022
377
Financial statements
Notes on the financial statements
17 Assets pledged, collateral received and assets transferred
Assets pledged1
Financial assets pledged as collateral
Treasury bills and other eligible securities
Loans and advances to banks
Loans and advances to customers
Debt securities
Equity securities
Other
Assets pledged at 31 Dec
2022
$m
18,364
10,198
27,627
60,542
26,902
67,576
211,209
2021
$m
9,613
412
55,370
66,629
34,472
45,396
211,892
Assets pledged as collateral include all assets categorised as encumbered in the disclosure on page 89 of the Pillar 3 Disclosures at
31 December 2022, except for assets held for sale.
The amount of assets pledged to secure liabilities may be greater than the book value of assets utilised as collateral. For example, in the case of
securitisations and covered bonds, the amount of liabilities issued plus mandatory over-collateralisation is less than the book value of the pool of
assets available for use as collateral. This is also the case where assets are placed with a custodian or a settlement agent that has a floating
charge over all the assets placed to secure any liabilities under settlement accounts.
These transactions are conducted under terms that are usual and customary for collateralised transactions including, where relevant, standard
securities lending and borrowing, repurchase agreements and derivative margining. HSBC places both cash and non-cash collateral in relation to
derivative transactions.
Hong Kong currency notes in circulation are secured by the deposit of funds in respect of which the Hong Kong Government certificates of
indebtedness are held.
Financial assets pledged as collateral which the counterparty has the right to sell or repledge
Trading assets
Financial investments
At 31 Dec
2022
$m
56,894
27,841
84,735
2021
$m
69,719
12,416
82,135
Collateral received1
The fair value of assets accepted as collateral relating primarily to standard securities lending, reverse repurchase agreements, swaps of
securities and derivative margining that HSBC is permitted to sell or repledge in the absence of default was $449,896m (2021: $476,455m). The
fair value of any such collateral sold or repledged was $228,245m (2021: $271,582m).
HSBC is obliged to return equivalent securities. These transactions are conducted under terms that are usual and customary to standard
securities lending, reverse repurchase agreements and derivative margining.
Assets transferred1
The assets pledged include transfers to third parties that do not qualify for derecognition, notably secured borrowings such as debt securities
held by counterparties as collateral under repurchase agreements and equity securities lent under securities lending agreements, as well as
swaps of equity and debt securities. For secured borrowings, the transferred asset collateral continues to be recognised in full while a related
liability, reflecting the Group’s obligation to repurchase the assets for a fixed price at a future date, is also recognised on the balance sheet.
Where securities are swapped, the transferred asset continues to be recognised in full. There is no associated liability as the non-cash collateral
received is not recognised on the balance sheet. The Group is unable to use, sell or pledge the transferred assets for the duration of the
transaction, and remains exposed to interest rate risk and credit risk on these pledged assets. With the exception of ‘Other sales’ in the
following table, the counterparty’s recourse is not limited to the transferred assets.
Transferred financial assets not qualifying for full derecognition and associated financial liabilities
Carrying amount of:
Fair value of:
Transferred
assets
Associated
liabilities
Transferred
assets
Associated
liabilities
$m
$m
$m
$m
Net
position
$m
52,604
39,134
48,501
4,613
51,135
43,644
3,826
48,180
2,918
3,826
3,830
3,842
(12)
At 31 Dec 2022
Repurchase agreements
Securities lending agreements
At 31 Dec 2021
Repurchase agreements
Securities lending agreements
Other sales (recourse to transferred assets only)
1 Excludes assets classified as held for sale.
378
HSBC Holdings plc Annual Report and Accounts 2022
18 Interests in associates and joint ventures
Carrying amount of HSBC’s interests in associates and joint ventures
Interests in associates
Interests in joint ventures
Interests in associates and joint ventures
Principal associates of HSBC
Bank of Communications Co., Limited
The Saudi British Bank
2021
$m
29,515
94
29,609
2022
$m
29,127
127
29,254
2021
Fair value1
$m
8,141
6,602
Carrying amount
$m
23,616
4,426
Fair value1
$m
8,537
5,599
2022
Carrying amount
$m
23,307
4,494
1 Principal associates are listed on recognised stock exchanges. The fair values are based on the quoted market prices of the shares held (Level 1 in the
fair value hierarchy).
Bank of Communications Co., Limited
The Saudi British Bank
Share of profit in associates and joint ventures
Bank of Communications Co., Limited
The Saudi British Bank
Other associates and joint ventures
Share of profit in associates and joint ventures
A list of all associates and joint ventures is set out in Note 38.
Bank of Communications Co., Limited
Country of incorporation
and principal place of
business
People’s Republic of China
Saudi Arabia
At 31 Dec 2022
Principal activity
Banking services
Banking services
HSBC’s interest
%
19.03
31.00
2021
$m
2,461
276
309
3,046
2022
$m
2,377
342
4
2,723
The Group’s investment in Bank of Communications Co., Limited (‘BoCom’) is classified as an associate. Significant influence in BoCom was
established with consideration of all relevant factors, including representation on BoCom’s Board of Directors and participation in a resource and
experience sharing agreement (‘RES’). Under the RES, HSBC staff have been seconded to assist in the maintenance of BoCom’s financial and
operating policies. Investments in associates are recognised using the equity method of accounting in accordance with IAS 28 ‘Investments in
Associates and Joint Ventures', whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in
the Group’s share of BoCom’s net assets. An impairment test is required if there is any indication of impairment.
Impairment testing
At 31 December 2022, the fair value of the Group’s investment in BoCom had been below the carrying amount for approximately 11 years. As a
result, the Group performed an impairment test on the carrying amount, which confirmed that there was no impairment at 31 December 2022 as
the recoverable amount as determined by a value-in-use (‘VIU’) calculation was higher than the carrying value.
BoCom
At 31 Dec 2022
VIU
$bn
23.5
Carrying value
$bn
23.3
Fair value
$bn
8.1
At 31 Dec 2021
VIU Carrying value
$bn
$bn
23.6
24.8
Fair value
$bn
8.5
The headroom, which is defined as the extent to which the VIU exceeds the carrying value, decreased by $1.0bn compared with 31 December
2021. The decrease in headroom was principally due to revisions to management’s best estimates of BoCom‘s future earnings in the short to
medium term, and the impact from BoCom’s actual performance.
In future periods, the VIU may increase or decrease depending on the effect of changes to model inputs. The main model inputs are described
below and are based on factors observed at period-end. The factors that could result in a change in the VIU and an impairment include a short-
term underperformance by BoCom, a change in regulatory capital requirements or an increase in uncertainty regarding the future performance of
BoCom resulting in a downgrade of the forecast of future asset growth or profitability. An increase in the discount rate could also result in a
reduction of VIU and an impairment.
If the Group did not have significant influence in BoCom, the investment would be carried at fair value rather than the current carrying value.
Basis of recoverable amount
The impairment test was performed by comparing the recoverable amount of BoCom, determined by a VIU calculation, with its carrying amount.
The VIU calculation uses discounted cash flow projections based on management’s best estimates of future earnings available to ordinary
shareholders prepared in accordance with IAS 36 ’Impairment of Assets’. Significant management judgement is required in arriving at the best
estimate.
There are two main components to the VIU calculation. The first component is management’s best estimate of BoCom’s earnings. Forecast
earnings growth over the short to medium term are lower than recent (within the last five years) historical actual growth and reflect the
uncertainty arising from the current economic outlook. Reflecting management‘s intent to continue to retain its investment, earnings beyond the
HSBC Holdings plc Annual Report and Accounts 2022
379
Financial statements
Notes on the financial statements
short to medium term are then extrapolated into perpetuity using a long-term growth rate to derive a terminal value, which comprises the
majority of the VIU. The second component is the capital maintenance charge (‘CMC’), which is management’s forecast of the earnings that
need to be withheld in order for BoCom to meet capital requirements over the forecast period, meaning that CMC is deducted when arriving at
management’s estimate of future earnings available to ordinary shareholders. The principal inputs to the CMC calculation include estimates of
asset growth, the ratio of risk-weighted assets to total assets and the expected capital requirements. An increase in the CMC as a result of a
change to these principal inputs would reduce VIU. Additionally, management considers other qualitative factors, to ensure that the inputs to the
VIU calculation remain appropriate.
Key assumptions in value-in-use calculation
We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:
• Long-term profit growth rate: 3% (2021: 3%) for periods after 2026, which does not exceed forecast GDP growth in mainland China and is
similar to forecasts by external analysts.
• Long-term asset growth rate: 3% (2021: 3%) for periods after 2026, which is the rate that assets are expected to grow to achieve long-term
profit growth of 3%.
• Discount rate: 10.04% (2021: 10.03%), which is based on a capital asset pricing model (‘CAPM’), using market data. The discount rate used is
within the range of 8.4% to 10.4% (2021: 8.7% to 10.1%) indicated by the CAPM. While the CAPM range sits at the lower end of the range
adopted by selected external analysts of 8.8% to 13.5% (2021: 9.9% to 13.5%), we continue to regard the CAPM range as the most
appropriate basis for determining this assumption.
• Expected credit losses (‘ECL’) as a percentage of customer advances: ranges from 0.99% to 1.05% (2021: 0.98% to 1.12%) in the short to
medium term, reflecting reported credit experience through the ongoing Covid-19 pandemic in mainland China followed by an expected
reversion to recent historical levels. For periods after 2026, the ratio is 0.97% (2021: 0.97%), which is higher than BoCom’s average ECL as a
percentage of customer advances in recent years prior to the pandemic.
• Risk-weighted assets as a percentage of total assets: ranges from 61.0% to 64.4% (2021: 61.0% to 62.4%) in the short to medium term,
reflecting higher risk-weights in the short term followed by an expected reversion to recent historical levels. For periods after 2026, the ratio
is 61.0% (2021: 61.0%), which is similar to BoCom’s actual results in recent years.
• Operating income growth rate: ranges from 1.9% to 7.7% (2021: 5.1% to 6.2%) in the short to medium term, which is lower than BoCom’s
actual results in recent years and is similar to the forecasts disclosed by external analysts. This reflects BoCom’s most recent actual results,
global trade tensions and industry developments in mainland China.
• Cost-income ratio: ranges from 35.5% to 36.3% (2021: 35.5% to 36.1%) in the short to medium term. These ratios are similar to BoCom‘s
actual results in recent years and forecasts disclosed by external analysts.
• Effective tax rate (‘ETR’): ranges from 4.4% to 15.0% (2021: 6.8% to 15.0%) in the short to medium term, reflecting BoCom’s actual results
and an expected increase towards the long-term assumption through the forecast period. For periods after 2026, the rate is 15.0% (2021:
15.0%), which is higher than the recent historical average, and aligned to the minimum tax rate as proposed by the OECD/G20 Inclusive
Framework on Base Erosion and Profit Shifting.
• Capital requirements: capital adequacy ratio of 12.5% (2021: 12.5%) and tier 1 capital adequacy ratio of 9.5% (2021: 9.5%), based on
BoCom’s capital risk appetite and capital requirements respectively.
The following table shows the change to each key assumption in the VIU calculation that on its own would reduce the headroom to nil:
Key assumption
• Long-term profit growth rate
• Long-term asset growth rate
• Discount rate
Changes to key assumption to reduce headroom to nil
• Decrease by 4 basis points
• Increase by 3 basis points
• Increase by 5 basis points
• Expected credit losses as a percentage of customer advances
• Increase by 1 basis points
• Risk-weighted assets as a percentage of total assets
• Operating income growth rate
• Cost-income ratio
• Long-term effective tax rate
• Capital requirements – capital adequacy ratio
• Increase by 26 basis points
• Decrease by 5 basis points
• Increase by 15 basis points
• Increase by 46 basis points
• Increase by 5 basis points
• Capital requirements – tier 1 capital adequacy ratio
• Increase by 175 basis points
The following table further illustrates the impact on VIU of reasonably possible changes to key assumptions. This reflects the sensitivity of the
VIU to each key assumption on its own and it is possible that more than one favourable and/or unfavourable change may occur at the same time.
The selected rates of reasonably possible changes to key assumptions are based on external analysts’ forecasts, statutory requirements and
other relevant external data sources, which can change period to period.
380
HSBC Holdings plc Annual Report and Accounts 2022
Sensitivity of VIU to reasonably possible changes in key assumptions
At 31 Dec 2022
Long-term profit growth rate1
Long-term asset growth rate1
Discount rate
Expected credit losses as a percentage
of customer advances
Risk-weighted assets as a percentage of total assets
Operating income growth rate
Cost-income ratio
Long-term effective tax rate
Capital requirements – capital adequacy ratio
Capital requirements – tier 1 capital adequacy ratio
At 31 Dec 2021
Long-term profit growth rate1
Long-term asset growth rate1
Discount rate
Expected credit losses as a percentage
of customer advances
Risk-weighted assets as a percentage of total assets
Operating income growth rate
Cost-income ratio
Long-term effective tax rate
Capital requirements – capital adequacy ratio
Capital requirements – tier 1 capital adequacy ratio
Favourable change
Unfavourable change
Increase in
VIU
bps
$bn
VIU
$bn
75
(71)
(164)
3.6
3.1
6.9
27.1
26.6
30.4
Decrease in
VIU
$bn
(2.7)
(4.1)
(3.7)
VIU
$bn
20.8
19.4
19.8
bps
(71)
75
136
2022 to 2026: 95
2027 onwards: 91
(118)
44
(122)
(426)
—
—
87
(69)
(133)
2021 to 2025: 103
2026 onwards: 91
(111)
37
(152)
(104)
—
—
1.9
25.4
2022 to 2026: 120
2027 onwards: 104
0.1
1.3
1.0
1.5
—
—
4.2
2.9
5.4
23.6
24.8
24.5
25.0
23.5
23.5
29.0
27.7
30.2
239
(83)
174
1,000
191
266
(69)
87
207
1.5
26.3
0.2
1.0
1.7
0.3
—
—
25.0
25.8
26.5
25.1
24.8
24.8
2021 to 2025: 121
2026 onwards: 105
280
(58)
174
1,000
325
364
(2.9)
20.6
(2.3)
(2.5)
(2.1)
(3.6)
(6.3)
(3.2)
(2.7)
(4.7)
(5.3)
21.2
21.0
21.4
19.9
17.2
20.3
22.1
20.1
19.5
(2.7)
22.1
(2.1)
(1.8)
(1.7)
(3.6)
(10.0)
(6.5)
22.7
23.0
23.1
21.2
14.8
18.3
1 The reasonably possible ranges of the long-term profit growth rate and long-term asset growth rate assumptions reflect the close relationship between
these assumptions, which would result in offsetting changes to each assumption.
Considering the interrelationship of the changes set out in the table above, management estimates that the reasonably possible range of VIU is
$16.9bn to $28.7bn (2021: $19.0bn to $29.3bn). The range is based on impacts set out in the table above arising from the favourable/
unfavourable change in the earnings in the short to medium term, the long-term expected credit losses as a percentage of customer advances,
and a 50bps increase/decrease in the discount rate. All other long-term assumptions and the basis of the CMC have been kept unchanged when
determining the reasonably possible range of the VIU. Impairment, if determined, would be recognised in the income statement. The impact on
the Group’s CET1 ratio is expected to be minimal in the event of an impairment, as the adverse impact on CET1 capital from the impairment
would be offset by the favourable impact from a lower carrying value.
Selected financial information of BoCom
The statutory accounting reference date of BoCom is 31 December. For the year ended 31 December 2022, HSBC included the associate’s
results on the basis of the financial statements for the 12 months ended 30 September 2022, taking into account any known changes in the
subsequent period from 1 October 2022 to 31 December 2022 that would have materially affected the results.
Selected balance sheet information of BoCom
Cash and balances at central banks
Due from and placements with banks and other financial institutions
Loans and advances to customers
Other financial assets
Other assets
Total assets
Due to and placements from banks and other financial institutions
Deposits from customers
Other financial liabilities
Other liabilities
Total liabilities
Total equity
At 30 Sep
2022
$m
114,390
99,802
1,022,223
549,364
55,884
1,841,663
277,185
1,144,297
237,521
35,543
1,694,546
147,117
2021
$m
123,194
98,932
993,956
541,577
47,679
1,805,338
287,057
1,099,266
228,135
40,070
1,654,528
150,810
Reconciliation of BoCom’s total shareholders’ equity to the carrying amount in HSBC’s consolidated financial statements
HSBC’s share of total shareholders’ equity
Goodwill
Carrying amount
At 30 Sep
2022
$m
22,828
479
23,307
2021
$m
23,097
519
23,616
HSBC Holdings plc Annual Report and Accounts 2022
381
Financial statements
Notes on the financial statements
Selected income statement information of BoCom
Net interest income
Net fee and commission income
Credit and impairment losses
Depreciation and amortisation
Tax expense
Profit for the year
Other comprehensive income
Total comprehensive income
Dividends received from BoCom
The Saudi British Bank
For the 12 months ended 30 Sep
2021
$m
24,582
7,170
(9,701)
(2,297)
(1,045)
14,199
(368)
13,831
692
2022
$m
25,314
6,854
(9,712)
(2,351)
(598)
13,582
(245)
13,337
749
The Group’s investment in The Saudi British Bank (‘SABB’) is classified as an associate. HSBC is the largest shareholder in SABB with a
shareholding of 31%. Significant influence in SABB is established via representation on the Board of Directors. Investments in associates are
recognised using the equity method of accounting in accordance with IAS 28, as described previously for BoCom.
Impairment testing
There were no indicators of impairment at 31 December 2022. The fair value of the Group’s investment in SABB of $6.6bn was above the
carrying amount of $4.5bn.
19 Investments in subsidiaries
Main subsidiaries of HSBC Holdings1
Place of
incorporation or
registration
HSBC’s
interest
%
Europe
HSBC Bank plc
HSBC UK Bank plc
HSBC Continental Europe
HSBC Trinkaus & Burkhardt GmbH
Asia
Hang Seng Bank Limited
HSBC Bank (China) Company Limited
HSBC Bank Malaysia Berhad
HSBC Life (International) Limited
The Hongkong and Shanghai Banking Corporation Limited
Middle East and North Africa
England and Wales
England and Wales
France
Germany
Hong Kong
People’s Republic of
China
Malaysia
Bermuda
Hong Kong
HSBC Bank Middle East Limited
United Arab Emirates
North America
HSBC Bank Canada
HSBC Bank USA, N.A.
Latin America
HSBC Mexico, S.A., Institución de Banca Múltiple,
Grupo Financiero HSBC
Canada
US
At 31 Dec 2022
Share class
£1 Ordinary, $0.01 Non-Cumulative Third Dollar
Preference
£1 Ordinary
€5 Actions
€1 Ordinary
HK$5 Ordinary
CNY1 Ordinary
RM0.5 Ordinary
HK$1 Ordinary
Ordinary no par value
$1 Ordinary and $1 Cumulative Redeemable Preference
shares
Common no par value and Preference no par value
$100 Common and $0.01 Preference
100
100
99.99
99.99
62.14
100
100
100
100
100
100
100
Mexico
99.99
MXN2 Ordinary
1 Main subsidiaries are either held directly or indirectly via intermediate holding companies.
Details of the debt, subordinated debt and preference shares issued by the main subsidiaries to parties external to the Group are included in
Note 26 ‘Debt securities in issue’ and Note 29 ‘Subordinated liabilities’, respectively.
A list of all related undertakings is set out in Note 38. The principal countries of operation are the same as the countries and territories of
incorporation except for HSBC Life (International) Limited, which operates mainly in Hong Kong.
HSBC is structured as a network of regional banks and locally incorporated regulated banking entities. Each bank is separately capitalised in
accordance with applicable prudential requirements and maintains a capital buffer consistent with the Group’s risk appetite for the relevant
country or region. HSBC’s capital management process is incorporated in the annual operating plan, which is approved by the Board.
HSBC Holdings is the primary provider of equity capital to its subsidiaries and also provides them with non-equity capital where necessary. These
investments are substantially funded by HSBC Holdings’ issuance of equity and non-equity capital, and by profit retention.
As part of its capital management process, HSBC Holdings seeks to maintain a balance between the composition of its capital and its investment
in subsidiaries. Subject to this, there is no current or foreseen impediment to HSBC Holdings’ ability to provide funding for such investments.
During 2022, consistent with the Group’s capital plan, the Group’s subsidiaries did not experience any significant restrictions on paying dividends
or repaying loans and advances. Also, there are no foreseen restrictions envisaged with regard to planned dividends or payments. However, the
ability of subsidiaries to pay dividends or advance monies to HSBC Holdings depends on, among other things, their respective local regulatory
capital and banking requirements, exchange controls, statutory reserves, and financial and operating performance.
382
HSBC Holdings plc Annual Report and Accounts 2022
The amount of guarantees by HSBC Holdings in favour of other Group entities is set out in Note 33.
Information on structured entities consolidated by HSBC where HSBC owns less than 50% of the voting rights is included in Note 20 ‘Structured
entities’. In each of these cases, HSBC controls and consolidates an entity when it is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity.
Impairment testing of investments in subsidiaries
At each reporting period end, HSBC Holdings reviews investments in subsidiaries for indicators of impairment. An impairment is recognised
when the carrying amount exceeds the recoverable amount for that investment. The recoverable amount is the higher of the investment’s fair
value less costs of disposal and its VIU, in accordance with the requirements of IAS 36. The VIU is calculated by discounting management’s cash
flow projections for the investment. The cash flows represent the free cash flows based on the subsidiary’s binding capital requirements.
We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:
• Management’s judgement in estimating future cash flows: The cash flow projections for each investment are based on the latest approved
plans, which include forecast capital available for distribution based on the capital requirements of the subsidiary, taking into account
minimum and core capital requirements. For the impairment test at 31 December 2022, cash flow projections until the end of 2027 were
considered in line with our internal planning horizon. Our cash flow projections include known and observable climate-related opportunities
and costs associated with our sustainable products and operating model.
• Long-term growth rates: A long-term growth rate is used to extrapolate the free cash flows in perpetuity. The growth rate reflects inflation for
the country or territory within which the investment operates, and is based on the long-term average growth rates.
• Discount rates: The rate used to discount the cash flows is based on the cost of capital assigned to each investment, which is derived using a
CAPM. CAPM depends on a number of inputs reflecting financial and economic variables, including the risk-free rate and a premium to reflect
the inherent risk of the business being evaluated. These variables are based on the market’s assessment of the economic variables and
management’s judgement. The discount rates for each investment are refined to reflect the rates of inflation for the countries or territories
within which the investment operates. In addition, for the purposes of testing investments for impairment, management supplements this
process by comparing the discount rates derived using the internally generated CAPM, with cost of capital rates produced by external sources
for businesses operating in similar markets. The impacts from climate risk are included to the extent that they are observable in discount rates
and asset prices.
The net increase in investments in subsidiaries was partly due to the reversal of impairment of HSBC Overseas Holdings (UK) Limited of $2.5bn.
The recoverable amount of HSBC Overseas Holdings (UK) Limited is supported by the recoverable amounts of its subsidiaries, of which the
principal subsidiaries are HSBC North America Holdings Limited, HSBC Bank Canada and HSBC Bank Bermuda Limited. As HSBC Overseas
Holdings (UK) Limited has entered into a sales purchase agreement with Royal Bank of Canada to dispose of HSBC Bank Canada the sales
purchase agreement has been used to support the recoverable amount of $10.8bn (inclusive of the preferred shares) under a fair value less costs
of disposal basis. The fair value less costs of disposal of HSBC Bank Canada is at a $3.7bn premium to the book value recorded in HSBC
Overseas Holdings (UK) Limited. The cumulative impairment for HSBC Overseas Holdings (UK) Limited at 31 December 2022 was $4.7bn (2021:
$7.2bn). The carrying value was $32.8bn at 31 December 2022 (2021: $33.1bn). In 2022, in addition to the planned sale of our banking business
in Canada, there has been demonstrable performance of the underlying subsidiaries and an increase in interest rate forecasts. These factors
provide us with observable indications that HSBC Overseas Holdings (UK) Limited’s value has increased, which has led to the reversal of
impairment in HSBC Holdings. However, a distribution of the proceeds from the planned sale of HSBC Bank Canada to HSBC Holdings from
HSBC Overseas Holdings (UK) Limited could lead to a future impairment.
Impairment test results
Investments
At 31 Dec 2022
HSBC North America Holdings Limited
HSBC Bank Bermuda Limited
At 31 Dec 2021
HSBC North America Holdings Limited
HSBC Bank Bermuda Limited
Recoverable amount
$m
18,363
2,471
Discount rate
%
10.00
10.40
Long-term growth
%
2.22
1.87
20,560
1,643
9.20
9.50
3.50
1.71
Sensitivities of key assumptions in calculating VIU
At 31 December 2022, the recoverable amount of HSBC Overseas Holdings (UK) Limited remained sensitive to reasonably possible changes in
key assumptions impacting its principal subsidiaries, notably HSBC North America Holdings Limited and HSBC Bank Bermuda Limited.
In making an estimate of reasonably possible changes to assumptions, management considers the available evidence in respect of each input to
the model. These include the external range of observable discount rates, historical performance against forecast, and risks attaching to the key
assumptions underlying cash flow.
HSBC Holdings plc Annual Report and Accounts 2022
383
Financial statements
Notes on the financial statements
The following table presents a summary of the key assumptions underlying the most sensitive inputs to the model for HSBC North America
Holdings Limited and HSBC Bank Bermuda Limited, the key risks attaching to each, and details of a reasonably possible change to assumptions
where, in the opinion of management, these could result in an impairment.
Reasonably possible changes in key assumptions
Investment
HSBC North America
Holdings Limited and HSBC
Bank Bermuda Limited
(subsidiaries of HSBC
Overseas Holdings (UK)
Limited)
Input
Key assumptions
Associated risks
Reasonably possible
change
Free cash flows projections
• Level of interest rates and
yield curves.
• Competitors’ positions
within the market.
• Strategic actions relating
to revenue and costs are
not achieved.
• Free cash flow projections
decrease by 10%.
Discount rate
• Discount rate used is a
reasonable estimate of a
suitable market rate for
the profile of the
business.
• External evidence arises
to suggest that the rate
used is not appropriate to
the business.
• Discount rate increases
by 1%.
Sensitivity of VIU to reasonably possible changes in key assumptions
In $bn (unless otherwise stated)
At 31 December 2022
VIU
Impact on VIU
100bps increase in the discount rate – single variable1
10% decrease in forecast profitability – single variable1
HSBC North
America Holdings
Limited
HSBC Bank
Bermuda Limited
18.4
(1.7)
(1.8)
2.5
(0.2)
(0.2)
1 The recoverable amount of HSBC Overseas Holding (UK) Limited represents the aggregate of recoverable amounts of the underlying subsidiaries.
Single variable sensitivity analysis on a single subsidiary may therefore not be representative of the aggregate impact of the change in the variable.
Subsidiaries with significant non-controlling interests
Hang Seng Bank Limited
Proportion of ownership interests and voting rights held by non-controlling interests
Place of business
Profit attributable to non-controlling interests
Accumulated non-controlling interests of the subsidiary
Dividends paid to non-controlling interests
Summarised financial information:
– total assets
– total liabilities
– net operating income before changes in expected credit losses and other credit impairment charges
– profit for the year
– total comprehensive income for the year
20 Structured entities
2022
2021
37.86%
Hong Kong
$m
520
7,683
361
240,679
218,892
4,325
1,375
1,269
37.86%
Hong Kong
$m
708
7,597
568
230,866
209,315
4,280
1,872
1,686
HSBC is mainly involved with both consolidated and unconsolidated structured entities through the securitisation of financial assets, conduits
and investment funds, established either by HSBC or a third party.
Consolidated structured entities
Total assets of HSBC’s consolidated structured entities, split by entity type
At 31 Dec 2022
At 31 Dec 2021
Conduits
Conduits Securitisations HSBC managed funds
Other
$bn
4.2
4.4
$bn
7.2
10.0
$bn
4.8
6.3
$bn
7.5
8.4
Total
$bn
23.7
29.1
HSBC has established and manages two types of conduits: securities investment conduits (‘SICs’) and multi-seller conduits.
Securities investment conduits
The SICs purchase highly rated ABSs to facilitate tailored investment opportunities.
• At 31 December 2022, Solitaire, HSBC’s principal SIC, held $1.3bn of ABSs (2021: $1.6bn). It is currently funded entirely by commercial paper
(‘CP’) issued to HSBC. At 31 December 2022, HSBC held $1.5bn of CP (2021: $1.8bn).
384
HSBC Holdings plc Annual Report and Accounts 2022
Multi-seller conduit
HSBC’s multi-seller conduit was established to provide access to flexible market-based sources of finance for its clients. Currently, HSBC bears
risk equal to the transaction-specific facility offered to the multi-seller conduit, amounting to $6.2bn at 31 December 2022 (2021: $6.7bn). First
loss protection is provided by the originator of the assets, and not by HSBC, through transaction-specific credit enhancements. A layer of
secondary loss protection is provided by HSBC in the form of programme-wide enhancement facilities.
Securitisations
HSBC uses structured entities to securitise customer loans and advances it originates in order to diversify its sources of funding for asset
origination and capital efficiency purposes. The loans and advances are transferred by HSBC to the structured entities for cash or synthetically
through credit default swaps, and the structured entities issue debt securities to investors.
HSBC managed funds
HSBC has established a number of money market and non-money market funds. Where it is deemed to be acting as principal rather than agent
in its role as investment manager, HSBC controls these funds.
Other
HSBC has entered into a number of transactions in the normal course of business, which include asset and structured finance transactions
where it has control of the structured entity. In addition, HSBC is deemed to control a number of third-party managed funds through its
involvement as a principal in the funds.
Unconsolidated structured entities
The term ‘unconsolidated structured entities’ refers to all structured entities not controlled by HSBC. The Group enters into transactions with
unconsolidated structured entities in the normal course of business to facilitate customer transactions and for specific investment opportunities.
Nature and risks associated with HSBC interests in unconsolidated structured entities
Total asset values of the entities ($m)
0–500
500–2,000
2,000–5,000
5,000–25,000
25,000+
Number of entities at 31 Dec 2022
Total assets in relation to HSBC’s interests in the unconsolidated
structured entities
– trading assets
– financial assets designated and otherwise mandatorily measured at
fair value
– loans and advances to customers
– financial investments
– other assets
Total liabilities in relation to HSBC’s interests in the unconsolidated
structured entities
– other liabilities
Other off-balance sheet commitments
HSBC’s maximum exposure at 31 Dec 2022
Total asset values of the entities ($m)
0–500
500–2,000
2,000–5,000
5,000–25,000
25,000+
Number of entities at 31 Dec 2021
Total assets in relation to HSBC’s interests in the unconsolidated
structured entities
– trading assets
– financial assets designated and otherwise mandatorily measured at
fair value
– loans and advances to customers
– financial investments
– other assets
Total liabilities in relation to HSBC’s interests in the unconsolidated
structured entities
– other liabilities
Other off-balance sheet commitments
HSBC’s maximum exposure at 31 Dec 2021
Securitisations
HSBC
managed
funds
Non-HSBC
managed
funds
Other
85
8
—
—
—
93
$bn
2.5
—
—
2.5
—
—
—
—
0.2
2.7
96
11
—
—
—
107
$bn
4.8
—
—
4.8
—
—
—
—
0.1
4.9
338
102
28
18
5
491
$bn
10.7
0.4
9.7
—
0.6
—
—
—
1.5
12.2
294
116
33
14
4
461
$bn
10.8
0.2
10.0
—
0.6
—
—
—
0.9
11.7
1,321
929
388
206
24
2,868
$bn
19.7
0.1
18.7
0.5
0.4
—
—
—
4.6
24.3
1,408
911
435
197
11
2,962
$bn
18.6
2.4
15.5
0.1
0.6
—
—
—
4.6
23.2
41
4
—
—
—
45
$bn
2.6
—
—
1.9
—
0.7
0.4
0.4
1.8
4.0
37
3
—
—
—
40
$bn
3.8
0.1
—
3.0
—
0.7
0.4
0.4
1.2
4.6
Total
1,785
1,043
416
224
29
3,497
$bn
35.5
0.5
28.4
4.9
1.0
0.7
0.4
0.4
8.1
43.2
1,835
1,041
468
211
15
3,570
$bn
38.0
2.7
25.5
7.9
1.2
0.7
0.4
0.4
6.8
44.4
HSBC Holdings plc Annual Report and Accounts 2022
385
Financial statements
Notes on the financial statements
The maximum exposure to loss from HSBC’s interests in unconsolidated structured entities represents the maximum loss it could incur as a
result of its involvement with these entities regardless of the probability of the loss being incurred.
• For commitments, guarantees and written credit default swaps, the maximum exposure to loss is the notional amount of potential future
losses.
• For retained and purchased investments and loans to unconsolidated structured entities, the maximum exposure to loss is the carrying value
of these interests at the balance sheet reporting date.
The maximum exposure to loss is stated gross of the effects of hedging and collateral arrangements that HSBC has entered into in order to
mitigate the Group’s exposure to loss.
Securitisations
HSBC has interests in unconsolidated securitisation vehicles through holding notes issued by these entities. In addition, HSBC has investments
in ABSs issued by third-party structured entities.
HSBC managed funds
HSBC establishes and manages money market funds and non-money market investment funds to provide customers with investment
opportunities. Further information on funds under management is provided on page 115.
HSBC, as fund manager, may be entitled to receive management and performance fees based on the assets under management. HSBC may
also retain units in these funds.
Non-HSBC managed funds
HSBC purchases and holds units of third-party managed funds in order to facilitate business and meet customer needs.
Other
HSBC has established structured entities in the normal course of business, such as structured credit transactions for customers, to provide
finance to public and private sector infrastructure projects, and for asset and structured finance transactions.
In addition to the interests disclosed above, HSBC enters into derivative contracts, reverse repos and stock borrowing transactions with
structured entities. These interests arise in the normal course of business for the facilitation of third-party transactions and risk management
solutions.
HSBC sponsored structured entities
The amount of assets transferred to and income received from such sponsored structured entities during 2022 and 2021 was not significant.
21 Goodwill and intangible assets
Goodwill
Present value of in-force long-term insurance business
Other intangible assets1
At 31 Dec
2022
$m
4,156
9,900
7,265
21,321
2021
$m
5,033
9,453
6,136
20,622
1 Included within other intangible assets is internally generated software with a net carrying value of $6,166m (2021: $5,430m). During the year,
capitalisation of internally generated software was $2,663m (2021: $2,373m), impairment was $125m (2021: $137m) and amortisation was $1,447m
(2021: $1,183m).
Movement analysis of goodwill
Gross amount
At 1 Jan
Exchange differences
Reclassified to held for sale and additions1
Other
At 31 Dec
Accumulated impairment losses
At 1 Jan
Impairment losses2
Exchange differences
Reclassified to held for sale1
At 31 Dec
Net carrying amount at 31 Dec
2022
$m
22,215
(776)
(2,485)
11
18,965
(17,182)
—
482
1,891
(14,809)
4,156
2021
$m
23,135
(905)
—
(15)
22,215
(17,254)
(587)
659
—
(17,182)
5,033
1 Includes goodwill allocated to disposal groups as a result of the planned sales of our retail banking operations in France, banking business in Canada
and branch operations in Greece, offset by goodwill arising from the acquisition of L&T Investment Management Limited. For further details, see
Note 23.
2 Full impairment of goodwill allocated to Latin America – WPB.
386
HSBC Holdings plc Annual Report and Accounts 2022
Goodwill
Impairment testing
The Group’s impairment test in respect of goodwill allocated to each cash-generating unit (‘CGU’) is performed at 1 October each year. A review
for indicators of impairment is undertaken at each subsequent quarter-end and at 31 December 2022. No indicators of impairment were
identified as part of these reviews.
Basis of the recoverable amount
The recoverable amount of all CGUs to which goodwill has been allocated was equal to its value in use (‘VIU’) at each respective testing date.
The VIU is calculated by discounting management’s cash flow projections for the CGU. The key assumptions used in the VIU calculation for each
individually significant CGU that is not impaired are discussed below.
Key assumptions in VIU calculation – significant CGUs at 1 October 2022
Carrying
amount at
1 Oct 2022
of which
goodwill
Value in
use at
1 Oct 2022
$m
15,215
$m
2,643
$m
46,596
Discount
rate
%
9.9
Europe – WPB
Growth
rate
beyond
initial
cash flow
Carrying
amount at
1 Oct 2021
of which
goodwill
Value in use
at 1 Oct
2021
%
2.0
$m
18,780
$m
3,556
$m
29,799
Growth rate
beyond
initial cash
flow
projections
%
1.8
Discount
rate
%
9.2
At 1 October 2022, aggregate goodwill of $1,464m (1 October 2021: $2,108m) had been allocated to CGUs that were not considered individually
significant. The Group’s CGUs do not carry on their balance sheets any significant intangible assets with indefinite useful lives, other than
goodwill.
Management’s judgement in estimating the cash flows of a CGU
The cash flow projections for each CGU are based on forecast profitability plans approved by the Board and minimum capital levels required to
support the business operations of a CGU. The Board challenges and endorses planning assumptions in light of internal capital allocation
decisions necessary to support our strategy, current market conditions and macroeconomic outlook. For the 1 October 2022 impairment test,
cash flow projections until the end of 2027 were considered, in line with our internal planning horizon. Key assumptions underlying cash flow
projections reflect management’s outlook on interest rates and inflation, as well as business strategy, including the scale of investment in
technology and automation. Our cash flow projections include known and observable climate-related opportunities and costs associated with our
sustainable products and operating model. As required by IFRSs, estimates of future cash flows exclude estimated cash inflows or outflows that
are expected to arise from restructuring initiatives before an entity has a constructive obligation to carry out the plan, and would therefore have
recognised a provision for restructuring costs.
Discount rate
The rate used to discount the cash flows is based on the cost of equity assigned to each CGU, which is derived using a capital asset pricing
model (‘CAPM’) and market implied cost of equity. CAPM depends on a number of inputs reflecting financial and economic variables, including
the risk-free rate and a premium to reflect the inherent risk of the business being evaluated. These variables are based on the market’s
assessment of the economic variables and management’s judgement. The discount rates for each CGU are refined to reflect the rates of
inflation for the countries within which the CGU operates. In addition, for the purposes of testing goodwill for impairment, management
supplements this process by comparing the discount rates derived using the internally generated CAPM, with the cost of equity rates produced
by external sources for businesses operating in similar markets. The impacts of climate-risk are included to the extent that they are observable in
discount rates and asset prices.
Long-term growth rate
The long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long-term perspective within the Group of business
units making up the CGUs. These growth rates reflect inflation for the countries within which the CGU operates or from which it derives
revenue.
Sensitivities of key assumptions in calculating VIU
At 1 October 2022, given the extent by which VIU exceeds carrying amount, the Europe – WPB CGU was not sensitive to reasonably possible
adverse changes in key assumptions supporting the recoverable amount. In making an estimate of reasonably possible changes to assumptions,
management considers the available evidence in respect of each input to the VIU calculation, such as the external range of discount rates
observable, historical performance against forecast and risks attaching to the key assumptions underlying cash flow projections. None of the
remaining CGUs are individually significant.
Other intangible assets
Impairment testing
Impairment of other intangible assets is assessed in accordance with our policy explained in Note 1.2(n) by comparing the net carrying amount of
CGUs containing intangible assets with their recoverable amounts. Recoverable amounts are determined by calculating an estimated VIU or fair
value, as appropriate, for each CGU. No significant impairment was recognised during the year.
Key assumptions in VIU calculation
We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:
• Management’s judgement in estimating future cash flows: We considered past business performance, current market conditions and our
macroeconomic outlook to estimate future earnings. As required by IFRSs, estimates of future cash flows exclude estimated cash inflows or
outflows that are expected to arise from restructuring initiatives before an entity has a constructive obligation to carry out the plan, and would
therefore have recognised a provision for restructuring costs. For some businesses, this means that the benefit of certain strategic actions
may not be included in the impairment assessment, including capital releases. Our cash flow projections include known and observable
climate-related opportunities and costs associated with our sustainable products and operating model.
HSBC Holdings plc Annual Report and Accounts 2022
387
Financial statements
Notes on the financial statements
• Long-term growth rates: The long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long-term perspective
of the businesses within the Group.
• Discount rates: Rates are based on a combination of CAPM and market-implied calculations considering market data for the businesses and
geographies in which the Group operates. The impacts of climate-risk are included to the extent that they are observable in discount rates and
asset prices.
Future software capitalisation
We will continue to invest in digital capabilities to meet our strategic objectives. However, software capitalisation within businesses where
impairment was identified will not resume until the performance outlook for each business indicates future profits are sufficient to support
capitalisation. The cost of additional software investment in these businesses will be recognised as an operating expense until such time.
Sensitivity of estimates relating to non-financial assets
As explained in Note 1.2(a), estimates of future cash flows for CGUs are made in the review of goodwill and non-financial assets for impairment.
Non-financial assets include other intangible assets shown above, and owned property, plant and equipment and right-of-use assets (see
Note 22). The most significant sources of estimation uncertainty are in respect of the goodwill balances disclosed above. There are no non-
financial asset balances relating to individual CGUs which involve estimation uncertainty that represents a significant risk of resulting in a material
adjustment to the results and financial position of the Group within the next financial year.
Non-financial assets are widely distributed across CGUs within the legal entities of the Group, including Corporate Centre assets that cannot be
allocated to CGUs and are therefore tested for impairment at consolidated level. The recoverable amounts of other intangible assets, owned
property, plant and equipment, and right-of-use assets cannot be lower than individual asset fair values less costs to dispose, where relevant. At
31 December 2022, none of the CGUs were sensitive to reasonably possible adverse changes in key assumptions supporting the recoverable
amount. In making an estimate of reasonably possible changes to assumptions, management considers the available evidence in respect of each
input to the VIU calculation, such as the external range of discount rates observable, historical performance against forecast and risks attaching
to the key assumptions underlying cash flow projections.
Present value of in-force long-term insurance business
When calculating the present value of in-force long-term (‘PVIF’) insurance business, expected cash flows are projected after adjusting for a
variety of assumptions made by each insurance operation to reflect local market conditions, and management’s judgement of future trends and
uncertainty in the underlying assumptions is reflected by applying margins (as opposed to a cost of capital methodology) including valuing the
cost of policyholder options and guarantees using stochastic techniques.
Financial Reporting Committees of each key insurance entity meet on a quarterly basis to review and approve PVIF assumptions. All changes to
non-economic assumptions, economic assumptions that are not observable and model methodologies must be approved by the Financial
Reporting Committee.
Movements in PVIF
At 1 Jan
Acquisitions
Change in PVIF of long-term insurance business
– value of new business written during the year
– expected return1
– assumption changes and experience variances (see below)
– other adjustments
Exchange differences and other movements
At 31 Dec
2022
$m
9,453
271
263
1,322
(785)
(252)
(22)
(87)
9,900
2021
$m
9,435
—
130
1,090
(903)
(105)
48
(112)
9,453
1 ‘Expected return’ represents the unwinding of the discount rate and reversal of expected cash flows for the period.
Assumption changes and experience variances
Included within this line item are:
• $875m decrease (2021: $59m increase) in PVIF due to rising interest rates, which is directly offset within the valuation of liabilities under
insurance contracts;
• $72m decrease (2021: $324m decrease) reflecting the future expected sharing of returns with policyholders on contracts with discretionary
participation features (‘DPF’), to the extent this sharing is not already included in liabilities under insurance contracts; and
• $695m increase (2021: $160m increase) driven by other assumptions changes and experience variances.
Key assumptions used in the computation of PVIF for main life insurance operations
Economic assumptions are set in a way that is consistent with observable market values. The valuation of PVIF is sensitive to observed market
movements and the impact of such changes is included in the sensitivities presented below.
Weighted average risk-free rate
Weighted average risk discount rate
Expense inflation
2022
Hong Kong
%
3.85
7.33
3.00
France1
%
2.80
4.44
4.26
2021
Hong Kong
%
1.40
5.20
3.00
France1
%
0.69
1.55
1.80
1 For 2022, the calculation of France’s PVIF assumes a risk discount rate of 4.44% (2021: 1.55%) plus a risk margin of $100m (2021: $215m).
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HSBC Holdings plc Annual Report and Accounts 2022
Sensitivity to changes in economic assumptions
The Group sets the risk discount rate applied to the PVIF calculation by starting from a risk-free rate curve and adding explicit allowances for risks
not reflected in the best-estimate cash flow modelling. Where the insurance operations provide options and guarantees to policyholders, the cost
of these options and guarantees is accounted for as a deduction from the PVIF asset, unless the cost of such guarantees is already allowed for
as an explicit addition to liabilities under insurance contracts. For further details of these guarantees and the impact of changes in economic
assumptions on our insurance manufacturing subsidiaries, see page 237.
Sensitivity to changes in non-economic assumptions
Policyholder liabilities and PVIF are determined by reference to non-economic assumptions, including mortality and/or morbidity, lapse rates and
expense rates. For further details on the impact of changes in non-economic assumptions on our insurance manufacturing operations, see
page 238.
22 Prepayments, accrued income and other assets
Prepayments and accrued income
Settlement accounts
Cash collateral and margin receivables
Bullion
Endorsements and acceptances
Reinsurers’ share of liabilities under insurance contracts (Note 4)
Employee benefit assets (Note 5)
Right-of-use assets
Owned property, plant and equipment
Other accounts
At 31 Dec
2022
$m
10,316
19,565
63,421
15,752
8,407
4,257
7,282
2,219
10,365
15,282
156,866
2021
$m
8,233
17,713
42,171
15,283
11,229
3,668
10,269
2,985
10,255
14,765
136,571
Prepayments, accrued income and other assets include $113,383m (2021: $91,045m) of financial assets, the majority of which are measured at
amortised cost.
23 Assets held for sale and liabilities of disposal groups held for sale
Held for sale at 31 December
Disposal groups
Unallocated impairment losses1
Non-current assets held for sale
Assets held for sale
Liabilities of disposal groups held for sale
2022
$m
118,055
(2,385)
249
115,919
114,597
2021
$m
2,921
—
490
3,411
9,005
1 This represents impairment losses in excess of the carrying value of the non-current assets, excluded from the measurement scope of IFRS 5.
Disposal groups
Planned sale of our retail banking operations in France
On 25 November 2021, HSBC Continental Europe signed a framework agreement with Promontoria MMB SAS (‘My Money Group’) and its
subsidiary Banque des Caraïbes SA, regarding the planned sale of HSBC Continental Europe’s retail banking operations in France. The sale,
which is subject to regulatory approvals and the satisfaction of other relevant conditions, includes: HSBC Continental Europe’s French retail
banking operations; the Crédit Commercial de France (‘CCF’) brand; and HSBC Continental Europe’s 100% ownership interest in HSBC SFH
(France) and its 3% ownership interest in Crédit Logement.
The framework agreement has a long-stop date of 31 May 2024, if the sale has not closed by that point, the agreement will terminate, although
that date can be extended by either party to 30 November 2024 in certain circumstances or with the agreement of both parties. We have agreed
a detailed plan with My Money Group with the aim of completing the sale in the second half of 2023, subject to regulatory approvals, agreement
and implementation of necessary financing structures, and the completion of the operational transfer, including customer and data migrations. In
this regard the framework agreement imposes certain obligations on the parties in planning for completion.
Given the scale and complexity of the business being sold, there is risk of delay in the implementation of this plan. The disposal group was
classified as held for sale for the purposes of IFRS 5 as at 30 September 2022, reflecting the prevailing judgements concerning likelihood of the
framework agreement’s timetable being achieved. The assets and liabilities classified as held for sale were determined in accordance with the
framework agreement, and are subject to change as the detailed transition plan is executed. This classification and consequential
remeasurement resulted in an impairment loss of $2.4bn, which included impairment of goodwill of $0.4bn and related transaction costs. At 31
December 2022, we reassessed the likelihood of completion, taking account of the most recent correspondence with My Money Group
concerning the implementation of the plan and related developments. As a result of this reassessment, the likelihood of completion in 2023 is
judged to be highly probable. As such, and in accordance with IFRS 5, the disposal group continues to be classified as held for sale.
The disposal group will be remeasured at the lower of the carrying amount and fair value less costs to sell at each reporting period. Any
remaining gains or losses not previously recognised, including from the recycling of foreign currency translation reserves and the reversal of any
remaining deferred tax assets and liabilities, will be recognised on completion.
HSBC Holdings plc Annual Report and Accounts 2022
389
Financial statements
Notes on the financial statements
Planned sale of our banking business in Canada
On 29 November 2022, HSBC Holdings plc announced its wholly-owned subsidiary, HSBC Overseas Holdings (UK) Limited, entered into an
agreement for the planned sale of its banking business in Canada to Royal Bank of Canada. Completion of the transaction is expected in late
2023, subject to regulatory and governmental approval.
The majority of the estimated gain on sale of $5.7bn (inclusive of the recycling of an estimated $0.6bn of accumulated foreign currency
translation reserve losses) will be recognised on completion, reduced by earnings recognised by the Group in the period to completion. The
estimated pre-tax profit on the sale will be recognised through a combination of the consolidation of HSBC Canada’s results into the Group’s
financial statements (between the 30 June 2022 net asset reference date and until completion), and the remaining gain on sale recognised at
completion. There would be no tax on the gain recognised at completion. At 31 December 2022, total assets of $90bn and total liabilities of
$85bn met the criteria to be classified as held for sale in accordance with IFRS 5.
Planned sale of our branch operations in Greece
On 24 May 2022, HSBC Continental Europe signed a sale and purchase agreement for the planned sale of its branch operations in Greece to
Pancreta Bank SA. Completion of the transaction is subject to regulatory approval, and is currently expected to occur in the first half of 2023. At
31 December 2022, the disposal group included $0.4bn of loans and advances to customers and $2.3bn of customer accounts, which met the
criteria to be classified as held for sale. In the second quarter of 2022, we recognised a loss of $0.1bn, including goodwill impairment, upon
reclassification as held for sale in accordance with IFRS 5. On completion accumulated foreign currency translation reserves will be recycled to
the income statement.
Planned sale of our business in Russia
On 30 June 2022, following a strategic review of our business in Russia, HSBC Europe BV (a wholly-owned subsidiary of HSBC Bank plc)
entered into an agreement for the planned sale of its wholly-owned subsidiary HSBC Bank (RR) (Limited Liability Company). Completion of the
transaction is subject to regulatory and governmental approval, and is currently expected to occur in the first half of 2023. In 2022, a $0.3bn loss
on the planned sale was recognised, upon reclassification as held for sale in accordance with IFRS 5. On completion accumulated foreign
currency translation reserves will be recycled to the income statement.
At 31 December 2022, the major classes of assets and associated liabilities of disposal groups held for sale, including allocated impairment
losses, were as follows:
Assets of disposal groups held for sale
Cash and balances at central banks
Trading assets
Financial assets designated and otherwise mandatorily measured at fair value
through profit or loss
Derivatives
Loans and advances to banks
Loans and advances to customers
Reverse repurchase agreements – non-trading
Financial investments1
Goodwill
Prepayments, accrued income and other assets
Total assets at 31 December 2022
Liabilities of disposal groups held for sale
Trading liabilities
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Subordinated liabilities
Accruals, deferred income and other liabilities
Total liabilities at 31 December 2022
Expected date of completion
Operating segment
Canada
$m
4,664
3,168
13
866
99
55,197
4,396
17,243
225
4,256
90,127
2,751
62
60,606
3,266
—
806
11,602
8
5,727
84,828
Retail banking
operations in France
$m
71
—
47
—
—
25,029
—
—
—
75
25,222
—
—
22,348
—
3,523
7
1,326
—
159
27,363
Other
$m
1,811
8
1
—
154
350
250
106
—
26
2,706
3
2
2,320
—
—
—
—
—
81
2,406
Total
$m
6,546
3,176
61
866
253
80,576
4,646
17,349
225
4,357
118,055
2,754
64
85,274
3,266
3,523
813
12,928
8
5,967
114,597
Second half of 2023
All global businesses
Second half of 2023
WPB
1 Includes financial investments measured at fair value through other comprehensive income of $11,184m and debt instruments measured at amortised
cost of $6,165m
Net assets/(liabilities) classified as held for sale1
Expected cash contribution 2
Disposal group post-cash contribution 3
Retail banking
operations in France
$m
(2,063)
4,094
2,031
1 Excludes impairment loss allocated against the non-current assets that are in scope of IFRS 5 measurement of $78m.
2 The contributions are reported within ‘Cash and balances at central banks’ on the Group’s consolidated balance sheet.
3 ‘Disposal group post-cash contribution’ includes the net asset value of the transferring business of €1.6bn ($1.8bn) and $0.2bn of additional items to
which a nil value is ascribed per the framework agreement.
390
HSBC Holdings plc Annual Report and Accounts 2022
Under the financial terms of the planned transaction, HSBC Continental Europe will transfer the business with a net asset value of €1.6bn
($1.8bn), subject to adjustment (upwards or downwards) in certain circumstances, for a consideration of €1. Any required increase to the net
asset value of the business to achieve the net asset value of €1.6bn ($1.8bn) will be satisfied by the inclusion of additional cash. The value of
cash contribution will be determined by the net asset or liability position of the disposal group at the point of completion. Based upon the net
liabilities of the disposal group at 31 December 2022, HSBC would be expected to include a cash contribution of $4.1bn as part of the planned
transaction.
Completed business disposals
Mass market retail banking business in the US
On 26 May 2021, we announced our intention to exit our mass market retail banking business in the US, including our Personal and Advance
propositions, as well as retail business banking, and rebranding approximately 20 to 25 of our retail branches into international wealth centres to
serve our Premier and Jade customers. In conjunction with the execution of this strategy, HSBC Bank USA, N.A. entered into definitive sale
agreements with Citizens Bank and Cathay Bank to sell 90 of our retail branches along with substantially all residential mortgage, unsecured and
retail business banking loans and all deposits in our branch network not associated with our Premier, Jade and Private Banking customers. As a
result of entering into these sale agreements, assets and liabilities related to the agreements were transferred to held for sale during the second
quarter of 2021.
In February 2022, we completed the sale of the branch disposal group and recognised a net gain on sale of $0.2bn (including subsequent closing
adjustments). Included in the sale were $2.1bn of loans and advances to customers and $6.9bn of customer accounts. Certain assets under
management associated with our mass market retail banking operations were also transferred. The remaining branches not sold or rebranded
have been closed.
Business acquisitions
The following acquisitions form part of our strategy to become a market leader in Asian wealth management:
• On 28 January 2022, HSBC Insurance (Asia-Pacific) Holdings Limited, a subsidiary of the Group, notified the shareholders of Canara HSBC
Life Insurance Company Limited (‘Canara HSBC’) of its intention to increase its shareholding in Canara HSBC up to 49%. HSBC currently has
a 26% shareholding, which is accounted for as an associate. Any increase in shareholding is subject to agreement with other shareholders in
Canara HSBC, as well as internal and regulatory approvals. Established in 2008, Canara HSBC is a life insurance company based in India.
• On 11 February 2022, HSBC Insurance (Asia-Pacific) Holdings Limited completed the acquisition of 100% of AXA Insurance Pte Limited (‘AXA
Singapore’) for $0.5bn. A gain on acquisition of $0.1bn was recorded, reflecting the excess of the fair value of net assets acquired (gross
assets of $4.5bn and gross liabilities of $3.9bn) over the acquisition price. The legal integration of AXA Singapore with HSBC’s pre-existing
insurance operations in the country concluded on 1 February 2023.
• On 6 April 2022, The Hongkong and Shanghai Banking Corporation Limited, a subsidiary of the Group, announced it had increased its
shareholding in HSBC Qianhai Securities Limited, a partially-owned subsidiary, for $0.2bn from 51% to 90%.
• On 23 June 2022, HSBC Insurance (Asia) Limited, a subsidiary of the Group, acquired the remaining 50% equity interest in HSBC Life
Insurance Company Limited for $0.2bn. Headquartered in Shanghai, HSBC Life Insurance Company Limited offers a comprehensive range of
insurance solutions covering annuity, whole life, critical illness and unit-linked insurance products.
• On 25 November 2022, HSBC Asset Management (India) Private Ltd, a subsidiary of the Group, completed the acquisition of L&T Investment
Management Limited from L&T Finance Holdings Limited for $0.4bn, recognised primarily as intangibles and goodwill. L&T Investment
Management Limited is the investment manager of the L&T Mutual Fund, with assets under management of $9.4bn on completion.
24 Trading liabilities
Deposits by banks1
Customer accounts1
Other debt securities in issue (Note 26)
Other liabilities – net short positions in securities
At 31 Dec
1 ‘Deposits by banks’ and ‘Customer accounts’ include fair value repos, stock lending and other amounts.
25 Financial liabilities designated at fair value
HSBC
Deposits by banks and customer accounts1
Liabilities to customers under investment contracts
Debt securities in issue (Note 26)
Subordinated liabilities (Note 29)
At 31 Dec
2022
$m
9,332
10,724
978
51,319
72,353
2022
$m
19,171
5,380
93,140
9,636
127,327
2021
$m
4,243
9,424
1,792
69,445
84,904
2021
$m
16,703
5,938
112,761
10,100
145,502
1 Structured deposits placed at HSBC Bank USA are insured by the Federal Deposit Insurance Corporation, a US government agency, up to $250,000 per
depositor.
The carrying amount of financial liabilities designated at fair value was $8,124m less than the contractual amount at maturity (2021: $827m
more). The cumulative amount of change in fair value attributable to changes in credit risk was a profit of $234m (2021: loss of $2,084m).
HSBC Holdings plc Annual Report and Accounts 2022
391
Financial statements
Notes on the financial statements
HSBC Holdings
Debt securities in issue (Note 26)
Subordinated liabilities (Note 29)
At 31 Dec
2022
$m
25,423
6,700
32,123
2021
$m
26,818
5,600
32,418
The carrying amount of financial liabilities designated at fair value was $2,405m less than the contractual amount at maturity
(2021: $1,766m more). The cumulative amount of change in fair value attributable to changes in credit risk was a loss of $516m (2021: $951m).
26 Debt securities in issue
HSBC
Bonds and medium-term notes
Other debt securities in issue
Total debt securities in issue
Included within:
– trading liabilities (Note 24)
– financial liabilities designated at fair value (Note 25)
At 31 Dec
HSBC Holdings
Debt securities
Included within:
– financial liabilities designated at fair value (Note 25)
At 31 Dec
27 Accruals, deferred income and other liabilities
Accruals and deferred income
Settlement accounts
Cash collateral and margin payables
Endorsements and acceptances
Employee benefit liabilities (Note 5)
Lease liabilities
Other liabilities
At 31 Dec
2022
$m
145,240
27,027
172,267
(978)
(93,140)
78,149
2022
$m
92,361
(25,423)
66,938
2022
$m
12,353
18,176
70,292
8,379
1,096
2,767
20,177
133,240
2021
$m
166,537
26,573
193,110
(1,792)
(112,761)
78,557
2021
$m
94,301
(26,818)
67,483
2021
$m
10,466
15,226
50,226
11,232
1,607
3,586
22,430
114,773
Accruals, deferred income and other liabilities include $125,890m (2021: $111,887m) of financial liabilities, the majority of which are measured at
amortised cost.
28 Provisions
Restructuring
costs
Legal
proceedings
and regulatory
matters
Customer
remediation
Other
provisions
$m
383
434
(288)
(87)
3
445
$m
$m
$m
619
271
(393)
(82)
(6)
409
386
60
(106)
(109)
(36)
195
558
206
(168)
(125)
(74)
397
Total
$m
1,946
971
(955)
(403)
(113)
1,446
620
(108)
512
2,566
1,958
Provisions (excluding contractual commitments)
At 1 Jan 2022
Additions
Amounts utilised
Unused amounts reversed
Exchange and other movements
At 31 Dec 2022
Contractual commitments1
At 1 Jan 2022
Net change in expected credit loss provision and other movements
At 31 Dec 2022
Total provisions
At 31 Dec 2021
At 31 Dec 2022
392
HSBC Holdings plc Annual Report and Accounts 2022
Provisions (excluding contractual commitments)
At 1 Jan 2021
Additions
Amounts utilised
Unused amounts reversed
Exchange and other movements
At 31 Dec 2021
Contractual commitments1
At 1 Jan 2021
Net change in expected credit loss provision and other movements
At 31 Dec 2021
Total provisions
At 31 Dec 2020
At 31 Dec 2021
Restructuring
costs
Legal
proceedings
and regulatory
matters
Customer
remediation
Other
provisions
$m
671
347
(499)
(170)
34
383
$m
$m
$m
756
249
(316)
(59)
(11)
619
858
192
(548)
(113)
(3)
386
305
471
(58)
(124)
(36)
558
Total
$m
2,590
1,259
(1,421)
(466)
(16)
1,946
1,088
(468)
620
3,678
2,566
1 Contractual commitments include the provision for contingent liabilities measured under IFRS 9 ‘Financial Instruments’ in respect of financial
guarantees and the expected credit loss provision on off-balance sheet guarantees and commitments.
Further details of ‘Legal proceedings and regulatory matters’ are set out in Note 35. Legal proceedings include civil court, arbitration or tribunal
proceedings brought against HSBC companies (whether by way of claim or counterclaim) or civil disputes that may, if not settled, result in court,
arbitration or tribunal proceedings. Regulatory matters refer to investigations, reviews and other actions carried out by, or in response to the
actions of, regulators or law enforcement agencies in connection with alleged wrongdoing by HSBC.
Customer remediation refers to HSBC’s activities to compensate customers for losses or damages associated with a failure to comply with
regulations or to treat customers fairly. Customer remediation is often initiated by HSBC in response to customer complaints and/or industry
developments in sales practices and is not necessarily initiated by regulatory action.
For further details of the impact of IFRS 9 on undrawn loan commitments and financial guarantees, presented in ‘Contractual commitments’, see
Note 33. This provision results from the adoption of IFRS 9 and has no comparatives. Further analysis of the movement in the expected credit
loss provision is disclosed within the ’Reconciliation of allowances for loans and advances to banks and customers including loan commitments
and financial guarantees’ table on page 163.
29 Subordinated liabilities
HSBC’s subordinated liabilities
At amortised cost
– subordinated liabilities
– preferred securities
Designated at fair value (Note 25)
– subordinated liabilities
– preferred securities
At 31 Dec
Issued by HSBC subsidiaries
Issued by HSBC Holdings
2022
$m
22,290
20,547
1,743
9,636
9,636
—
31,926
6,094
25,832
2021
$m
20,487
18,640
1,847
10,100
10,100
—
30,587
9,112
21,475
Subordinated liabilities rank behind senior obligations and generally count towards the capital base of HSBC. Capital securities may be called and
redeemed by HSBC subject to prior notification to the PRA and, where relevant, the consent of the local banking regulator. If not redeemed at
the first call date, coupons payable may reset or become floating rate based on relevant market rates. On subordinated liabilities other than
floating rate notes, interest is payable at fixed rates of up to 10.176%.
The balance sheet amounts disclosed in the following table are presented on an IFRS basis and do not reflect the amount that the instruments
contribute to regulatory capital, principally due to regulatory amortisation and regulatory eligibility limits.
HSBC Holdings plc Annual Report and Accounts 2022
393
Financial statements
Notes on the financial statements
HSBC’s subsidiaries subordinated liabilities in issue
Additional tier 1 capital securities guaranteed by HSBC Holdings1,2
$900m
10.176% non-cumulative step-up perpetual preferred securities, series 23
Additional tier 1 capital securities guaranteed by HSBC Bank plc1,2
£700m
5.844% non-cumulative step-up perpetual preferred securities4,5
Tier 2 securities issued by HSBC Bank plc
$750m
$500m
$300m
$300m
Undated floating rate primary capital notes
Undated floating rate primary capital notes
Undated floating rate primary capital notes, series 3
7.65% subordinated notes6
£300m
£350m
£500m
£225m
£600m
6.50% subordinated notes7
5.375% callable subordinated step-up notes2,7,8
5.375% subordinated notes7
6.25% subordinated notes7
4.75% subordinated notes7
Tier 2 securities issued by The Hongkong and Shanghai Banking Corporation Limited
$400m
Primary capital undated floating rate notes (third series)
Tier 2 securities issued by HSBC Bank Malaysia Berhad
MYR500m 5.05% subordinated bonds2,9
Tier 2 securities issued by HSBC USA Inc.
$250m
7.20% subordinated debentures2
Tier 2 securities issued by HSBC Bank USA, N.A.
$1,000m
$750m
$700m
5.875% subordinated notes10
5.625% subordinated notes10
7.00% subordinated notes
Tier 2 securities issued by HSBC Bank Canada
Other subordinated liabilities each less than $150m2,11
Securities issued by other HSBC subsidiaries
Other subordinated liabilities each less than $200m12
Subordinated liabilities issued by HSBC subsidiaries at 31 Dec
First call date Maturity date
Jun 2030
Nov 2031
Jun 1990
Sep 1990
Jun 1992
—
—
Nov 2025
—
—
—
Jul 1991
May 2025
Jul 2023
Nov 2030
Aug 2033
Jan 2041
Mar 2046
Nov 2022
Nov 2027
—
Jul 2097
—
—
—
Nov 2034
Aug 2035
Jan 2039
Oct 1996
Nov 2083
2022
$m
900
900
684
684
750
500
300
170
1,720
162
73
186
56
230
707
2,427
400
400
—
—
223
223
339
366
700
1,405
—
—
2021
$m
900
900
947
947
750
500
300
300
1,850
406
539
900
303
805
2,953
4,803
400
400
120
120
222
222
456
489
697
1,642
9
9
55
6,094
69
9,112
1 See paragraph below, ‘Guaranteed by HSBC Holdings or HSBC Bank plc’.
2 These securities are ineligible for inclusion in the capital base of HSBC.
3 The interest rate payable after June 2030 is the sum of the three-month Libor plus 4.98%.
4 The interest rate payable after November 2031 is the sum of the compounded daily Sonia rate plus 2.0366%.
5 The value of the security partially decreased as a result of a fair value hedge gain. The instrument was held at amortised cost in 2021.
6 HSBC Bank plc tendered for this security in November 2022. The principal balance is $180m. The original notional value of the security was $300m.
7 HSBC Bank plc tendered for these securities in November 2022. The principal balances are £135m, £61m, £157m, £70m and £237m, respectively. The
original notional values of these securities were £300m, £350m, £500m, £225m and £600m respectively.
8 These securities qualified as tier 2 capital for HSBC under CRR II until 31 December 2021 by virtue of the application of grandfathering provisions. The
interest rate payable after November 2025 is the sum of the compounded daily Sonia rate plus 1.6193%.
9 These securities were fully repaid in November 2022.
10 HSBC tendered for these securities in November 2019. The principal balances are $357m and $383m respectively. The original notional values of these
securities were $1,000m and $750m, respectively.
11 Liability accounts for HSBC Bank Canada have been reclassified to ‘Liabilities of disposal groups held for sale’.
12 These securities are included in the capital base of HSBC, in accordance with the grandfathering provisions under CRR II. In 2022, securities of $11m
matured and were redeemed.
HSBC Holdings’ subordinated liabilities
At amortised cost
Designated at fair value (Note 25)
At 31 Dec
2022
$m
19,727
6,700
26,427
2021
$m
17,059
5,600
22,659
394
HSBC Holdings plc Annual Report and Accounts 2022
HSBC Holdings’ subordinated liabilities in issue
Tier 2 securities issued by HSBC Holdings
Amounts owed to third parties
$2,000m
$1,500m
$1,500m
$264m
$223m
$125m
$97m
$1,431m
$569m
$1,515m
$985m
$961m
$539m
$1,500m
$2,000m
$2,000m
4.25% subordinated notes2,3
4.25% subordinated notes2
4.375% subordinated notes2
7.625% subordinated notes1,4
7.625% subordinated notes2,6
7.35% subordinated notes1,4
7.35% subordinated notes2,6
6.50% subordinated notes1,5
6.50%subordinated notes2,6
6.50% subordinated notes1,5
6.50% subordinated notes2,6
6.80% subordinated notes1,5
6.80% subordinated notes2,6
5.25% subordinated notes2
4.762% subordinated notes2
8.113% subordinated notes2
£650m
£650m
£750m
£900m
£1,000m
€1,500m
€1,000m
€1,250m
5.75% subordinated notes2
6.75% subordinated notes2
7.00% subordinated notes2
6.00% subordinated notes2
8.201% subordinated notes2
3.0% subordinated notes2
3.125% subordinated notes2
6.364% subordinated notes2
SGD900m 5.25%subordinated notes2
JPY11,900m 2.50% subordinated notes2
First call
date
Maturity
date
2022
$m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Mar 2032
Nov 2032
—
—
—
—
Aug 2029
—
—
Nov 2027
Mar 2024
Aug 2025
Nov 2026
May 2032
May 2032
Nov 2032
Nov 2032
May 2036
May 2036
Sep 2037
Sep 2037
Jun 2038
Jun 2038
Mar 2044
Mar 2033
Nov 2033
Dec 2027
Sep 2028
Apr 2038
Mar 2040
Nov 2034
Jun 2025
Jun 2028
Nov 2032
1,941
1,450
1,450
308
223
143
97
1,461
568
1,178
977
953
540
1,447
1,766
2,008
775
816
817
776
1,252
1,492
991
1,316
Jun 2027
Jun 2032
694
Sep 2027
Sep 2032
88
2021
$m
2,072
1,615
1,641
536
—
241
—
2,032
—
2,825
—
1,491
—
1,946
—
—
1,040
877
1,082
1,320
—
1,737
1,304
—
—
—
Amounts owed to HSBC undertakings
$900m
10.176% subordinated step-up cumulative notes
Jun 2030
Jun 2040
At 31 Dec
25,527
21,759
900
900
26,427
900
900
22,659
1 Amounts owed to third parties represent securities included in the capital base of HSBC as tier 2 securities in accordance with the grandfathering
provisions under CRR II.
2 These securities are included in the capital base of HSBC as fully CRR II-compliant tier 2 securities on an end point basis.
3 These subordinated notes are measured at amortised cost in HSBC Holdings, where the interest rate risk is hedged using a fair value hedge, while
they are measured at fair value in the Group.
4 These securities were subjected to a tender and an exchange offer exercise in September 2022. The original principal amounts were $488m and
$222m, respectively, and are now $264m and $125m.
5 These securities were subjected to an exchange offer exercise in September 2022. The original principal amounts were $2,000m, $2,500m and
$1,500m, respectively, and are now $1,431m, $1,515m and $961m.
6 These subordinated notes were issued under an exchange offer exercise in September 2022.
HSBC Holdings plc Annual Report and Accounts 2022
395
Financial statements
Notes on the financial statements
Guaranteed by HSBC Holdings or HSBC Bank plc
Capital securities guaranteed by HSBC Holdings or HSBC Bank plc were issued by the Jersey limited partnerships. The proceeds of these were
lent to the respective guarantors by the limited partnerships in the form of subordinated notes. They qualified as additional tier 1 capital for HSBC
under CRR II until 31 December 2021 by virtue of the application of grandfathering provisions. The capital security guaranteed by HSBC Bank plc
also qualified as additional tier 1 capital for HSBC Bank plc (on a solo and a consolidated basis) under CRR II until 31 December 2021 by virtue of
the same grandfathering process. Since 31 December 2021, these securities have no longer qualified as regulatory capital for HSBC or HSBC
Bank plc.
These preferred securities, together with the guarantee, are intended to provide investors with rights to income and capital distributions and
distributions upon liquidation of the relevant issuer that are equivalent to the rights that they would have had if they had purchased non-
cumulative perpetual preference shares of the relevant issuer. There are limitations on the payment of distributions if such payments are
prohibited under UK banking regulations or other requirements, if a payment would cause a breach of HSBC’s capital adequacy requirements, or
if HSBC Holdings or HSBC Bank plc has insufficient distributable reserves (as defined).
HSBC Holdings and HSBC Bank plc have individually covenanted that, if prevented under certain circumstances from paying distributions on the
preferred securities in full, they will not pay dividends or other distributions in respect of their ordinary shares, or repurchase or redeem their
ordinary shares, until the distribution on the preferred securities has been paid in full.
If the consolidated total capital ratio of HSBC Holdings falls below the regulatory minimum required or if the Directors expect it to do so in the
near term, provided that proceedings have not been commenced for the liquidation, dissolution or winding up of HSBC Holdings, the holders’
interests in the preferred securities guaranteed by HSBC Holdings will be exchanged for interests in preference shares issued by HSBC Holdings
that have economic terms which are in all material respects equivalent to the preferred securities and their guarantee.
If the preferred securities guaranteed by HSBC Bank plc are outstanding in November 2048, or if the total capital ratio of HSBC Bank plc (on a
solo or consolidated basis) falls below the regulatory minimum required, or if the Directors expect it to do so in the near term, provided that
proceedings have not been commenced for the liquidation, dissolution or winding up of HSBC Bank plc, the holders’ interests in the preferred
security guaranteed by HSBC Bank plc will be exchanged for interests in preference shares issued by HSBC Bank plc that have economic terms
which are in all material respects equivalent to the preferred security and its guarantee.
Tier 2 securities
Tier 2 capital securities are either perpetual or dated subordinated securities on which there is an obligation to pay coupons. These capital
securities are included within HSBC’s regulatory capital base as tier 2 capital under CRR II, either as fully eligible capital or by virtue of the
application of grandfathering provisions. In accordance with CRR II, the capital contribution of all tier 2 securities is amortised for regulatory
purposes in their final five years before maturity.
30 Maturity analysis of assets, liabilities and off-balance sheet commitments
The table on page 397 provides an analysis of consolidated total assets, liabilities and off-balance sheet commitments by residual contractual
maturity at the balance sheet date. These balances are included in the maturity analysis as follows:
• Trading assets and liabilities (including trading derivatives but excluding reverse repos, repos and debt securities in issue) are included in the
‘Due not more than 1 month’ time bucket, because trading balances are typically held for short periods of time.
• Financial assets and liabilities with no contractual maturity (such as equity securities) are included in the ‘Due over 5 years’ time bucket.
Undated or perpetual instruments are classified based on the contractual notice period, which the counterparty of the instrument is entitled to
give. Where there is no contractual notice period, undated or perpetual contracts are included in the ‘Due over 5 years’ time bucket.
• Non-financial assets and liabilities with no contractual maturity are included in the ‘Due over 5 years’ time bucket.
• Financial instruments included within assets and liabilities of disposal groups held for sale are classified on the basis of the contractual
maturity of the underlying instruments and not on the basis of the disposal transaction.
• Liabilities under insurance contracts included in ‘other financial liabilities’, are irrespective of contractual maturity included in the ‘Due over 5
years’ time bucket in the maturity table provided below. An analysis of the expected maturity of liabilities under insurance contracts based on
undiscounted cash flows is provided on page 238. Liabilities under investment contracts are classified in accordance with their contractual
maturity. Undated investment contracts are included in the ‘Due over 5 years’ time bucket, although such contracts are subject to surrender
and transfer options by the policyholders.
• Loan and other credit-related commitments are classified on the basis of the earliest date they can be drawn down.
396
HSBC Holdings plc Annual Report and Accounts 2022
HSBC
Maturity analysis of assets, liabilities and off-balance sheet commitments
Due over
1 month
but not
more
than
3 months
Due over
3 months
but not
more
than
6 months
Due over
6 months
but not
more
than
9 months
Due over
9 months
but not
more
than
1 year
Due over
1 year
but not
more
than
2 years
Due over
2 years
but not
more
than
5 years
Due not
more
than
1 month
Due over
5 years
$m
$m
$m
$m
$m
$m
$m
$m
Total
$m
327,002
7,297
43,787
—
—
—
—
—
—
213,234
1,333
1,343
—
—
—
338
—
—
—
425
—
—
—
808
—
—
—
222
— 327,002
—
7,297
—
43,787
390 218,093
2,778
101
370
658
(53)
645
2,005
38,559
45,063
133
13,963
75,487
9,142
60,064
6,281
51,736
79,912
3,755
6,249
281,710
72,241
139,935
41,835
84,956
13,144
171,173
46,997
33,781
99,409
30
8,364
58,983
6,664
45,719
6,600
16,164
31,629
3,452
3,772
1,439,344 232,669 124,107
—
1,439,344 232,669 124,107
—
—
21
880
35,642
5,754
24,427
5,461
5,840
12,301
3,044
616
59,340
—
59,340
64
2,344
261
3,058
1,052
3,900
875 284,146
132 104,882
33,738 100,027 173,306 307,736 924,854
51,104 273,487 412,140
31,135 446,032
66,682
— 253,754
79,410 119,766 425,564
14,697 117,378
40,017
1,708 113,380
303
56,915 166,681 302,281 483,863 2,865,200
— 101,330 101,330
56,915 166,681 302,281 585,193 2,966,530
18,375
68,514 108,590
13,612
13,138
2,066
3,999
41,968
15,369
546
5,779
22,627
5,332
2,776
13,581
3,263
777
3,114
—
—
27,340
—
—
—
—
—
—
—
27,340
43,787
46,994
1,388,297
657,413
555,539
175,345
121,193
—
359
93,108
55,252
31,624
6,232
3,804
—
3,510
47,712
35,430
10,385
1,897
685
—
205
14,244
10,431
3,080
733
170
—
136
17,295
12,374
3,824
1,097
645
7,864
—
66,027
5,668
—
281
—
113
—
113
—
1,455
4,719
2,835
1,667
217
1,250
—
116
—
13,737
4,607
2,351
2,146
110
—
43,787
—
326
66,722
321 1,570,303
2 776,088
274 608,539
45 185,676
— 127,747
—
35
—
—
7,864
72,353
16,431
7,399
6,561
4,307
5,326
19,287
34,885
33,131 127,327
—
7,057
—
3,621
—
4,792
—
3,156
—
4,289
—
16,234
—
29,940
—
23,510
—
92,599
—
—
—
—
—
1,971
3,675
3,990
9,636
9,374
284,414
4,514
—
705
3,809
76,928
104,224
—
3,778
73
7,400
—
28
7,372
4,342
9,384
—
2,160,673 131,537
—
2,160,673 131,537
—
825,781
242,953
449,843
132,985
184
2
176
6
1,769
18
7,476
—
40
7,436
5,374
4,785
11
76,413
—
76,413
75
3
72
—
1,151
46
4,745
—
38
4,707
6,599
1,022
160
31,611
—
31,611
59
—
59
—
1,037
57
3,585
—
36
3,549
8,606
1,626
—
37,389
—
37,389
210
110
84
16
1,082
171
9,198
—
124
9,074
2,343
1,111
—
39,650
—
39,650
242
199
43
—
5,631
21,991
—
1,346
20,645
1,270
849
19,240
601
656
17,983
8,653
2,018
1,689
85,713
25,092
136 285,764
78,149
601
2,973
74,575
1,479 114,324
1,720 125,890
20,430
22,290
79,534 2,642,520
— 127,982 127,982
85,713 207,516 2,770,502
975
811
163
1
328 827,854
300 244,378
28 450,468
— 133,008
Financial assets
Cash and balances at central banks
Items in the course of collection from other
banks
Hong Kong Government certificates of
indebtedness
Trading assets
Financial assets designated or otherwise
mandatorily measured at fair value
Derivatives
Loans and advances to banks
Loans and advances to customers
– personal
– corporate and commercial
– financial
Reverse repurchase agreements – non-trading
Financial investments
Assets held for sale1
Accrued income and other financial assets
Financial assets at 31 Dec 2022
Non-financial assets
Total assets at 31 Dec 2022
Off-balance sheet commitments received
Loan and other credit-related commitments
Financial liabilities
Hong Kong currency notes in circulation
Deposits by banks
Customer accounts
– personal
– corporate and commercial
– financial
Repurchase agreements – non-trading
Items in the course of transmission to other
banks
Trading liabilities
Financial liabilities designated at
fair value
– debt securities in issue: covered bonds
– debt securities in issue: unsecured
– subordinated liabilities and preferred
securities
– other
Derivatives
Debt securities in issue
– covered bonds
– otherwise secured
– unsecured
Liabilities of disposal groups held for sale2
Accruals and other financial liabilities
Subordinated liabilities
Total financial liabilities at 31 Dec 2022
Non-financial liabilities
Total liabilities at 31 Dec 2022
Off-balance sheet commitments given
Loan and other credit-related commitments
– personal
– corporate and commercial
– financial
1 Unallocated impairment losses in relation to disposal groups of $2.4bn and non-financial assets of $1bn that are both are presented within assets held
for sale on the balance sheet have been included within non-financial assets in the table above.
2 $0.3bn of non-financial liabilities that are presented within liabilities of disposal groups held for sale on the balance sheet have been included within
non-financial liabilities in the table above.
HSBC Holdings plc Annual Report and Accounts 2022
397
Financial statements
Notes on the financial statements
Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)
Due over
1 month
but not
more
than
3 months
Due over
3 months
but not
more
than
6 months
Due not
more
than
1 month
Due over
6 months
but not
more than
9 months
Due over
9 months
but not
more than
1 year
Due over
1 year
but not
more than
2 years
Due over
2 years
but not
more than
5 years
Due over
5 years
$m
$m
$m
$m
$m
$m
$m
$m
Total
$m
Financial assets
Cash and balances at central banks
Items in the course of collection from other
banks
Hong Kong Government certificates of
indebtedness
Trading assets
Financial assets designated at fair value
Derivatives
Loans and advances to banks
Loans and advances to customers
– personal
– corporate and commercial
– financial
Reverse repurchase agreements – non-trading
Financial investments
Assets held for sale1
Accrued income and other financial assets
Financial assets at 31 Dec 2021
Non-financial assets
Total assets at 31 Dec 2021
Off-balance sheet commitments received
Loan and other credit-related commitments
Financial liabilities
Hong Kong currency notes in circulation
Deposits by banks
Customer accounts
– personal
– corporate and commercial
– financial
Repurchase agreements – non-trading
Items in the course of transmission to other
banks
Trading liabilities
Financial liabilities designated at fair value
– debt securities in issue: covered bonds
– debt securities in issue: unsecured
– subordinated liabilities and preferred
securities
– other
Derivatives
Debt securities in issue
– covered bonds
– otherwise secured
– unsecured
Liabilities of disposal groups held for sale
Accruals and other financial liabilities
Subordinated liabilities
Total financial liabilities at 31 Dec 2021
Non-financial liabilities
Total liabilities at 31 Dec 2021
Off-balance sheet commitments given
Loan and other credit-related commitments
– personal
– corporate and commercial
– financial
403,018
4,136
42,578
—
—
—
—
—
—
2,403
89
164
10,889
82,531
11,373
64,511
6,647
49,392
68,034
—
5,932
244,422
4,968
195,701
55,572
160,583
50,573
97,554
12,456
155,997
47,084
58
79,019
440
585
85
5,469
69,380
8,934
52,548
7,898
18,697
33,233
—
2,935
1,393,136 219,434 130,824
—
1,393,136 219,434 130,824
—
—
—
—
—
194
515
110
1,078
42,459
8,022
29,341
5,096
9,386
20,638
—
536
74,916
—
74,916
—
—
—
—
—
—
—
—
—
— 403,018
—
4,136
—
42,578
40,716
468
224
233
1,512
294
1,852
310
3,134
621
855
91
5,321
— 248,842
49,804
188 196,882
83,136
161
42,651 107,393 220,746 320,071 1,045,814
78,373 284,922 475,234
32,664 505,335
65,245
— 241,648
80,367 125,236 446,274
2,831
90,985
71,065 167,121 309,358 490,094 2,855,948
— 101,991 101,991
71,065 167,121 309,358 592,085 2,957,939
25,271
72,441 127,527
14,846
1,843
7,766
28,749
6,136
3,661
21,779
180
357
9,681
2,672
49,903
11
254
2,033
1,689
549
263
2,485
—
—
49,061
—
—
—
—
—
—
—
49,061
42,578
63,660
1,615,025
802,777
623,459
188,789
117,625
—
2,695
51,835
24,725
22,980
4,130
4,613
—
2,419
19,167
12,038
5,654
1,475
1,716
5,214
79,789
18,080
—
9,916
—
—
3,810
9,437
1,137
5,967
346
4,514
—
2,823
—
238
8,007
5,961
1,762
284
292
—
218
3,287
—
2,259
—
125
9,710
5,255
3,402
1,053
142
—
223
4,485
—
3,462
—
14,653
3,143
2,304
706
133
975
—
16,734
3,585
2,242
1,167
176
377
—
42,578
628 101,152
102 1,710,574
26 855,328
33 659,163
43 196,083
930 126,670
—
—
—
5,214
445
17,422
1,481
14,758
73
42,116
1,160
34,515
—
84,904
46,161 145,502
3,778
35,282 108,982
—
—
—
—
—
—
—
5,371
4,729
10,100
8,164
190,233
7,053
—
957
6,096
8,753
82,996
—
2,231,006
—
2,231,006
813,491
239,207
456,498
117,786
2,333
46
7,777
—
164
7,613
6
10,311
1
90,531
—
90,531
121
34
76
11
1,691
11
5,664
—
42
5,622
9
5,621
11
39,478
—
39,478
133
34
91
8
1,028
30
6,880
997
31
5,852
9
1,094
—
20,055
—
20,055
228
54
168
6
1,023
25
1,703
—
193
1,510
8
1,064
—
17,485
—
17,485
254
108
143
3
1,183
100
9,045
996
896
7,153
31
1,917
417
48,148
—
48,148
6,150
20,181
—
1,207
18,974
11
1,070
288
20,254
860
1,696
17,698
68
2,339
2,055
87,889
22,642
331 191,064
78,557
2,853
5,186
70,518
8,895
2,818 108,160
18,003
20,487
89,165 2,623,757
— 127,405 127,405
87,889 216,570 2,751,162
78
32
46
—
931
688
243
—
238 815,474
238 240,395
— 457,265
— 117,814
398
HSBC Holdings plc Annual Report and Accounts 2022
HSBC Holdings
Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)
Due not
more
than
1 month
Due over
1 month
but not
more than
3 months
Due over
3 months
but not
more than
6 months
Due over
6 months
but not
more than
9 months
Due over
9 months
but not
more than
1 year
Due over
1 year
but not
more than
2 years
Due over
2 years
but not
more than
5 years
Due
over
5 years
$m
$m
$m
$m
$m
$m
$m
$m
Total
$m
3,210
2,889
—
—
—
2,163
—
—
240
—
—
—
—
—
—
—
—
2,035
—
796
— 3,210
116 3,801
4,414 17,913 26,765
—
1,517
68
7,684
—
7,684
48
—
—
—
2,540
—
722
—
3,310
—
3,310
—
2,712
4,147
9,022
—
9,022
266
—
—
—
—
—
450
—
716
—
716
2,590
1,101
120
—
—
750
—
1,759
8,377
129
12,317
—
12,317
7,166
874
10,549
—
10,549
—
397
397
—
1,167
1,051
1,778
—
4,393
—
4,393
111
2,484
2,484
—
—
—
730
—
3,325
—
3,325
—
8,870
179
9,289
—
9,289
—
—
—
—
35
1,972
648
—
2,655
—
2,655
—
—
341
250
3,014
108
3,713
—
3,713
—
—
—
—
—
—
1,612
—
1,612
—
1,612
—
1,020
90
1,110
—
1,110
—
—
—
—
—
448
61
—
509
—
509
—
9,007
16,230 27,085 52,322
2,194
4
2,198
—
2,198
—
—
—
—
102
714
35
—
851
—
851
3,153
—
14,195
—
14,195
—
1,447
1,447
—
14
— 19,466
— 4,502
21,454 45,114 110,066
— 171,035 171,035
21,454 216,149 281,101
—
—
314
16,459 14,217 32,123
12,784 11,192 25,423
—
3,675
3,025 6,700
460
11,046
—
1,941
14,894
—
14,894
14
1,638
2,147 6,922
25,380 27,378 66,938
31 1,961
1,492 16,294 19,727
44,983 60,067 127,985
8
44,983 60,075 127,993
—
8
—
—
—
—
—
3,017
—
23
5,608
—
585
13,333
—
1,102
1,939
2,590
2,811
25,108
1,019
1,346
58
2,423
—
2,423
—
—
—
—
—
—
68
—
68
—
68
—
5,987
19,455
22,938
51,408
3,026
4
6,047
—
6,047
3,265
—
14,883
—
14,883
—
—
—
—
33,373
26,194
1,173
25,979 109,284
— 163,888 163,888
33,373 189,867 273,172
—
—
—
—
—
—
12
—
12
—
12
—
1,364
1,364
—
11,276
8,020
—
16,897
14,553
111
32,418
26,818
—
3,256
2,344
5,600
5
8,525
—
—
9,894
—
9,894
1
29,889
—
3,809
44,975
—
44,975
1,220
47
67,483
28,018
4,240
40
13,250
17,059
58,252 122,531
311
58,563 122,842
311
Financial assets
Cash at bank and in hand:
– balances with HSBC undertakings
Derivatives
Loans and advances to HSBC undertakings
Financial assets with HSBC undertakings
designated and otherwise mandatorily
measured at fair value
Financial investments
Accrued income and other financial assets
Total financial assets at 31 Dec 2022
Non-financial assets
Total assets at 31 Dec 2022
Financial liabilities
Amounts owed to HSBC undertakings
Financial liabilities designated at fair value
– debt securities in issue
– subordinated liabilities and preferred
securities
Derivatives
Debt securities in issue
Accruals and other financial liabilities
Subordinated liabilities
Total financial liabilities 31 Dec 2022
Non-financial liabilities
Total liabilities at 31 Dec 2022
Financial assets
Cash at bank and in hand:
– balances with HSBC undertakings
Derivatives
Loans and advances to HSBC undertakings
Loans and advances to HSBC undertakings
designated at fair value
Financial investments in HSBC undertakings
Accrued income and other financial assets
Total financial assets at 31 Dec 2021
Non-financial assets
Total assets at 31 Dec 2021
Financial liabilities
Amounts owed to HSBC undertakings
Financial liabilities designated at fair value
– debt securities in issue
– subordinated liabilities and preferred
securities
Derivatives
Debt securities in issue
Accruals and other financial liabilities
Subordinated liabilities
Total financial liabilities at 31 Dec 2021
Non-financial liabilities
Total liabilities at 31 Dec 2021
HSBC Holdings plc Annual Report and Accounts 2022
399
Financial statements
Notes on the financial statements
Contractual maturity of financial liabilities
The following table shows, on an undiscounted basis, all cash flows relating to principal and future coupon payments (except for trading liabilities
and derivatives not treated as hedging derivatives). For this reason, balances in the following table do not agree directly with those in our
consolidated balance sheet. Undiscounted cash flows payable in relation to hedging derivative liabilities are classified according to their
contractual maturities. Trading liabilities and derivatives not treated as hedging derivatives are included in the ‘Due not more than 1 month’ time
bucket and not by contractual maturity.
In addition, loan and other credit-related commitments and financial guarantees are generally not recognised on our balance sheet. The
undiscounted cash flows potentially payable under loan and other credit-related commitments and financial guarantees are classified on the basis
of the earliest date they can be called.
Cash flows payable by HSBC under financial liabilities by remaining contractual maturities
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Trading liabilities
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Subordinated liabilities
Other financial liabilities1
Loan and other credit-related commitments
Financial guarantees2
At 31 Dec 2022
Proportion of cash flows payable in period
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Trading liabilities
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Subordinated liabilities
Other financial liabilities1
Loan and other credit-related commitments
Financial guarantees2
At 31 Dec 2021
Proportion of cash flows payable in period
Due not
more
than 1
month
Due over
1 month but
not more
than
3 months
Due over
3 months but
not more than
1 year
Due over
1 year but
not
more than
5 years
Due over
5 years
$m
47,082
1,387,125
121,328
72,353
16,687
283,512
4,329
37
153,597
2,086,050
825,781
18,696
2,930,527
85%
63,684
1,613,065
117,643
84,904
18,335
190,354
7,149
119
129,706
2,224,959
813,471
27,774
3,066,204
88%
$m
406
96,474
3,852
—
7,859
171
8,217
168
8,670
125,817
184
25
126,026
4%
2,712
54,092
4,615
—
9,760
192
7,958
168
9,842
89,339
121
6
89,466
3%
$m
4,024
80,608
1,535
—
18,740
1,181
17,522
1,395
5,994
130,999
344
62
131,405
4%
2,800
37,219
2,157
—
13,606
190
15,142
848
7,664
79,626
615
9
80,250
2%
$m
16,050
9,961
1,268
—
63,606
2,222
34,283
7,321
3,230
137,941
1,217
—
139,158
4%
31,294
7,093
1,359
—
63,834
1,792
32,651
6,741
4,577
149,341
1,029
6
150,376
4%
$m
359
346
—
—
43,475
1,059
26,428
32,946
1,704
106,317
328
—
106,645
3%
643
138
935
—
50,953
1,332
21,911
28,347
2,697
106,956
238
—
107,194
3%
Total
$m
67,921
1,574,514
127,983
72,353
150,367
288,145
90,779
41,867
173,195
2,587,124
827,854
18,783
3,433,761
101,133
1,711,607
126,709
84,904
156,488
193,860
84,811
36,223
154,486
2,650,221
815,474
27,795
3,493,490
1 Excludes financial liabilities of disposal groups.
2 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
HSBC Holdings
HSBC Holdings’ primary sources of liquidity are dividends received from subsidiaries, interest on and repayment of intra-Group loans and
securities, and interest earned on its own liquid funds. HSBC Holdings also raises funds in the debt capital markets to meet the Group’s
minimum requirement for own funds and eligible liabilities. HSBC Holdings uses this liquidity to meet its obligations, including interest and
principal repayments on external debt liabilities, operating expenses and collateral on derivative transactions.
HSBC Holdings is also subject to contingent liquidity risk by virtue of credit-related commitments and guarantees and similar contracts issued
relating to its subsidiaries. Such commitments and guarantees are only issued after due consideration of HSBC Holdings’ ability to finance the
commitments and guarantees and the likelihood of the need arising.
HSBC Holdings actively manages the cash flows from its subsidiaries to optimise the amount of cash held at the holding company level. During
2022, consistent with the Group’s capital plan, the Group’s subsidiaries did not experience any significant restrictions on paying dividends or
repaying loans and advances. Also, there are no foreseen restrictions envisaged with regard to planned dividends or payments. However, the
ability of subsidiaries to pay dividends or advance monies to HSBC Holdings depends on, among other things, their respective local regulatory
capital and banking requirements, exchange controls, statutory reserves, and financial and operating performance.
HSBC Holdings currently has sufficient liquidity to meet its present requirements.
Liquidity risk in HSBC Holdings is overseen by Holdings ALCO. This risk arises because of HSBC Holdings’ obligation to make payments to debt
holders as they fall due and to pay its operating expenses. The liquidity risk related to these cash flows is managed by matching external debt
obligations with internal loan cash flows and by maintaining an appropriate liquidity buffer that is monitored by Holdings ALCO.
The balances in the following table are not directly comparable with those on the balance sheet of HSBC Holdings as the table incorporates, on
an undiscounted basis, all cash flows relating to principal and future coupon payments (except for derivatives not treated as hedging derivatives).
400
HSBC Holdings plc Annual Report and Accounts 2022
Undiscounted cash flows payable in relation to hedging derivative liabilities are classified according to their contractual maturities. Derivatives not
treated as hedging derivatives are included in the ‘On demand’ time bucket.
In addition, loan commitments and financial guarantees and similar contracts are generally not recognised on our balance sheet. The
undiscounted cash flows potentially payable under financial guarantees and similar contracts are classified on the basis of the earliest date on
which they can be called.
Cash flows payable by HSBC Holdings under financial liabilities by remaining contractual maturities
Amounts owed to HSBC undertakings
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Subordinated liabilities
Other financial liabilities
Loan commitments
Financial guarantees1
At 31 Dec 2022
Amounts owed to HSBC undertakings
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Subordinated liabilities
Other financial liabilities
Loan commitments
Financial guarantees1
At 31 Dec 2021
Due not
more
than 1
month
Due over 1
month but
not
more than 3
months
Due over 3
months but
not more
than
1 year
Due over 1
year but not
more than 5
years
Due over
5 years
$m
48
11
1,182
—
46
721
2,008
—
17,707
19,715
—
473
1,223
1,196
81
1,778
4,751
—
13,746
18,497
$m
266
72
177
544
161
458
1,678
—
—
1,678
111
2,611
9
276
155
730
3,892
—
—
3,892
$m
—
1,139
1,089
4,899
1,068
745
8,940
—
—
8,940
—
621
51
1,286
722
1,692
4,372
—
—
4,372
$m
—
22,921
4,231
44,608
8,262
14
80,036
—
—
80,036
—
15,017
414
43,360
7,222
—
66,013
—
—
66,013
$m
—
19,196
1,321
32,540
27,045
31
80,133
—
—
80,133
—
17,557
585
30,800
20,777
40
69,759
—
—
69,759
Total
$m
314
43,339
8,000
82,591
36,582
1,969
172,795
—
17,707
190,502
111
36,279
2,282
76,918
28,957
4,240
148,787
—
13,746
162,533
1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.
31 Offsetting of financial assets and financial liabilities
In the offsetting of financial assets and financial liabilities, the net amount is reported in the balance sheet when the offset criteria are met. This
is achieved when there is a legally enforceable right to offset the recognised amounts and there is either an intention to settle on a net basis, or
realise the asset and settle the liability simultaneously.
In the following table, the ‘Amounts not set off in the balance sheet’ include transactions where:
• the counterparty has an offsetting exposure with HSBC and a master netting or similar arrangement is in place with a right to set off only in
the event of default, insolvency or bankruptcy, or the offset criteria are otherwise not satisfied; and
• cash and non-cash collateral (debt securities and equities) has been received/pledged for derivatives and reverse repurchase/repurchase,
stock borrowing/lending and similar agreements to cover net exposure in the event of a default or other predetermined events.
The effect of over-collateralisation is excluded.
‘Amounts not subject to enforceable netting agreements’ include contracts executed in jurisdictions where the rights of offset may not be
upheld under the local bankruptcy laws, and transactions where a legal opinion evidencing enforceability of the right of offset may not have been
sought, or may have been unable to obtain.
For risk management purposes, the net amounts of loans and advances to customers are subject to limits, which are monitored and the relevant
customer agreements are subject to review and updated, as necessary, to ensure the legal right to set off remains appropriate.
HSBC Holdings plc Annual Report and Accounts 2022
401
Financial statements
Notes on the financial statements
Offsetting of financial assets and financial liabilities
Amounts subject to enforceable netting arrangements
Amounts not set off in the
balance sheet
Net
amounts
in
the
balance
sheet
Gross
amounts
Amounts
offset
$m
$m
$m
Financial
instruments,
including
non-cash
collateral1
$m
Amounts not
subject to
enforceable
netting
arrangements2
$m
Total
$m
Cash
collateral
Net
amount
$m
$m
419,006
(140,987)
278,019
(236,373)
(36,486)
5,160
6,127 284,146
24,372
335,193
28,337
806,908
(236)
(102,888)
(12,384)
(256,495)
24,136
232,305
15,953
550,413
(24,106)
(231,432)
(13,166)
(505,077)
(29)
(449)
—
(36,964)
1
424
2,787
8,372
1,367
25,503
21,689 253,994
16,220
29,450 579,863
267
244,694
(53,378)
191,316
(151,304)
(36,581)
3,431
5,566 196,882
21,568
353,066
27,045
646,373
(222)
(136,932)
(10,919)
(201,451)
21,346
216,134
16,126
444,922
(21,272)
(215,769)
(13,065)
(401,410)
(71)
(165)
—
(36,817)
3
200
3,061
6,695
1,729
23,075
25,731 241,865
16,453
33,353 478,275
327
419,994
(140,987)
279,007
(239,235)
(29,276)
10,496
6,757 285,764
20,027
206,827
37,164
684,012
(236)
(102,888)
(12,384)
(256,495)
19,791
103,939
24,780
427,517
(19,790)
(103,296)
(13,166)
(375,487)
—
(249)
—
(29,525)
1
394
11,614
22,505
4
19,795
23,808 127,747
24,794
30,583 458,100
14
239,597
(53,378)
186,219
(163,359)
(18,225)
4,635
4,845 191,064
13,540
235,042
40,875
529,054
(222)
(136,932)
(10,919)
(201,451)
13,318
98,110
29,956
327,603
(13,318)
(97,816)
(13,065)
(287,558)
—
(203)
—
(18,428)
—
91
16,891
21,617
17
13,335
28,560 126,670
29,973
33,439 361,042
17
Financial assets
Derivatives (Note 15)3
Reverse repos, stock borrowing and similar
agreements classified as:4
– trading assets
– non-trading assets
Loans and advances to customers5
At 31 Dec 2022
Derivatives (Note 15)3
Reverse repos, stock borrowing and similar
agreements classified as:4
– trading assets
– non-trading assets
Loans and advances to customers5
At 31 Dec 2021
Financial liabilities
Derivatives (Note 15)3
Repos, stock lending and similar
agreements classified as:4
– trading liabilities
– non-trading liabilities
Customer accounts6
At 31 Dec 2022
Derivatives (Note 15)3
Repos, stock lending and similar
agreements classified as:4
– trading liabilities
– non-trading liabilities
Customer accounts6
At 31 Dec 2021
1 The disclosure has been enhanced in 2022 to support consistency across Group entities. All financial instruments (whether recognised on our balance
sheet or as non-cash collateral received or pledged) are presented within ‘financial instruments, including non-cash collateral‘, as balance sheet
classification has no effect on the rights of offset associated with financial instruments. Comparative data have been re-presented accordingly.
2 These exposures continue to be secured by financial collateral, but we may not have sought or been able to obtain a legal opinion evidencing
enforceability of the right of offset.
3 At 31 December 2022, the amount of cash margin received that had been offset against the gross derivatives assets was $8,357m (2021: $4,469m).
The amount of cash margin paid that had been offset against the gross derivatives liabilities was $10,918m (2021: $9,479m).
4 For the amount of repos, reverse repos, stock lending, stock borrowing and similar agreements recognised on the balance sheet within ‘Trading
assets’ of $25,503m (2021: $23,075m) and ‘Trading liabilities’ of $19,795m (2021: $13,335m), see the ‘Funding sources and uses’ table on page 210.
5 At 31 December 2022, the total amount of ‘Loans and advances to customers’ was $924,854m (2021: $1,045,814m), of which $15,953m (2021:
$16,126m) was subject to offsetting.
6 At 31 December 2022, the total amount of ‘Customer accounts’ was $1,570,303m (2021: $1,710,574m), of which $24,780m (2021: $29,956m) was
subject to offsetting.
32 Called up share capital and other equity instruments
Called up share capital and share premium
HSBC Holdings ordinary shares of $0.50 each, issued and fully paid
At 1 Jan
Shares issued under HSBC employee share plans
Shares issued in lieu of dividends
Less: Shares repurchased and cancelled
At 31 Dec1
2022
Number
20,631,520,439
10,226,221
—
348,139,250
20,293,607,410
$m
10,316
5
—
174
10,147
2021
Number
20,693,621,100
58,266,053
—
120,366,714
20,631,520,439
$m
10,347
29
—
60
10,316
402
HSBC Holdings plc Annual Report and Accounts 2022
HSBC Holdings share premium
At 31 Dec
Total called up share capital and share premium
At 31 Dec
2022
$m
14,664
2022
$m
24,811
2021
$m
14,602
2021
$m
24,918
1 All HSBC Holdings ordinary shares in issue, excluding 325,273,407 shares held in treasury, confer identical rights, including in respect of capital,
dividends and voting.
HSBC Holdings 6.20% non-cumulative US dollar preference shares, Series A of $0.01
The 6.20% non-cumulative US dollar preference shares, Series A of $0.01 each were called by HSBC Holdings on 10 December 2020 and were
redeemed and cancelled on 13 January 2021.
HSBC Holdings non-cumulative preference share of £0.01
The one non-cumulative sterling preference share of £0.01 (‘sterling preference share’) has been in issue since 29 December 2010 and is held by
a subsidiary of HSBC Holdings. Dividends are paid quarterly at the sole and absolute discretion of the Board. The sterling preference share
carries no rights of conversion into ordinary shares of HSBC Holdings and no right to attend or vote at shareholder meetings of HSBC Holdings.
These securities can be redeemed by HSBC Holdings at any time, subject to prior approval by the PRA.
Other equity instruments
HSBC Holdings has included two types of additional tier 1 capital securities in its tier 1 capital, including the contingent convertible securities
described below. These are accounted for as equity because HSBC does not have an obligation to transfer cash or a variable number of its own
ordinary shares to holders under any circumstances outside its control. See Note 29 for additional tier 1 securities accounted for as liabilities.
Additional tier 1 capital – contingent convertible securities
HSBC Holdings continues to issue contingent convertible securities that are included in its capital base as fully CRR II-compliant additional tier 1
capital securities on an end point basis. These securities are marketed principally and subsequently allotted to corporate investors and fund
managers. The net proceeds of the issuances are typically used for HSBC Holdings’ general corporate purposes and to further strengthen its
capital base to meet requirements under CRR II. These securities bear a fixed rate of interest until their initial call dates. After the initial call dates,
if they are not redeemed, the securities will bear interest at rates fixed periodically in advance for five-year periods based on credit spreads, fixed
at issuance, above prevailing market rates. Interest on the contingent convertible securities will be due and payable only at the sole discretion of
HSBC Holdings, and HSBC Holdings has sole and absolute discretion at all times to cancel for any reason (in whole or part) any interest payment
that would otherwise be payable on any payment date. Distributions will not be paid if they are prohibited under UK banking regulations or if the
Group has insufficient reserves or fails to meet the solvency conditions defined in the securities’ terms.
The contingent convertible securities are undated and are repayable at the option of HSBC Holdings in whole typically at the initial call date or on
any fifth anniversary after this date. In addition, the securities are repayable at the option of HSBC in whole for certain regulatory or tax reasons.
Any repayments require the prior consent of the PRA. These securities rank pari passu with HSBC Holdings’ sterling preference shares and
therefore rank ahead of ordinary shares. The contingent convertible securities will be converted into fully paid ordinary shares of HSBC Holdings
at a predetermined price, should HSBC’s consolidated non-transitional CET1 ratio fall below 7.0%. Therefore, in accordance with the terms of the
securities, if the non-transitional CET1 ratio breaches the 7.0% trigger, the securities will convert into ordinary shares at fixed contractual
conversion prices in the issuance currencies of the relevant securities, subject to anti-dilution adjustments.
HSBC’s additional tier 1 capital – contingent convertible securities in issue which are accounted for in equity
6.375% perpetual subordinated contingent convertible securities
$2,250m
6.375% perpetual subordinated contingent convertible securities
$2,450m
6.000% perpetual subordinated contingent convertible securities
$3,000m
6.250% perpetual subordinated contingent convertible securities1
$2,350m
6.500% perpetual subordinated contingent convertible securities
$1,800m
4.600% perpetual subordinated contingent convertible securities2
$1,500m
4.000% perpetual subordinated contingent convertible securities3
$1,000m
4.700% perpetual subordinated contingent convertible securities4
$1,000m
5.250% perpetual subordinated contingent convertible securities5
€1,500m
6.000% perpetual subordinated contingent convertible securities
€1,000m
4.750% perpetual subordinated contingent convertible securities
€1,250m
5.875% perpetual subordinated contingent convertible securities
£1,000
SGD1,000m 4.700% perpetual subordinated contingent convertible securities6
SGD750m
5.000% perpetual subordinated contingent convertible securities
At 31 Dec
First call
date
Sep 2024
Mar 2025
May 2027
Mar 2023
Mar 2028
Dec 2030
Mar 2026
Mar 2031
Sep 2022
Sep 2023
Jul 2029
Sep 2026
Jun 2022
Sep 2023
2022
$m
2,250
2,450
3,000
2,350
1,800
1,500
1,000
1,000
—
1,123
1,422
1,301
—
550
19,746
2021
$m
2,250
2,450
3,000
2,350
1,800
1,500
1,000
1,000
1,945
1,123
1,422
1,301
723
550
22,414
1 This security was called by HSBC Holdings on 30 January 2023 and is expected to be redeemed and cancelled on 23 March 2023.
2 This security was issued by HSBC Holdings on 17 December 2020. The first call date is six calendar months prior to the reset date of 17 June 2031.
3 This security was issued by HSBC Holdings on 9 March 2021. The first call date is six calendar months prior to the reset date of 9 September 2026.
4 This security was issued by HSBC Holdings on 9 March 2021. The first call date is six calendar months prior to the reset date of 9 September 2031.
5 This security was called by HSBC Holdings on 9 August 2022 and was redeemed and cancelled on 16 September 2022.
6 This security was called by HSBC Holdings on 4 May 2022 and was redeemed and cancelled on 8 June 2022.
HSBC Holdings plc Annual Report and Accounts 2022
403
Financial statements
Notes on the financial statements
Shares under option
For details of the options outstanding to subscribe for HSBC Holdings ordinary shares under the HSBC Holdings Savings-Related Share Option
Plan (UK), see Note 5.
Aggregate options outstanding under these plans
Number of
HSBC Holdings
ordinary shares
31 Dec 2022
Usual period of
exercise
Exercise price
Number of
HSBC Holdings
ordinary shares
115,650,723
2021 to 2028
£2.6270–£5.9640
123,196,850
31 Dec 2021
Usual period of
exercise
2020 to 2027
Exercise price
£2.6270–5.9640
Maximum obligation to deliver HSBC Holdings ordinary shares
At 31 December 2022, the maximum obligation to deliver HSBC Holdings ordinary shares under all of the above option arrangements and the
HSBC International Employee Share Purchase Plan, together with long-term incentive awards and deferred share awards granted under the
HSBC Share Plan 2011, was 240,612,019 (2021: 224,974,433). The total number of shares at 31 December 2022 held by employee benefit trusts
that may be used to satisfy such obligations to deliver HSBC Holdings ordinary shares was 12,315,711 (2021: 9,297,415).
33 Contingent liabilities, contractual commitments and guarantees
Guarantees and other contingent liabilities:
– financial guarantees
– performance and other guarantees
– other contingent liabilities
At 31 Dec
Commitments:2
– documentary credits and short-term trade-related transactions
– forward asset purchases and forward deposits placed
– standby facilities, credit lines and other commitments to lend
At 31 Dec
HSBC
2022
$m
18,783
88,240
676
107,699
8,241
50,852
768,761
827,854
2021
$m
27,795
85,534
858
114,187
8,827
47,184
759,463
815,474
HSBC Holdings1
2022
$m
17,707
—
90
17,797
—
—
—
—
2021
$m
13,746
—
133
13,879
—
—
—
—
1 Financial guarantees by HSBC Holdings are all in favour of other Group entities.
2
Includes $618,788m of commitments at 31 December 2022 (31 December 2021: $627,637m), to which the impairment requirements in IFRS 9 are
applied where HSBC has become party to an irrevocable commitment.
The preceding table discloses the nominal principal amounts of off-balance sheet liabilities and commitments for the Group, which represent the
maximum amounts at risk should the contracts be fully drawn upon and the clients default. As a significant portion of guarantees and
commitments are expected to expire without being drawn upon, the total of the nominal principal amounts is not indicative of future liquidity
requirements. The expected credit loss provision relating to guarantees and commitments under IFRS 9 is disclosed in Note 28.
The majority of the guarantees have a term of less than one year, while guarantees with terms of more than one year are subject to HSBC’s
annual credit review process.
Contingent liabilities arising from legal proceedings, regulatory and other matters against Group companies are excluded from this note but are
disclosed in Notes 28 and 35.
Financial Services Compensation Scheme
The Financial Services Compensation Scheme (‘FSCS’) provides compensation, up to certain limits, to eligible customers of financial services
firms that are unable, or likely to be unable, to pay claims against them. The FSCS may impose a further levy on the group to the extent the
industry levies imposed to date are not sufficient to cover the compensation due to customers in any future possible collapse. The ultimate FSCS
levy to the industry as a result of a collapse cannot be estimated reliably. It is dependent on various uncertain factors including the potential
recovery of assets by the FSCS, changes in the level of protected products (including deposits and investments) and the population of FSCS
members at the time. In December 2022, the FCA announced that it expects to review various elements of the scheme to ensure consumers
are appropriately and proportionately protected, with costs distributed across industry levy payers in a fair and sustainable way, with a view to
deliver the majority of changes by the end of the 2023/24 financial year.
Associates
HSBC’s share of associates’ contingent liabilities, contractual commitments and guarantees amounted to $64.8bn at 31 December 2022 (2021:
$63.5bn). No matters arose where HSBC was severally liable.
404
HSBC Holdings plc Annual Report and Accounts 2022
34 Finance lease receivables
HSBC leases a variety of assets to third parties under finance leases, including transport assets (such as aircraft), property and general plant and
machinery. At the end of lease terms, assets may be sold to third parties or leased for further terms. Rentals are calculated to recover the cost of
assets less their residual value, and earn finance income.
The table below excludes finance lease receivables reclassified on the balance sheet to ‘Assets held for sale’ in accordance with IFRS 5. Net
investment in finance leases of $1,502m was reclassified to ‘Assets held for sale’ as a result of the planned sale of our banking business in
Canada.
Lease receivables:
No later than one year
One to two years
Two to three years
Three to four years
Four to five years
Later than one year and no later than five years
Later than five years
At 31 Dec
Total future
minimum
payments
2022
Unearned
finance
income
$m
$m
Total future
minimum
payments
2021
Unearned
finance
income
$m
$m
Present
value
$m
2,159
1,652
1,391
906
613
4,562
4,064
10,785
(236)
(201)
(161)
(131)
(112)
(605)
(736)
(1,577)
1,923
1,451
1,230
775
501
3,957
3,328
9,208
3,298
2,303
1,645
1,225
795
5,968
4,044
13,310
(303)
(242)
(192)
(146)
(113)
(693)
(528)
(1,524)
Present
value
$m
2,995
2,061
1,453
1,079
682
5,275
3,516
11,786
35 Legal proceedings and regulatory matters
HSBC is party to legal proceedings and regulatory matters in a number of jurisdictions arising out of its normal business operations. Apart from
the matters described below, HSBC considers that none of these matters are material. The recognition of provisions is determined in accordance
with the accounting policies set out in Note 1. While the outcomes of legal proceedings and regulatory matters are inherently uncertain,
management believes that, based on the information available to it, appropriate provisions have been made in respect of these matters as at
31 December 2022 (see Note 28). Where an individual provision is material, the fact that a provision has been made is stated and quantified,
except to the extent that doing so would be seriously prejudicial. Any provision recognised does not constitute an admission of wrongdoing or
legal liability. It is not practicable to provide an aggregate estimate of potential liability for our legal proceedings and regulatory matters as a class
of contingent liabilities.
Bernard L. Madoff Investment Securities LLC
Various non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the US
whose assets were invested with Bernard L. Madoff Investment Securities LLC (‘Madoff Securities’). Based on information provided by Madoff
Securities as at 30 November 2008, the purported aggregate value of these funds was $8.4bn, including fictitious profits reported by Madoff.
Based on information available to HSBC, the funds’ actual transfers to Madoff Securities minus their actual withdrawals from Madoff Securities
during the time HSBC serviced the funds are estimated to have totalled approximately $4bn. Various HSBC companies have been named as
defendants in lawsuits arising out of Madoff Securities’ fraud.
US litigation: The Madoff Securities Trustee has brought lawsuits against various HSBC companies and others, seeking recovery of transfers
from Madoff Securities to HSBC in an amount not specified, and these lawsuits remain pending in the US Bankruptcy Court for the Southern
District of New York (the ‘US Bankruptcy Court’).
Certain Fairfield entities (together, ‘Fairfield’) (in liquidation since July 2009) have brought a lawsuit in the US against fund shareholders, including
HSBC companies that acted as nominees for clients, seeking restitution of redemption payments. In August 2022, the US District Court for the
Southern District of New York (the ‘New York District Court’) affirmed earlier decisions by the US Bankruptcy Court that dismissed the majority
of the liquidators’ claims (against most of the HSBC companies). In September 2022, the remaining defendants before the US Bankruptcy Court
sought leave to appeal and the liquidators filed appeals to the US Court of Appeals for the Second Circuit, which are currently pending.
Meanwhile, proceedings before the US Bankruptcy Court with respect to the remaining claims are ongoing.
UK litigation: The Madoff Securities Trustee has filed a claim against various HSBC companies in the High Court of England and Wales, seeking
recovery of transfers from Madoff Securities to HSBC. The claim has not yet been served and the amount claimed has not been specified.
Cayman Islands litigation: In February 2013, Primeo Fund (‘Primeo’) (in liquidation since April 2009) brought an action against HSBC Securities
Services Luxembourg (‘HSSL’) and Bank of Bermuda (Cayman) Limited (now known as HSBC Cayman Limited), alleging breach of contract and
breach of fiduciary duty and claiming monetary damages. Following dismissal of Primeo’s action by the lower and appellate courts in the Cayman
Islands, in 2019, Primeo appealed to the UK Privy Council. During 2021, the UK Privy Council held two separate hearings in connection with
Primeo’s appeal. Judgment was given against HSBC in respect of the first hearing and judgment is pending in respect of the second hearing.
Luxembourg litigation: In April 2009, Herald Fund SPC (‘Herald’) (in liquidation since July 2013) brought an action against HSSL before the
Luxembourg District Court, seeking restitution of cash and securities that Herald purportedly lost because of Madoff Securities’ fraud, or money
damages. The Luxembourg District Court dismissed Herald’s securities restitution claim, but reserved Herald’s cash restitution and money
damages claims. Herald has appealed this judgment to the Luxembourg Court of Appeal, where the matter is pending. In late 2018, Herald
brought additional claims against HSSL and HSBC Bank plc before the Luxembourg District Court, seeking further restitution and damages.
In October 2009, Alpha Prime Fund Limited (‘Alpha Prime’) brought an action against HSSL before the Luxembourg District Court, seeking the
restitution of securities, or the cash equivalent, or money damages. In December 2018, Alpha Prime brought additional claims seeking damages
against various HSBC companies. These matters are currently pending before the Luxembourg District Court.
In December 2014, Senator Fund SPC (‘Senator’) brought an action against HSSL before the Luxembourg District Court, seeking restitution of
securities, or the cash equivalent, or money damages. In April 2015, Senator commenced a separate action against the Luxembourg branch of
HSBC Bank plc asserting identical claims. In December 2018, Senator brought additional claims against HSSL and HSBC Bank plc Luxembourg
branch, seeking restitution of Senator’s securities or money damages. These matters are currently pending before the Luxembourg District
Court.
HSBC Holdings plc Annual Report and Accounts 2022
405
Financial statements
Notes on the financial statements
There are many factors that may affect the range of possible outcomes, and any resulting financial impact, of the various Madoff-related
proceedings described above, including but not limited to the multiple jurisdictions in which the proceedings have been brought. Based upon the
information currently available, management’s estimate of the possible aggregate damages that might arise as a result of all claims in the various
Madoff-related proceedings is around $600m, excluding costs and interest. Due to uncertainties and limitations of this estimate, any possible
damages that might ultimately arise could differ significantly from this amount.
Anti-money laundering and sanctions-related matters
In December 2012, HSBC Holdings entered into a number of agreements, including an undertaking with the UK Financial Services Authority
(replaced with a Direction issued by the UK Financial Conduct Authority (‘FCA’) in 2013 and again in 2020) as well as a cease-and-desist order
with the US Federal Reserve Board (‘FRB’), both of which contained certain forward-looking anti-money laundering (‘AML’) and sanctions-related
obligations. For several years thereafter, HSBC retained a Skilled Person under section 166 of the Financial Services and Markets Act and an
Independent Consultant under the FRB cease-and-desist order to produce periodic assessments of the Group’s AML and sanctions compliance
programme. The Skilled Person completed its engagement in the second quarter of 2021, and the FCA determined that no further Skilled Person
work is required. Separately, the Independent Consultant’s engagement is now complete and, in August 2022, the FRB terminated its cease-
and-desist order.
Since November 2014, a number of lawsuits have been filed in federal courts in the US against various HSBC companies and others on behalf of
plaintiffs who are, or are related to, victims of terrorist attacks in the Middle East. In each case, it is alleged that the defendants aided and
abetted the unlawful conduct of various sanctioned parties in violation of the US Anti-Terrorism Act. Nine actions remain pending in federal
courts and HSBC’s motions to dismiss have been granted in five of these cases. In September 2022 and January 2023, respectively, the
appellate courts affirmed the dismissals of two of the cases, and the plaintiffs’ requests for review of these decisions by the full appellate courts
have been denied. The dismissals in the other cases are subject to appeal. The four remaining actions are at an early stage.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of the pending matters, including the
timing or any possible impact on HSBC, which could be significant.
London interbank offered rates, European interbank offered rates and other benchmark
interest rate investigations and litigation
Euro interest rate derivatives: In December 2016, the European Commission (‘EC’) issued a decision finding that HSBC, among other banks,
engaged in anti-competitive practices in connection with the pricing of euro interest rate derivatives, and the EC imposed a fine on HSBC based
on a one-month infringement in 2007. The fine was annulled in 2019 and a lower fine was imposed in 2021. In January 2023, the European Court
of Justice dismissed an appeal by HSBC and upheld the EC’s findings on HSBC’s liability. A separate appeal by HSBC concerning the amount of
the fine remains pending before the General Court of the European Union.
US dollar Libor: Beginning in 2011, HSBC and other panel banks have been named as defendants in a number of private lawsuits filed in the US
with respect to the setting of US dollar Libor. The complaints assert claims under various US federal and state laws, including antitrust and
racketeering laws and the Commodity Exchange Act (‘US CEA’). The lawsuits include individual and putative class actions, most of which have
been transferred and/or consolidated for pre-trial purposes before the New York District Court. HSBC has reached class settlements with five
groups of plaintiffs, and the court has approved these settlements. HSBC has also resolved several of the individual actions, although a number
of other US dollar Libor-related actions remain pending.
Singapore interbank offered rate (‘Sibor’) and Singapore swap offer rate (‘SOR’): In 2016, The Hongkong and Shanghai Banking Corporation
Limited and other panel banks were named as defendants in a putative class action filed in the New York District Court on behalf of persons who
transacted in products related to the Sibor and SOR benchmark rates. The complaint alleged, among other things, misconduct related to these
benchmark rates in violation of US antitrust, commodities and racketeering laws, and state law.
In October 2021, The Hongkong and Shanghai Banking Corporation Limited reached a settlement-in-principle with the plaintiffs to resolve this
action, the agreement for which was executed in May 2022. The court granted final approval of the settlement in November 2022.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of the pending matters, including the
timing or any possible impact on HSBC, which could be significant.
Foreign exchange-related investigations and litigation
In December 2016, Brazil’s Administrative Council of Economic Defense initiated an investigation into the onshore foreign exchange market and
identified a number of banks, including HSBC, as subjects of its investigation, which remains ongoing.
In June 2020, the Competition Commission of South Africa, having initially referred a complaint for proceedings before the South African
Competition Tribunal in February 2017, filed a revised complaint against 28 financial institutions, including HSBC Bank plc and HSBC Bank USA
N.A. (‘HSBC Bank USA’), for alleged anti-competitive behaviour in the South African foreign exchange market. In December 2021, a hearing on
HSBC Bank plc’s and HSBC Bank USA’s applications to dismiss the revised complaint took place before the South African Competition Tribunal,
where a decision remains pending.
Beginning in 2013, various HSBC companies and other banks have been named as defendants in a number of putative class actions filed in, or
transferred to, the New York District Court arising from allegations that the defendants conspired to manipulate foreign exchange rates. HSBC
has reached class settlements with two groups of plaintiffs, including direct and indirect purchasers of foreign exchange products, and the court
has granted final approval of these settlements. A putative class action by a group of retail customers of foreign exchange products remains
pending.
In 2018, complaints alleging foreign exchange-related misconduct were filed in the New York District Court and the High Court of England and
Wales against HSBC and other defendants by certain plaintiffs that opted out of the direct purchaser class action settlement in the US. In
December 2022, HSBC reached a settlement-in-principle with the plaintiffs to resolve these matters. The settlement remains subject to the
negotiation of definitive documentation. Additionally, in January 2023, HSBC reached a settlement-in-principle with plaintiffs in Israel to resolve a
class action lawsuit filed in the local courts alleging foreign exchange-related misconduct. The settlement remains subject to the negotiation of
definitive documentation and court approval. Lawsuits alleging foreign exchange-related misconduct remain pending against HSBC and other
banks in courts in Brazil. It is possible that additional civil actions will be initiated against HSBC in relation to its historical foreign exchange
activities.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.
406
HSBC Holdings plc Annual Report and Accounts 2022
Precious metals fix-related litigation
Gold: Beginning in December 2015, numerous putative class actions were filed in the Ontario and Quebec Superior Courts of Justice against
various HSBC companies and other financial institutions. The plaintiffs allege that, among other things, from January 2004 to March 2014, the
defendants conspired to manipulate the price of gold and gold derivatives in violation of the Canadian Competition Act and common law. These
actions are ongoing.
Silver: Beginning in July 2014, numerous putative class actions were filed in federal district courts in New York, naming HSBC and other
members of The London Silver Market Fixing Limited as defendants. The complaints, which were consolidated in the New York District Court,
allege that, from January 2007 to December 2013, the defendants conspired to manipulate the price of silver and silver derivatives for their
collective benefit in violation of US antitrust laws, the US CEA and New York state law. In February 2022, following the conclusion of pre-class
certification discovery, the defendants filed a motion seeking to dismiss the plaintiffs’ antitrust claims, which remains pending.
In April 2016, two putative class actions were filed in the Ontario and Quebec Superior Courts of Justice against various HSBC companies and
other financial institutions. The plaintiffs in both actions allege that, from January 1999 to August 2014, the defendants conspired to manipulate
the price of silver and silver derivatives in violation of the Canadian Competition Act and common law. These actions are ongoing.
Platinum and palladium: Between late 2014 and early 2015, numerous putative class actions were filed in the New York District Court, naming
HSBC and other members of The London Platinum and Palladium Fixing Company Limited as defendants. The complaints allege that, from
January 2008 to November 2014, the defendants conspired to manipulate the price of platinum group metals and related financial products for
their collective benefit in violation of US antitrust laws and the US CEA. In March 2020, the court granted the defendants‘ motion to dismiss the
plaintiffs’ third amended complaint but granted the plaintiffs leave to re-plead certain claims. The plaintiffs have filed an appeal.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or
any possible impact on HSBC, which could be significant.
Film finance litigation
In June 2020, two separate investor groups issued claims against HSBC UK Bank plc (as successor to HSBC Private Bank (UK) Limited (‘PBGB‘))
in the High Court of England and Wales in connection with PBGB’s role in the development of Eclipse film finance schemes. These actions are
ongoing.
In April 2021, HSBC UK Bank plc (as successor to PBGB) was served with a claim issued in the High Court of England and Wales in connection
with PBGB’s role in the development of the Zeus film finance schemes. In October 2022, this claim was discontinued.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of the pending matters, including the
timing or any possible impact on HSBC, which could be significant.
Other regulatory investigations, reviews and litigation
HSBC Holdings and/or certain of its affiliates are subject to a number of other investigations and reviews by various regulators and competition
and law enforcement authorities, as well as litigation, in connection with various matters relating to the firm’s businesses and operations,
including:
• investigations by tax administration, regulatory and law enforcement authorities in Argentina, India and elsewhere in connection with
allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation;
•
•
an investigation by the US Commodity Futures Trading Commission (‘CFTC‘) regarding interest rate swap transactions related to bond
issuances, among other things. HSBC has reached a settlement-in-principle with the CFTC’s Division of Enforcement to resolve this
investigation. The settlement is subject to final approval by the CFTC;
investigations by the CFTC and US Securities and Exchange Commission (‘SEC‘) concerning compliance with records preservation
requirements relating to the use of unapproved electronic messaging platforms for business communications. HSBC has reached
settlements-in-principle with the CFTC’s and SEC’s Divisions of Enforcement to resolve these investigations. The settlements are subject to
the negotiation of definitive documentation and final approval by the CFTC and SEC;
• an investigation by the PRA in connection with depositor protection arrangements in the UK;
• an investigation by the FCA in connection with collections and recoveries operations in the UK;
• an investigation by the UK Competition and Markets Authority into potentially anti-competitive arrangements involving historical trading
activities relating to certain UK-based fixed income products and related financial instruments;
• a putative class action brought in the New York District Court relating to the Mexican government bond market;
• two group actions pending in the US courts and a claim issued in the High Court of England and Wales in connection with HSBC Bank plc’s
role as a correspondent bank to Stanford International Bank Ltd from 2003 to 2009; and
• litigation brought against various HSBC companies in the US courts relating to residential mortgage-backed securities, based primarily on (a)
claims brought against HSBC Bank USA in connection with its role as trustee on behalf of various securitisation trusts; and (b) claims against
several HSBC companies seeking that the defendants repurchase various mortgage loans.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.
HSBC Holdings plc Annual Report and Accounts 2022
407
Financial statements Notes on the financial statements
36 Related party transactions
Related parties of the Group and HSBC Holdings include subsidiaries, associates, joint ventures, post-employment benefit plans for HSBC
employees, Key Management Personnel (‘KMP’) as defined by IAS 24, close family members of KMP and entities that are controlled or jointly
controlled by KMP or their close family members. KMP are defined as those persons having authority and responsibility for planning, directing
and controlling the activities of HSBC Holdings. These individuals also constitute ‘senior management’ for the purposes of the Hong Kong Listing
Rules. In applying IAS 24, it was determined that for this financial reporting period all KMP included Directors, former Directors and senior
management listed on pages 240 to 246 except for the roles of Group Chief Legal Officer, Group Head of Internal Audit, Group Chief Human
Resources Officer, Group Chief Sustainability Officer, Group Head of Strategy, Group Chief Communications and Brand Officer, and Group
Company Secretary and Chief Governance Officer who do not meet the criteria for KMP as provided for in the standard.
Particulars of transactions with related parties are tabulated below. The disclosure of the year-end balance and the highest amounts outstanding
during the year is considered to be the most meaningful information to represent the amount of the transactions and outstanding balances
during the year.
Key Management Personnel
Details of Directors’ remuneration and interests in shares are disclosed in the ‘Directors’ remuneration report’ on pages 276 to 301.
IAS 24 ‘Related Party Disclosures’ requires the following additional information for key management compensation.
Compensation of Key Management Personnel
Short-term employee benefits
Post-employment benefits
Other long-term employee benefits
Share-based payments
Year ended 31 Dec
Shareholdings, options and other securities of Key Management Personnel
Number of options held over HSBC Holdings ordinary shares under employee share plans
Number of HSBC Holdings ordinary shares held beneficially and non-beneficially
Number of other HSBC securities held
At 31 Dec
2022
$m
52
1
8
26
87
2021
$m
50
—
6
27
83
2022
(000s)
35
18,185
228
18,448
2020
$m
39
—
5
20
64
2021
(000s)
35
13,529
228
13,792
Advances and credits, guarantees and deposit balances during the year with Key Management Personnel
2022
2021
Key Management Personnel
Advances and credits1
Guarantees
Deposits
16
—
53
Highest amounts
outstanding
during year
Balance at
31 Dec
Highest amounts
outstanding
during year
Balance at
31 Dec
$m
$m
25
—
123
$m
373
25
284
$m
401
45
3,190
1 Advances and credits entered into by subsidiaries of HSBC Holdings plc during 2022 with Directors and former Directors, disclosed pursuant to section
413 of the Companies Act 2006, totalled $2.5m (2021: $2.8m) and the total value of guarantees entered into on behalf of the Directors and former
Directors was $nil (2021: $nil).
Some of the transactions were connected transactions as defined by the Rules Governing The Listing of Securities on The Stock Exchange of
Hong Kong Limited, but were exempt from any disclosure requirements under the provisions of those rules. The above transactions were made
in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with
persons of a similar standing or, where applicable, with other employees. The transactions did not involve more than the normal risk of
repayment or present other unfavourable features.
Associates and joint ventures
The Group provides certain banking and financial services to associates and joint ventures including loans, overdrafts, interest and non-interest
bearing deposits and current accounts. Details of the interests in associates and joint ventures are given in Note 18.
Transactions and balances during the year with associates and joint ventures
Unsubordinated amounts due from joint ventures
Unsubordinated amounts due from associates
Amounts due to associates
Amounts due to joint ventures
Fair value of derivative assets with associates
Fair value of derivative liabilities with associates
Guarantees and commitments
408
HSBC Holdings plc Annual Report and Accounts 2022
2022
2021
Highest balance
during the year
Balance at
31 Dec
Highest balance
during the year
Balance at
31 Dec
$m
140
7,378
2,548
57
1,205
4,319
513
$m
90
6,594
1,295
53
841
3,648
293
$m
160
4,527
3,397
102
936
696
1,016
$m
96
4,188
1,070
44
465
555
347
The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates and
security, as for comparable transactions with third-party counterparties.
Post-employment benefit plans
At 31 December 2022, $2.9bn (2021: $3.4bn) of HSBC post-employment benefit plan assets were under management by HSBC companies,
earning management fees of $13m in 2022 (2021: $14m). At 31 December 2022, HSBC’s post-employment benefit plans had placed deposits of
$369m (2021: $476m) with its banking subsidiaries, earning interest payable to the schemes of nil (2021: nil). The above outstanding balances
arose from the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable
transactions with third-party counterparties.
The combined HSBC Bank (UK) Pension Scheme enters into swap transactions with HSBC to manage inflation and interest rate sensitivity of its
liabilities and selected assets. At 31 December 2022, the gross notional value of the swaps was $6.6bn (2021: $7.4bn). These swaps had a
positive fair value to the scheme of $0.5bn (2021: $1.0bn); and HSBC had delivered collateral of $0.5bn (2021: $1.0bn) to the scheme in respect
of these arrangements. All swaps were executed at prevailing market rates and within standard market bid/offer spreads.
HSBC Holdings
Details of HSBC Holdings’ subsidiaries are shown in Note 38.
Transactions and balances during the year with subsidiaries
Assets
Cash and balances with HSBC undertakings
Financial assets with HSBC undertakings designated and otherwise mandatorily
measured at fair value
Derivatives
Loans and advances to HSBC undertakings
Prepayments, accrued income and other assets
Investments in subsidiaries
Total related party assets at 31 Dec
Liabilities
Amounts owed to HSBC undertakings
Derivatives
Accruals, deferred income and other liabilities
Subordinated liabilities
Total related party liabilities at 31 Dec
Guarantees and commitments
2022
2021
Highest balance
during the year
Balance at
31 Dec
Highest balance
during the year
$m
$m
$m
Balance at
31 Dec
$m
7,421
3,210
3,397
2,590
52,322
5,380
26,765
4,893
167,542
264,323
314
8,318
1,375
900
10,907
17,707
52,322
3,801
26,765
4,803
167,542
258,443
314
6,922
429
900
8,565
17,707
64,686
4,187
27,142
1,555
163,211
264,178
340
2,872
2,036
900
6,148
16,477
51,408
2,811
25,108
1,135
163,211
246,263
111
1,220
1,732
900
3,963
13,746
The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates and
security, as for comparable transactions with third-party counterparties.
Some employees of HSBC Holdings are members of the HSBC Bank (UK) Pension Scheme, which is sponsored by a separate Group company.
HSBC Holdings incurs a charge for these employees equal to the contributions paid into the scheme on their behalf. Disclosure in relation to the
scheme is made in Note 5.
37 Events after the balance sheet date
A second interim dividend for 2022 of $0.23 per ordinary share (a distribution of approximately $4,593m) was approved by the Directors after
31 December 2022. HSBC Holdings called $2,350m 6.250% perpetual subordinated contingent convertible securities on 30 January 2023. The
security is expected to be redeemed and be cancelled on 23 March 2023. HSBC Holdings also exercised the call option on AUD350m and
AUD650m MREL on 13 January 2023 callable on 16 February 2023. The redemption took place on 16 February 2023. These accounts were
approved by the Board of Directors on 21 February 2023 and authorised for issue.
38 HSBC Holdings’ subsidiaries, joint ventures and associates
In accordance with section 409 of the Companies Act 2006 a list of HSBC Holdings plc subsidiaries, joint ventures and associates, the registered
office addresses and the effective percentages of equity owned at 31 December 2022 are disclosed below.
Unless otherwise stated, the share capital comprises ordinary or common shares that are held by Group subsidiaries. The ownership percentage
is provided for each undertaking. The undertakings below are consolidated by HSBC unless otherwise indicated.
HSBC Holdings plc Annual Report and Accounts 2022
409
Financial statements
Notes on the financial statements
Subsidiaries
Subsidiaries
452 TALF Plus ABS Opportunities SPV LLC
452 TALF SPV LLC
Almacenadora Banpacifico S.A. (In
Liquidation)
Assetfinance December (F) Limited
Assetfinance December (H) Limited
Assetfinance December (P) Limited
Assetfinance December (R) Limited
Assetfinance June (A) Limited
Assetfinance June (D) Limited
Assetfinance Limited
Assetfinance March (B) Limited
Assetfinance March (D) Limited
Assetfinance March (F) Limited
Assetfinance September (F) Limited
Assetfinance September (G) Limited
AXA Insurance Pte. Ltd.
B&Q Financial Services Limited
Banco HSBC S.A.
Banco Nominees (Guernsey) Limited
Banco Nominees 2 (Guernsey) Limited
Banco Nominees Limited
Beau Soleil Limited Partnership
Beijing Miyun HSBC Rural Bank Company
Limited
BentallGreenOak China Real Estate
Investments L.P.
Canada Crescent Nominees (UK) Limited
Canada Square Nominees (UK) Limited
Capco/Cove, Inc.
Card-Flo #1, Inc.
Card-Flo #3, Inc.
CC&H Holdings LLC
CCF & Partners Asset Management Limited
CCF Holding (Liban) S.A.L. (In Liquidation)
Charterhouse Administrators (D.T.) Limited
Charterhouse Management Services Limited
Charterhouse Pensions Limited
Chongqing Dazu HSBC Rural Bank Company
Limited
Chongqing Fengdu HSBC Rural Bank
Company Limited
Chongqing Rongchang HSBC Rural Bank
Company Limited
COIF Nominees Limited
Corsair IV Financial Services Capital Partners -
B, LP
Dalian Pulandian HSBC Rural Bank Company
Limited
Decision One Mortgage Company, LLC
Dem 9
Dempar 1
Desarrollo Turistico, S.A. de C.V. (In
Liquidation)
Electronic Data Process México, S.A. de C.V.
Eton Corporate Services Limited
Far East Leasing SA (In Dissolution)
Flandres Contentieux S.A.
Foncière Elysées
Fujian Yongan HSBC Rural Bank Company
Limited
Fulcher Enterprises Company Limited
Fundacion HSBC, A.C.
Giller Ltd.
% of share class
held by immediate
parent company
(or by the Group
where this varies)
Footnotes
Subsidiaries
% of share class
held by immediate
parent company
(or by the Group
where this varies)
100.00
100.00
99.99
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
N/A
100.00
N/A
100.00
100.00
100.00
100.00
100.00
100.00
100.00
74.99
100.00
100.00
100.00
100.00
100.00
100.00
N/A
N/A
100.00
N/A
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
15
15
16
17
18
18
18
18
17
18
19
17
18
18
17
1, 20
18
21
22
22
23
0, 46
12, 24
0, 1, 25
18
18
26
15
15
27
18
28
18
18
18
12, 29
12, 30
12, 31
0, 18
0, 1, 32
12, 33
0, 34
4, 35
4, 35
16
1, 16
22
36
35
35
12, 37
38
11, 16
26
(99.99)
(99.99)
(99.99)
(99.99)
(99.99)
(99.99)
(99.99)
(99.99)
(62.14)
(99.99)
GPIF Co-Investment, LLC
Griffin International Limited
Grupo Financiero HSBC, S. A. de C. V.
Guangdong Enping HSBC Rural Bank
Company Limited
Guangzhou HSBC Real Estate Company Ltd
Hang Seng (Nominee) Limited
Hang Seng Bank (China) Limited
Hang Seng Bank (Trustee) Limited
Hang Seng Bank Limited
Hang Seng Bullion Company Limited
Hang Seng Credit Limited
Hang Seng Data Services Limited
Hang Seng Finance Limited
Hang Seng Financial Information Limited
Hang Seng Indexes (Netherlands) B.V.
Hang Seng Indexes Company Limited
Hang Seng Insurance Company Limited
Hang Seng Investment Management Limited
Hang Seng Investment Services Limited
Hang Seng Life Limited (In Liquidation)
Hang Seng Qianhai Fund Management
Company Limited
Hang Seng Real Estate Management Limited
Hang Seng Securities Limited
Hang Seng Security Management Limited
HASE Wealth Limited
Haseba Investment Company Limited
HFC Bank Limited (In Liquidation)
High Time Investments Limited
HLF
Honey Blue Enterprises Limited
Honey Green Enterprises Ltd.
Honey Grey Enterprises Limited
Honey Silver Enterprises Limited
Household International Europe Limited (In
Liquidation)
Household Pooling Corporation
Housing (USA) LLP
HSBC (BGF) Investments Limited
HSBC (General Partner) Limited
HSBC (Guernsey) GP PCC Limited
HSBC (Kuala Lumpur) Nominees Sdn Bhd
HSBC (Malaysia) Trustee Berhad
HSBC (Singapore) Nominees Pte Ltd
HSBC Agency (India) Private Limited
HSBC Alternative Investments Limited
HSBC Amanah Malaysia Berhad
HSBC Americas Corporation (Delaware)
HSBC Argentina Holdings S.A.
HSBC Asia Holdings B.V.
HSBC Asia Holdings Limited
HSBC Asia Pacific Holdings (UK) Limited
HSBC Asset Finance (UK) Limited
HSBC Asset Finance M.O.G. Holdings (UK)
Limited
HSBC Asset Management (Fund Services UK)
Limited
HSBC Asset Management (India) Private
Limited
HSBC Asset Management (Japan) Limited
HSBC Assurances Vie (France)
HSBC Australia Holdings Pty Limited
HSBC BANK (CHILE)
HSBC Bank (China) Company Limited
N/A
100.00
99.99
100.00
100.00
100.00
100.00
100.00
62.14
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
70.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
N/A
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
(62.14)
(62.14)
(62.14)
(62.14)
(62.14)
(62.14)
(62.14)
(62.14)
(62.14)
(62.14)
(62.14)
(62.14)
(62.14)
(62.14)
(43.49)
(62.14)
(62.14)
(62.14)
(62.14)
(62.14)
(62.14)
(99.99)
(99.99)
(99.99)
Footnotes
0, 15
18
16
12, 39
1, 12, 40
38
41
38
38
38
38
38
38
38
1, 42
38
38
38
38
43
12, 44
38
38
38
1, 38
38
45
38
35
1, 46
47
1, 46
1, 46
45
48
0, 1, 27
18
2, 79
22
49
49
20
50
18
49
15
51
18
2, 46
18
18
18
1, 18
52
53
54
55
56
12, 57
410
HSBC Holdings plc Annual Report and Accounts 2022
Subsidiaries
HSBC Bank (General Partner) Limited
HSBC Bank (Mauritius) Limited
HSBC Bank (RR) (Limited Liability Company)
HSBC Bank (Singapore) Limited
HSBC Bank (Taiwan) Limited
HSBC Bank (Uruguay) S.A.
HSBC Bank (Vietnam) Ltd.
HSBC Bank A.S.
HSBC Bank Argentina S.A.
HSBC Bank Armenia cjsc
HSBC Bank Australia Limited
HSBC Bank Bermuda Limited
HSBC Bank Canada
HSBC Bank Capital Funding (Sterling 1) LP
HSBC Bank Capital Funding (Sterling 2) LP
HSBC Bank Egypt S.A.E
HSBC Bank Malaysia Berhad
HSBC Bank Malta p.l.c.
HSBC Bank Middle East Limited
HSBC Bank Middle East Limited
Representative Office Morocco SARL (In
Liquidation)
HSBC Bank Oman S.A.O.G.
HSBC Bank Pension Trust (UK) Limited
HSBC Bank plc
HSBC Bank USA, National Association
HSBC Branch Nominee (UK) Limited
HSBC Brasil Holding S.A.
HSBC Broking Forex (Asia) Limited
HSBC Broking Futures (Asia) Limited
HSBC Broking Futures (Hong Kong) Limited
HSBC Broking Securities (Asia) Limited
HSBC Broking Securities (Hong Kong) Limited
HSBC Broking Services (Asia) Limited
HSBC Canadian Covered Bond (Legislative)
GP Inc.
HSBC Canadian Covered Bond (Legislative)
Guarantor Limited Partnership
HSBC Capital (USA), Inc.
HSBC Capital Funding (Dollar 1) L.P.
HSBC Card Services Inc.
HSBC Casa de Bolsa, S.A. de C.V., Grupo
HSBC Cayman Limited
HSBC Cayman Services Limited
HSBC City Funding Holdings
HSBC Client Holdings Nominee (UK) Limited
HSBC Client Nominee (Jersey) Limited
HSBC Columbia Funding, LLC
HSBC Continental Europe
HSBC Corporate Advisory (Malaysia) Sdn Bhd
HSBC Corporate Finance (Hong Kong) Limited
HSBC Corporate Secretary (UK) Limited
HSBC Corporate Trustee Company (UK)
Limited
HSBC Custody Nominees (Australia) Limited
HSBC Custody Services (Guernsey) Limited
HSBC Daisy Investments (Mauritius) Limited
HSBC Diversified Loan Fund General Partner
Sarl
HSBC Electronic Data Processing
(Guangdong) Limited
HSBC Electronic Data Processing (Malaysia)
Sdn Bhd
HSBC Electronic Data Processing
(Philippines), Inc.
HSBC Electronic Data Processing India
Private Limited
% of share class
held by immediate
parent company
(or by the Group
where this varies)
(99.99)
(99.99)
100.00
100.00
N/A
100.00
100.00
100.00
100.00
100.00
99.99
100.00
100.00
100.00
100.00
N/A
N/A
94.54
100.00
70.03
100.00
100.00
51.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
N/A
100.00
N/A
100.00
100.00
100.00
100.00
100.00
100.00
100.00
N/A
99.99
100.00
100.00
100.00
100.00
100.00
100.00
100.00
N/A
100.00
100.00
99.99
100.00
Footnotes
79
58
0, 13, 59
20
60
61
62
63
51
64
55
23
65
0, 79
0, 79
66
49
67
68
69
70
18
2, 18
71
17
21
46
46
46
46
46
46
72
0, 72
15
79
15
16
73
73
18
18
74
0, 15
35
49
46
2, 18
18
55
22
75
76
12, 77
78
79
80
Subsidiaries
HSBC Electronic Data Processing Lanka
(Private) Limited
HSBC Electronic Data Service Delivery
(Egypt) S.A.E.
HSBC Epargne Entreprise (France)
HSBC Equipment Finance (UK) Limited
HSBC Equity (UK) Limited
HSBC Europe B.V.
HSBC Executor & Trustee Company (UK)
Limited
HSBC Factoring (France)
HSBC Finance (Netherlands)
HSBC Finance Corporation
HSBC Finance Limited
HSBC Finance Mortgages Inc.
HSBC Finance Transformation (UK) Limited
HSBC Financial Advisors Singapore Pte. Ltd.
HSBC Financial Services (Lebanon) s.a.l.
HSBC Financial Services (Uruguay) S.A. (In
Liquidation)
HSBC FinTech Services (Shanghai) Company
Limited
HSBC Global Asset Management (Bermuda)
Limited
HSBC Global Asset Management (Canada)
Limited
HSBC Global Asset Management
(Deutschland) GmbH
HSBC Global Asset Management (France)
HSBC Global Asset Management (Hong
Kong) Limited
HSBC Global Asset Management (Malta)
Limited
HSBC Global Asset Management (México),
S.A. de C.V., Sociedad Operadora de Fondos
de Inversión, Grupo Financiero HSBC
HSBC Global Asset Management (Singapore)
Limited
HSBC Global Asset Management
(Switzerland) AG
HSBC Global Asset Management (Taiwan)
Limited
HSBC Global Asset Management (UK)
Limited
HSBC Global Asset Management (USA) Inc.
HSBC Global Asset Management Argentina
S.A. Sociedad Gerente de Fondos Comunes
de Inversión
HSBC Global Asset Management Holdings
(Bahamas) Limited
HSBC Global Asset Management Limited
HSBC Global Custody Nominee (UK) Limited
HSBC Global Custody Proprietary Nominee
(UK) Limited
HSBC Global Services (Canada) Limited
HSBC Global Services (China) Holdings
Limited
HSBC Global Services (Hong Kong) Limited
HSBC Global Services (UK) Limited
HSBC Global Services Limited
HSBC Global Shared Services (India) Private
Limited (In Liquidation)
HSBC Group Management Services Limited
HSBC Group Nominees UK Limited
HSBC Holdings B.V.
HSBC IM Pension Trust Limited
% of share class
held by immediate
parent company
(or by the Group
where this varies)
Footnotes
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.65
100.00
100.00
100.00
100.00
100.00
100.00
100.00
(99.99)
(99.99)
(99.99)
100.00
(70.03)
100.00
(99.99)
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.99
100.00
100.00
100.00
100.00
81
82
54
17
18
18
17
35
2, 18
15
18
83
18
1, 20
84
85
86
3, 23
65
87
54
46
88
16
20
4, 89
46
18
91
51
92
2, 18
18
1, 18
83
18
46
18
2, 18
1, 50
18
2, 18
18
18
HSBC Holdings plc Annual Report and Accounts 2022
411
Financial statements Notes on the financial statements
% of share class
held by immediate
parent company
(or by the Group
where this varies)
Footnotes
Subsidiaries
% of share class
held by immediate
parent company
(or by the Group
where this varies)
Footnotes
Subsidiaries
HSBC Infrastructure Debt GP 1 S.à r.l.
HSBC Infrastructure Debt GP 2 S.à r.l.
HSBC Infrastructure Limited
HSBC Institutional Trust Services (Asia)
HSBC Institutional Trust Services (Bermuda)
Limited
HSBC Institutional Trust Services (Mauritius)
Limited
HSBC Institutional Trust Services (Singapore)
Limited
HSBC Insurance (Asia) Limited
HSBC Insurance (Asia-Pacific) Holdings
Limited
HSBC Insurance (Bermuda) Limited
HSBC Insurance (Singapore) Pte. Limited
HSBC Insurance Agency (USA) Inc.
HSBC Insurance Brokerage Company Limited
HSBC Insurance Brokers Greater China
Limited
HSBC Insurance Holdings Limited
HSBC Insurance SAC 1 (Bermuda) Limited
HSBC Insurance SAC 2 (Bermuda) Limited
HSBC Insurance Services Holdings Limited
HSBC International Finance Corporation
(Delaware)
HSBC International Trustee (BVI) Limited
HSBC International Trustee (Holdings) Pte.
Limited
HSBC International Trustee Limited
HSBC Inversiones S.A.
HSBC InvestDirect (India) Private Limited
HSBC InvestDirect Financial Services (India)
Limited
HSBC InvestDirect Sales & Marketing (India)
Limited
HSBC InvestDirect Securities (India) Private
Limited
HSBC Investment and Insurance Brokerage,
Philippines Inc.
HSBC Investment Bank Holdings B.V.
HSBC Investment Bank Holdings Limited
HSBC Investment Company Limited
HSBC Investment Funds (Canada) Inc.
N/A
N/A
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.99
(99.98)
98.99
(98.98)
99.99
99.99
100.00
100.00
100.00
100.00
HSBC Investment Funds (Hong Kong) Limited
100.00
HSBC Investment Funds (Luxembourg) SA
HSBC Invoice Finance (UK) Limited
HSBC Issuer Services Common Depositary
Nominee (UK) Limited
HSBC Issuer Services Depositary Nominee
(UK) Limited
HSBC Latin America B.V.
HSBC Latin America Holdings (UK) Limited
HSBC Leasing (Asia) Limited
HSBC Life (Bermuda) Limited
HSBC Life (Cornell Centre) Limited
HSBC Life (Edwick Centre) Limited
HSBC Life (International) Limited
HSBC Life (Property) Limited
HSBC Life (Tsing Yi Industrial) Limited
HSBC Life (UK) Limited
HSBC Life (Workshop) Limited
HSBC Life Assurance (Malta) Limited
HSBC Life Insurance Company Limited
HSBC LU Nominees Limited
HSBC Management (Guernsey) Limited
HSBC Markets (USA) Inc.
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
(70.03)
0, 93
0, 93
18
46
23
94
20
95
46
23
20
91
1, 96
1, 46
2, 18
23
1, 23
18
97
98
20
99
56
52
52
50
52
100
18
18
2, 18
65
46
101
102
18
18
18
2, 18
46
23
95
95
23
95
95
18
1, 95
88
12, 57
18
103
15
HSBC Marking Name Nominee (UK) Limited
HSBC Master Trust Trustee Limited
HSBC Mexico, S.A., Institucion de Banca
Multiple, Grupo Financiero HSBC
HSBC Middle East Asset Co. LLC
HSBC Middle East Holdings B.V.
HSBC Middle East Leasing Partnership
HSBC Middle East Securities L.L.C
HSBC Mortgage Corporation (Canada)
HSBC Mortgage Corporation (USA)
HSBC Nominees (Asing) Sdn Bhd
HSBC Nominees (Hong Kong) Limited
HSBC Nominees (New Zealand) Limited
HSBC Nominees (Tempatan) Sdn Bhd
HSBC North America Holdings Inc.
HSBC Operational Services GmbH
HSBC Overseas Holdings (UK) Limited
HSBC Overseas Investments Corporation
(New York)
HSBC Overseas Nominee (UK) Limited
HSBC Participaciones (Argentina) S.A.
HSBC PB Corporate Services 1 Limited
HSBC PB Services (Suisse) SA
HSBC Pension Trust (Ireland) DAC
HSBC Pensiones, S.A. (In Liquidation)
HSBC PI Holdings (Mauritius) Limited
HSBC Portfoy Yonetimi A.S.
HSBC Preferential LP (UK)
HSBC Private Bank (Luxembourg) S.A.
HSBC Private Bank (Suisse) SA
HSBC Private Bank (UK) Limited
HSBC Private Banking Holdings (Suisse) SA
HSBC Private Banking Nominee 3 (Jersey)
Limited
HSBC Private Equity Investments (UK)
Limited
HSBC Private Investment Counsel (Canada)
Inc.
HSBC Private Markets Management SARL
HSBC Private Trustee (Hong Kong) Limited
HSBC Professional Services (India) Private
Limited
HSBC Property (UK) Limited
HSBC Property Funds (Holding) Limited
HSBC Provident Fund Trustee (Hong Kong)
Limited
HSBC Qianhai Securities Limited
HSBC Real Estate Leasing (France)
HSBC REGIO Fund General Partner S.à r.l.
HSBC REIM (France)
HSBC Retirement Benefits Trustee (UK)
Limited
HSBC Retirement Services Limited
HSBC Saudi Arabia, Closed Joint Stock
Company
HSBC Savings Bank (Philippines) Inc.
HSBC Securities (Canada) Inc.
HSBC Securities (Egypt) S.A.E. (In
Liquidation)
HSBC Securities (Japan) Co., Ltd.
HSBC Securities (Japan) Limited
HSBC Securities (Singapore) Pte Limited
HSBC Securities (South Africa) (Pty) Limited
HSBC Securities (Taiwan) Corporation Limited
HSBC Securities (USA) Inc.
100.00
100.00
99.99
100.00
100.00
N/A
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
80.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
N/A
100.00
100.00
100.00
100.00
100.00
90.00
100.00
100.00
100.00
100.00
100.00
66.19
99.99
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
18
18
16
104
2, 68
0, 68
105
65
15
49
46
106
49
3, 15
87
2, 18
107
18
51
74
108
109
16
94
63
18
101
108
18
108
74
18
65
0, 110
46
50
18
18
46
12, 111
35
1, 93
54
1, 2, 18
1, 18
112
113
83
66
1, 53
18
20
114
60
15
(99.99)
(99.99)
(94.65)
412
HSBC Holdings plc Annual Report and Accounts 2022
Subsidiaries
HSBC Securities and Capital Markets (India)
Private Limited
HSBC Securities Brokers (Asia) Limited
HSBC Securities Investments (Asia) Limited
HSBC Securities Services (Bermuda) Limited
HSBC Securities Services (Guernsey) Limited
HSBC Securities Services (Ireland) DAC
HSBC Securities Services (Luxembourg) S.A.
HSBC Securities Services Holdings (Ireland)
DAC
HSBC Securities Services Nominees Limited
HSBC Seguros de Retiro (Argentina) S.A.
HSBC Seguros de Vida (Argentina) S.A.
HSBC Seguros, S.A de C.V., Grupo Financiero
HSBC
HSBC Service Company Germany GmbH
HSBC Service Delivery (Polska) Sp. z o.o.
HSBC Services (France)
HSBC Services Japan Limited
HSBC Services USA Inc.
HSBC Servicios Financieros, S.A. de C.V
HSBC Servicios, S.A. DE C.V., Grupo
Financiero HSBC
HSBC SFH (France)
HSBC SFT (C.I.) Limited
HSBC Software Development (Guangdong)
Limited
HSBC Software Development (India) Private
Limited
HSBC Software Development (Malaysia) Sdn
Bhd
HSBC Specialist Investments Limited
HSBC Technology & Services (China) Limited
HSBC Technology & Services (USA) Inc.
HSBC Titan GmbH & Co. KG
HSBC Transaction Services GmbH
HSBC Trinkaus & Burkhardt (International)
S.A.
HSBC Trinkaus & Burkhardt Gesellschaft fur
Bankbeteiligungen mbH
HSBC Trinkhaus & Burkhardt GmbH
HSBC Trinkaus Europa Immobilien-Fonds Nr.
5 GmbH
HSBC Trinkaus Family Office GmbH
HSBC Trinkaus Real Estate GmbH
HSBC Trust Company (Canada)
HSBC Trust Company (Delaware), National
Association
HSBC Trust Company (UK) Limited
HSBC Trustee (C.I.) Limited
HSBC Trustee (Cayman) Limited
HSBC Trustee (Guernsey) Limited
HSBC Trustee (Hong Kong) Limited
HSBC Trustee (Singapore) Limited
HSBC UK Bank plc
HSBC UK Client Nominee Limited
HSBC UK Covered Bonds LLP
HSBC UK Holdings Limited
HSBC USA Inc.
HSBC Ventures USA Inc.
HSBC Violet Investments (Mauritius) Limited
HSBC Wealth Client Nominee Limited
HSBC Yatirim Menkul Degerler A.S.
HSI Asset Securitization Corporation
HSI International Limited
HSIL Investments Limited
% of share class
held by immediate
parent company
(or by the Group
where this varies)
Footnotes
Subsidiaries
99.99
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
50
46
46
23
22
109
101
109
1, 46
51
51
16
(99.99)
(99.99)
(99.99)
(99.99)
1, 87
(99.99)
(99.99)
(99.99)
(99.99)
(99.99)
(99.99)
(99.99)
100.00
(99.99)
100.00
100.00
(99.99)
(99.99)
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
N/A
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
(99.99)
(99.99)
(62.14)
115
35
92
116
16
16
4, 54
22
117
118
78
18
57
15
1, 87
6, 87
119
87
87
87
6, 87
6, 87
65
97
18
74
120
22
46
20
2, 17
17
0, 17
2, 18
107
15
75
1, 17
63
15
38
18
Hubei Macheng HSBC Rural Bank Company
Limited
Hubei Suizhou Cengdu HSBC Rural Bank
Company Limited
Hubei Tianmen HSBC Rural Bank Company
Limited
Hunan Pingjiang HSBC Rural Bank Company
Limited
Imenson Limited
INKA Internationale Kapitalanlagegesellschaft
mbH
Inmobiliaria Bisa, S.A. de C.V.
Inmobiliaria Grufin, S.A. de C.V.
Inmobiliaria Guatusi, S.A. de C.V.
James Capel (Nominees) Limited
James Capel (Taiwan) Nominees Limited
John Lewis Financial Services Limited
Keyser Ullmann Limited
L&T Investment Management Limited
Lion Corporate Services Limited
Lion International Corporate Services Limited
Lion International Management Limited
Lion Management (Hong Kong) Limited
Lyndholme Limited
Marks and Spencer Financial Services plc
Marks and Spencer Unit Trust Management
Limited
Maxima S.A. AFJP (In Liquidation)
Midcorp Limited
Midland Bank (Branch Nominees) Limited
Midland Nominees Limited
MIL (Cayman) Limited
MP Payments Group Limited
MP Payments Operations Limited
MP Payments UK Limited
MW Gestion SA
Prudential Client HSBC GIS Nominee (UK)
PT Bank HSBC Indonesia
PT HSBC Sekuritas Indonesia
R/CLIP Corp.
Real Estate Collateral Management Company
Republic Nominees Limited
RLUKREF Nominees (UK) One Limited
RLUKREF Nominees (UK) Two Limited
S.A.P.C. - Ufipro Recouvrement
Saf Baiyun
Saf Guangzhou
SCI HSBC Assurances Immo
Serai Limited
Serai Technology Development (Shanghai)
Limited
SFM
SFSS Nominees (Pty) Limited
Shandong Rongcheng HSBC Rural Bank
Company Limited
Shenzhen HSBC Development Company Ltd
Sico Limited
SNC Les Oliviers D'Antibes
SNCB/M6 - 2008 A
SNCB/M6-2007 A
SNCB/M6-2007 B
Société Française et Suisse
Somers Dublin DAC
Somers Nominees (Far East) Limited
Sopingest
South Yorkshire Light Rail Limited
% of share class
held by immediate
parent company
(or by the Group
where this varies)
100.00
100.00
100.00
100.00
100.00
100.00
(62.14)
(99.99)
99.98
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.98
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.99
85.00
100.00
100.00
100.00
100.00
100.00
99.99
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
60.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
(99.99)
(99.99)
(99.99)
(99.99)
(98.93)
(99.99)
(99.99)
(99.99)
(99.99)
(59.99)
(99.99)
(99.99)
(99.99)
(99.99)
(99.99)
(99.99)
Footnotes
121
12, 122
123
12, 124
38
87
16
16
16
18
18
18
18
1, 52
46
1, 99
99
1, 46
46
125
125
51
18
17
17
73
1, 18
1, 18
1, 18
51
18
126
126
15
15
22
1, 18
1, 18
35
4, 35
4, 35
54
46
1, 12, 57
35
114
12, 127
1, 12, 128
129
11, 54
35
4, 35
4, 35
35
109
23
35
18
HSBC Holdings plc Annual Report and Accounts 2022
413
Financial statements Associates
The undertakings below are associates and equity accounted.
Associates
Bank of Communications Co., Ltd.
Barrowgate Limited
BGF Group PLC
Bud Financial Limited
Canara HSBC Life Insurance Company
Limited
Contour Pte Ltd
Divido Financial Services Limited
Electronic Payment Services Company (Hong
Kong) Limited
Episode Six Limited
EPS Company (Hong Kong) Limited
EURO Secured Notes Issuer
GZHS Research Co Ltd
HSBC Jintrust Fund Management Company
Limited
Liquidity Match LLC
London Precious Metals Clearing Limited
MENA Infrastructure Fund (GP) Ltd
Monese Ltd
Quantexa Ltd
Services Epargne Entreprise
The London Gold Market Fixing Limited
The Saudi British Bank
Threadneedle Software Holdings Limited
Trade Information Network Limited
Trinkaus Europa Immobilien-Fonds Nr. 7
Frankfurt Mertonviertel KG
Vizolution Limited
We Trade Innovation Designated Activity
Company
% of share class
held by
immediate parent
company (or by
the Group where
this varies)
19.03
15.31
24.61
5.36
26.00
12.65
5.56
38.66
7.02
38.66
16.67
20.50
49.00
N/A
30.00
33.33
5.39
10.10
14.18
25.00
31.00
6.56
16.67
N/A
17.95
9.88
Footnotes
136
137
138
1, 139
140
1, 141
1, 142
46
1, 143
46
144
145
57
0, 1, 146
1, 147
145
1, 149
131
150
134
152
1, 153
1, 154
0, 87
1, 155
1, 156
Notes on the financial statements
% of share class
held by immediate
parent company
(or by the Group
where this varies)
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
(99.99)
Footnotes
17
12, 57
18
5, 46
18
2, 18
130
87
100.00
(99.99)
6, 87
100.00
(99.99)
87
100.00
(99.99)
6, 87
100.00
(99.99)
6, 87
100.00
100.00
100.00
100.00
100.00
100.00
100.00
N/A
100.00
100.00
(99.99)
(99.99)
87
6, 87
73
17
35
46
46
0, 15
23
38
(99.99)
(62.14)
Subsidiaries
St Cross Trustees Limited
Sun Hung Kai Development (Lujiazui III)
Limited
Swan National Limited
The Hongkong and Shanghai Banking
Corporation Limited
The Venture Catalysts Limited
Tooley Street View Limited
Tower Investment Management
Trinkaus Australien Immobilien Fonds Nr. 1
Brisbane GmbH & Co. KG
Trinkaus Australien Immobilien-Fonds Nr. 1
Treuhand-GmbH
Trinkaus Europa Immobilien-Fonds Nr.3
Objekt Utrecht Verwaltungs-GmbH
Trinkaus Immobilien-Fonds
Geschaeftsfuehrungs-GmbH
Trinkaus Immobilien-Fonds Verwaltungs-
GmbH
Trinkaus Private Equity Management GmbH
Trinkaus Private Equity Verwaltungs GmbH
Tropical Nominees Limited
Turnsonic (Nominees) Limited
Valeurs Mobilières Elysées
Wardley Limited
Wayfoong Nominees Limited
Westminster House, LLC
Woodex Limited
Yan Nin Development Company Limited
Joint ventures
The undertakings below are joint ventures and equity accounted.
Joint ventures
Climate Asset Management Limited
Global Payments Technology Mexico S.A. De
C.V
HCM Holdings Limited (In Liquidation)
Pentagreen Capital Pte. Ltd
ProServe Bermuda Limited
The London Silver Market Fixing Limited
Vaultex UK Limited
% of share class
held by
immediate parent
company (or by
the Group where
this varies)
40.00
50.00
50.99
50.00
50.00
N/A
50.00
Footnotes
1, 131
16
45
1, 132
133
0 1, 134
135
414
HSBC Holdings plc Annual Report and Accounts 2022
Footnotes for Note 38
Description of Shares
0
Where an entity is governed by voting rights, HSBC consolidates
when it holds – directly or indirectly – the necessary voting rights
to pass resolutions by the governing body. In all other cases, the
assessment of control is more complex and requires judgement of
other factors, including having exposure to variability of returns,
power to direct relevant activities, and whether power is held as
an agent or principal. HSBC’s consolidation policy is described in
Note 1.2(a).
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Management has determined that these undertakings are
excluded from consolidation in the Group accounts as these
entities do not meet the definition of subsidiaries in accordance
with IFRS. HSBC’s consolidation policy is described in Note 1.2(a).
Directly held by HSBC Holdings plc
Preference Shares
Actions
Redeemable Preference Shares
GmbH Anteil
Limited and Unlimited Liability Shares
Liquidating Share Class
Nominal Shares
Non-Participating Voting Shares
Parts
Registered Capital Shares
Russian Limited Liability Company Shares
Stückaktien
Registered offices
15
c/o The Corporation Trust Company 1209 Orange Street,
Wilmington, Delaware, United States of America, 19801
Paseo de la Reforma 347 Col. Cuauhtemoc, Mexico, 06500
1 Centenary Square, Birmingham, United Kingdom, B1 1HQ
8 Canada Square, London, United Kingdom, E14 5HQ
5 Donegal Square South, Northern Ireland, Belfast, United
Kingdom, BT1 5JP
10 Marina Boulevard #48-01 Marina Bay Financial Centre,
Singapore, 018983
1909 Avenida Presidente Juscelino Kubitschek, 19° andar, Torre
Norte, São Paulo Corporate Towers, São Paulo, Brazil, 04551-903
Arnold House, St Julians Avenue, St Peter Port, Guernsey, GY1
3NF
37 Front Street, Hamilton, Bermuda, HM 11
First Floor, Xinhua Bookstore Xindong Road (SE of roundabout),
Miyun District, Beijing, China
Oak House Hirzel Street, St Peter Port, Guernsey, GY1 2NP
2929 Walden Avenue, Depew, New York, United States of
Corporation Service Company 251 Little Falls Drive, Wilmington,
Delaware, United States of America, 19808
Solidere - Rue Saad Zaghloul Immeuble - 170 Marfaa, P.O. Box
17 5476 Mar Michael, Beyrouth, Lebanon, 11042040
No 1, Bei Huan East Road Dazu County, Chongqing, China
No 107 Ping Du Avenue (E), Sanhe Town, Fengdu County,
Chongqing, China
No. 3, 5, 7, Haitang Erzhi Road Changyuan, Rongchang,
Chongqing, China, 402460
c/o Walkers Corporate Services Limited Walker House, 87 Mary
Street, George Town, Grand Cayman, Cayman Islands, KY1-9005
First & Second Floor, No.3 Nanshan Road, Pulandian , Dalian,
Liaoning, China
160 Mine Lake CT, Ste 200, Raleigh, North Carolina, United
States Of America, 27615-6417
38 avenue Kléber, Paris, France, 75116
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
MMG Tower, 23 floor Ave. Paseo del Mar Urbanizacion Costa del
Este, Panama
72
Registered offices
37
No. 1 1211 Yanjiang Zhong Road, Yongan, Fujian, China
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
83 Des Voeux Road Central, Hong Kong
No.44 Xin Ping Road Central, Encheng, Enping, Guangdong,
China, 529400
Room 311, Cheng Hui No. 2, Nan Sha Street, Nan Sha District,
Guangzhou, Guangdong, China
34/F, 36/F, Unit 031 of 45/F, and 46/F, Hang Seng Bank Tower,
1000 Lujiazui Ring Road, Pilot Free Trade Zone, Shanghai, China,
200120
Gustav Mahlerplein 2 1082 MA, Amsterdam, Netherlands
8/F, Prince’s Building, 10 Chater Road, Central, Hong Kong
1001, T2 Office Building, Qianhai Kerry Business Center, Qianhai
Avenue, Nanshan Street, Qianhai Shenzhen-Hong Kong
Cooperation Zone, Shenzhen, Guangdong, China
156 Great Charles Street, Queensway, Birmingham, West
Midlands, United Kingdom, B3 3HN
1 Queen’s Road, Central, Hong Kong
Commerce House, Wickhams Cay 1, P.O. Box 3140, Road Town,
Tortola, British Virgin Islands, VG1110
The Corporation Trust Company of Nevada 311 S. Division
Street, Carson City, Nevada, United States of America, 89703
Menara IQ, Lingkaran TRX, Tun Razak Exchange, Kuala Lumpur,
Malaysia, 55188
52/60 M G Road Fort, Mumbai, India, 400 001
557 Bouchard Level 20, Ciudad de Buenos Aires, Capital Federal,
Argentina, C1106ABG
9-11 Floors, NESCO IT Park Building No. 3 Western Express
Highway, Goregaon (East), Mumbai, India, 400063
HSBC Building 11-1, Nihonbashi 3-chome, Chuo-ku, Tokyo,
Japan, 103-0027
Immeuble Cœur Défense, 110 Esplanade du Général de Gaulle,
Courbevoie, France, 92400
Level 36, Tower 1, International Towers Sydney, 100 Barangaroo
Avenue, Sydney, New South Wales, Australia, 2000
Isidora Goyenechea 2800. 23rd Floor, Las Condes, Santiago,
Chile, 7550647
HSBC Building Shanghai ifc, 8 Century Avenue, Pudong,
Shanghai, China, 200120
IconEbene, Level 5 Office 1 (West Wing), Rue de L’institut,
Ebene, Mauritius
2 Paveletskaya Square Building 2, Moscow, Russian Federation,
115054
54F, 7 Xinyi Road Sec. 5, Xinyi District, Taipei, Taiwan
1266 Dr Luis Bonativa, 1266 Piso 30 (Torre IV WTC),
Montevideo, Uruguay, CP 11.000
The Metropolitan, 235 Dong Khoi Street, District 1, Ho Chi Minh
City, Viet Nam
Esentepe mah. Büyükdere Caddesi No.128, Istanbul, Türkiye,
34394
66 Teryan Street, Yerevan, Armenia, 0009
885 West Georgia Street, 3rd Floor, Vancouver, British Columbia,
Canada, V6C 3E9
306 Corniche El Nil, Maadi, Egypt, 11728
116 Archbishop Street, Valletta, Malta
401, Level 4 Gate Precinct Building 2, Dubai International
Financial Centre, P.O. Box 30444, Dubai, United Arab Emirates
Majer Consulting, Office 54/44, Building A1, Residence Ryad
Anfa, Boulevard Omar El Khayam, Casa Finance City (CFC),
Casablanca, Morocco
Al Khuwair Office, PO Box 1727, PC111 CPO Seeb, Muscat,
Oman
1800 Tysons Boulevard Suite 50, Tysons, Virginia, United States
of America, 22102
66 Wellington Street West, Suite 5300, Toronto, Ontario,
Canada, M5K 1E6
HSBC Holdings plc Annual Report and Accounts 2022
415
Financial statements
Notes on the financial statements
Registered offices
73
P.O. Box 1109, Strathvale House, Ground Floor, 90 North Church
Street , George Town, Grand Cayman, Cayman Islands,
KY1-1102
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
HSBC House Esplanade, St. Helier, Jersey, JE1 1HS
c/o Rogers Capital St. Louis Business Centre, Cnr Desroches &
St Louis Streets, Port Louis, Mauritius
49 avenue J.F. Kennedy, Luxembourg, 1855
4-17/F, Office Tower 2 TaiKoo Hui, No. 381 Tian He Road, Tian
He District, Guangzhou, Guangdong, China
Suite 1005, 10th Floor, Wisma Hamzah Kwong, Hing No. 1,
Leboh Ampang, Kuala Lumpur, Malaysia, 50100
Filinvest One Building, Northgate Cyberzone, Filinvest Corporate
City, Alabang, Muntinlupa City, Philippines
HSBC House, Plot No.8, Survey No.64 (Part), Hightec City Layout
Madhapur, Hyderabad, India, 500081
439, Sri Jayawardenapura Mawatha Welikada, Rajagiriya,
Colombo, Sri Lanka
Smart Village 28th Km Cairo- Alexandria Desert Road Building,
Cairo, Egypt
16 York Street, 6th Floor, Toronto, Ontario, Canada, M5J 0E6
Centre Ville 1341 Building, 4th Floor, Patriarche Howayek Street
(facing Beirut Souks), PO Box Riad El Solh, Lebanon, 9597
World Trade Center, Montevideo Avenida Luis Alberto de
Herrera 1248, Torre 1, Piso 15, Oficina 1502, Montevideo,
Uruguay, CP 11300
Room 655, Building A, No. 888, Huan Hu West Two Road, Lin
Gang New Area of Shanghai (Pilot) Free Trade Zone, Shanghai,
China
Hansaallee 3, Düsseldorf, Germany, 40549
80 Mill Street, Qormi, Malta, QRM 3101
26 Gartenstrasse, Zurich, Switzerland, 8002
24th Floor, 97-99, Sec.2, Tunhwa S. Road, Taipei, Taiwan
452 Fifth Avenue, New York, United States of America, NY10018
Mareva House, 4 George Street, Nassau, Bahamas
4 rue Peternelchen, Howald, Luxembourg, 2370
6th floor HSBC Centre 18, Cybercity, Ebene, Mauritius, 72201
18th Floor, Tower 1, HSBC Centre, 1 Sham Mong Road,
Kowloon, Hong Kong
Unit 201 Floor 2, Building 3, No. 12, Anxiang Street, Shunyi
District, Beijing, China
300 Delaware Avenue, Suite 1401, Wilmington, Delaware,
United States of America, 19801
Woodbourne Hall, Road Town, Tortola, British Virgin Islands, P.O.
Box 916
PO Box 71, Craigmuir Chambers, Road Town Tortola, British
Virgin Islands
5/F HSBC Centre 3058 Fifth Ave West, Bonifacio Global City,
Taguig City, Philippines
18 Boulevard de Kockelscheuer, Luxembourg, 1821
21 Farncombe Road Worthing, United Kingdom, BN11 2BW
Arnold House, St Julians Avenue, St Peter Port, Guernsey, GY1
1WA
345-6791, HSBC Tower, Burj Khalifa Community, Dubai, United
Arab Emirates
Office No.16, Owned by HSBC Bank Middle East Limited, Dubai
Branch, Bur Dubai, Burj Khalifa, Dubai, United Arab Emirates
HSBC Tower, Level 21, 188 Quay Street, Auckland, New
Zealand, 1010
The Corporation Trust Incorporated, 2405 York Road, Suite 201,
Lutherville Timonium, Maryland, United States of America,
21093
Quai des Bergues 9-17, Geneva, Switzerland, 1201
1 Grand Canal Square, Grand Canal Harbour, Dublin 2, Ireland,
D02 P820
416
HSBC Holdings plc Annual Report and Accounts 2022
Registered offices
110
5 rue Heienhaff, Senningerberg, Luxembourg, 1736
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
Block 27 A&B, Qianhai Enterprise Dream Park No. 63 Qianwan Yi
Road, Shenzhen-Hong Kong Cooperation Zone, Shenzhen, China,
518052
HSBC Building 7267 Olaya - Al Murrooj, Riyadh, Saudi Arabia,
12283 - 2255
Unit 1 GF The Commerical Complex Madrigal Avenue, Ayala
Alabang Village, Muntinlupa City, Philippines, 1780
1 Mutual Place, 107 Rivonia Road, Sandton, Gauteng, South
Africa, 2196
Kapelanka 42A , Krakow, Poland, 30-347
C T Corporation System 820 Bear Tavern Road, West Trenton,
New Jersey, United States of America, 08628
L22, Office Tower 2, Taikoo Hui, 381 Tianhe Road, Tianhe
District, Guangzhou, Guangdong, China
Business Bay, Wing 2, Tower B, Survey no 103, Hissa no. 2,
Airport road, Yerwada, Pune, India, 411006
16 Boulevard d’Avranches, Luxembourg, Luxembourg, L-1160
P.O. Box 309 Ugland House, Grand Cayman, Cayman Islands,
KY1-1104
No. 56 Yu Rong Street, Macheng, China, 438300
No. 205 Lie Shan Road Suizhou, Hubei, China
Building 3, Yin Zuo Di Jing Wan Tianmen New City, Tianmen,
Hubei Province, China
RM101, 102 & 106 Sunshine Fairview, Sunshine Garden,
Pedestrian Walkway, Pingjiang, China
Kings Meadow Chester Business Park , Chester, United
Kingdom, CH99 9FB
World Trade Center 1, Jalan Jenderal Sudirman Kavling 29 - 31,
Jakarta, Indonesia, 12920
No. 198-2 Chengshan Avenue (E), Rongcheng, China, 264300
Room 1303-13062 Marine Center Main Tower, 59 Linhai Road,
Nanshan District, Shenzhen, China
Woodbourne Hall, Road Town, Tortola, British Virgin Islands, P.O.
Box 3162
25 Main St. P.O. Box 694, Grand Cayman KY1 1107, Cayman
Islands, KY1 1107
Hill House, 1 Little New Street, London , United Kingdom, EC4A
3TR
60B Orchard Road #06-18, The Atrium @Orchard, Singapore,
238891
c/o MUFG Fund Services (Bermuda) Limited, Cedar House, 4th
Floor North, 41 Cedar Avenue, Hamilton, Bermuda, HM 12
c/o Hackwood Secretaries Limited, One Silk Street, London,
United Kingdom, EC2Y 8HQ
All Saints Triangle, Caledonian Road, London, United Kingdom,
N19UT
No.188, Yin Cheng Zhong Road China (Shanghai), Pilot Free
Trade Zone, Shanghai, China
50/F, Lee Garden One, 33 Hysan Avenue, Hong Kong
13-15 York Buildings, London, United Kingdom, WC2N 6JU
Linen Court, Floor 3, 10 East Road, London, United Kingdom, N1
6AD
Unit No. 208, 2nd Floor, Kanchenjunga Building 18, Barakhamba
Road, New Delhi, India, 110001
50 Raffles Place, #32-01 Singapore Land Tower, Singapore,
048623
Office 7, 35-37 Ludgate Hill, London, United Kingdom, EC4M
7JN
100 Town Square Place, Suite 201, Jersey City, New Jersey,
United States Of America, 07310
7th Floor, 62 Threadneedle Street, London, United Kingdom,
EC2R 8HP
Precinct Building 4, Level 3, Dubai International Financial Centre,
Dubai, United Arab Emirates, PO Box 506553
Registered offices
146
9/F Amtel Building, 148 des Voeux Road Central, Central, Hong
Kong
147
148
149
150
151
152
153
154
155
156
3 Avenue de l’Opera , Paris, France, 75001
Room 1303, 106 Feng Ze Dong Road, Nansha District,
Guangzhou, Guangdong, China
Eagle House, 163 City Road, London, United Kingdom, EC1V
1NR
32 rue du Champ de Tir, Nantes, France, 44300
Ernst-Schneider-Platz 1 , Duesseldorf, Germany, 40212
Al Amir Abdulaziz Ibn Mossaad Ibn Jalawi Street, Riyadh, Saudi
Arabia
2nd Floor, Regis House, 45 King William Street, London, United
Kingdom, EC4R 9AN
3 More London Riverside, London, United Kingdom, SE1 2AQ
Office Block A, Bay Studios Business Park, Fabian Way,
Swansea, Wales, United Kingdom, SA1 8QB
10 Earlsfort Terrace, Dublin, Ireland, DO2 T380
HSBC Holdings plc Annual Report and Accounts 2022
417
Financial statements Additional information
Shareholder information
Contents
418
418
418
418
419
419
420
Second Interim dividend for 2022
Interim dividends for 2023
Other equity instruments
2022 Annual General Meeting
Earnings releases and interim results
Shareholder enquiries and communications
Stock symbols
Investor relations
420
420 Where more information about HSBC is available
421
Taxation of shares and dividends
422
424
426
427
Approach to ESG reporting
Cautionary statement regarding forward-looking statements
Certain defined terms
Abbreviations
This section gives important information for our shareholders, including contact information. It also includes an overview of key abbreviations
and terminology used throughout the Annual Report and Accounts.
A glossary of terms used in the Annual Report and Accounts can be found in the Investors section of www.hsbc.com.
Second interim dividend for 2022
The Directors have approved a second interim dividend for 2022 of $0.23 per ordinary share. Information on the currencies in which
shareholders may elect to have the cash dividend paid will be sent to shareholders on or about 24 March 2023. The interim dividend will be paid
in cash. The timetable for the interim dividend is:
Announcement
Shares quoted ex-dividend in London, Hong Kong and Bermuda and American Depositary Shares (‘ADS’) quoted ex-dividend in New York
Record date – London, Hong Kong, New York, Bermuda1
Mailing of Annual Report and Accounts 2022 and/or Strategic Report 2022
Final date for dividend election changes including Investor Centre electronic instructions and revocations of standing instructions for dividend
elections
Exchange rate determined for payment of dividends in sterling and Hong Kong dollars
Payment date
21 February 2023
2 March 2023
3 March 2023
24 March 2023
13 April 2023
17 April 2023
27 April 2023
1 Removals to and from the Overseas Branch register of shareholders in Hong Kong will not be permitted on this date.
Interim dividends for 2023
For the financial year 2022, we achieved a dividend payout ratio within our 2022 target range of between 40% and 55% of reported earnings per
ordinary share (‘EPS’). As previously communicated, given our current returns trajectory, we are establishing a dividend payout ratio of 50% of
reported earnings per share for 2023 and 2024, excluding material significant items (including the planned sale of our retail banking operations in
France and the planned sale of our banking business in Canada). The Group intends to revert to paying quarterly dividends from the first quarter
of 2023. The dividend policy has the flexibility to adjust EPS for material significant items such as goodwill or intangibles impairments and may
be supplemented from time to time by buy-backs or special dividends, should the Group find itself in an excess capital position absent
compelling investment opportunities to deploy that excess.
Dividends are approved in US dollars and, at the election of the shareholder, paid in cash in one of, or in a combination of, US dollars, pounds
sterling and Hong Kong dollars.
Other equity instruments
Additional tier 1 capital – contingent convertible securities
HSBC continues to issue contingent convertible securities that are included in its capital base as fully CRR II-compliant additional tier 1 capital
securities. For further details on these securities, please refer to Note 32 on the financial statements.
HSBC issued no new perpetual contingent convertible securities during 2022.
2022 Annual General Meeting
With the exception of the shareholder requisitioned Resolution 19, which the Board recommended that shareholders vote against, and
resolution 17(b), which the Board withdrew from the agenda of the 2022 Annual General Meeting (‘AGM‘), all resolutions considered at the
2022 AGM held at 11:00am on 29 April 2022 at Queen Elizabeth Hall, Southbank Centre, Belvedere Road, London SE1 8XX, UK were passed on
a poll.
418
HSBC Holdings plc Annual Report and Accounts 2022
Earnings releases and interim results
First and third quarter results for 2023 will be released on 2 May 2023 and 30 October 2023, respectively. The interim results for the six months
to 30 June 2023 will be issued on 1 August 2023.
Shareholder enquiries and communications
Enquiries
Any enquiries relating to shareholdings on the share register (for example, transfers of shares, changes of name or address, lost share
certificates or dividend cheques) should be sent to the Registrars at the address given below. The Registrars offer an online facility, Investor
Centre, which enables shareholders to manage their shareholding electronically.
Principal Register:
Hong Kong Overseas Branch Register:
Bermuda Overseas Branch Register:
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
United Kingdom
Telephone: +44 (0) 370 702 0137
Email via website:
www.investorcentre.co.uk/contactus
Computershare Hong Kong Investor
Services Limited
Rooms 1712-1716, 17th Floor
Hopewell Centre
183 Queen’s Road East
Hong Kong
Telephone: +852 2862 8555
Email: hsbc.ecom@computershare.com.hk
Investor Relations Team
HSBC Bank Bermuda Limited
37 Front Street
Hamilton HM 11
Bermuda
Telephone: +1 441 299 6737
Email: hbbm.shareholder.services@hsbc.bm
Investor Centre:
www.investorcentre.co.uk
Investor Centre:
www.investorcentre.com/hk
Investor Centre:
www.investorcentre.com/bm
Any enquiries relating to ADSs should be sent to the depositary:
The Bank of New York Mellon
Shareowner Services
P.O. Box 43006
Providence RI 02940-3078
USA
Telephone (US): +1 877 283 5786
Telephone (International): +1 201 680 6825
Email: shrrelations@cpushareownerservices.com
Website: www.mybnymdr.com
If you have elected to receive general shareholder communications directly from HSBC Holdings, it is important to remember that your main
contact for all matters relating to your investment remains the registered shareholder, or custodian or broker, who administers the investment
on your behalf. Therefore, any changes or queries relating to your personal details and holding (including any administration of it) must continue
to be directed to your existing contact at your investment manager or custodian or broker. HSBC Holdings cannot guarantee dealing with
matters directed to it in error.
Shareholders who wish to receive a hard copy of the Annual Report and Accounts 2022 should contact HSBC’s Registrars. Please visit
www.hsbc.com/investors/investor-contacts for further information. You can also download an online version of the report from www.hsbc.com.
Electronic communications
Shareholders may at any time choose to receive corporate communications in printed form or to receive notifications of their availability on
HSBC’s website. To receive notifications of the availability of a corporate communication on HSBC’s website by email, or revoke or amend an
instruction to receive such notifications by email, go to www.hsbc.com/investors/shareholder-information/manage-your-shareholding. If you
provide an email address to receive electronic communications from HSBC, we will also send notifications of your dividend entitlements by
email. If you received a notification of the availability of this document on HSBC’s website and would like to receive a printed copy, or if you
would like to receive future corporate communications in printed form, please write or send an email (quoting your shareholder reference
number) to the appropriate Registrars at the address given above. Printed copies will be provided without charge.
HSBC Holdings plc Annual Report and Accounts 2022
419
Additional information
Additional information
Chinese translation
A Chinese translation of the Annual Report and Accounts 2022 will be available upon request after 24 March 2023 from the Registrars:
Computershare Hong Kong Investor Services Limited
Rooms 1712-1716, 17th Floor
Hopewell Centre
183 Queen’s Road East
Hong Kong
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
United Kingdom
Please also contact the Registrars if you wish to receive Chinese translations of future documents, or if you have received a Chinese translation
of this document and do not wish to receive them in future.
《2022 年報及賬目》備有中譯本，各界人士可於2023年3月24日之後，向上列股份登記處索閱。
閣下如欲於日後收取相關文件的中譯本，或已收到本文件的中譯本但不希望繼續收取有關譯本，均請聯絡股份登記處。
Stock symbols
HSBC Holdings ordinary shares trade under the following stock symbols:
London Stock Exchange
Hong Kong Stock Exchange
*HSBC’s Primary market
HSBA*
5
New York Stock Exchange (ADS)
Bermuda Stock Exchange
HSBC
HSBC.BH
Investor relations
Enquiries relating to HSBC’s strategy or operations may be directed to:
Richard O’Connor, Global Head of Investor Relations
HSBC Holdings plc
8 Canada Square
London E14 5HQ
United Kingdom
Telephone: +44 (0) 20 7991 6590
Email: investorrelations@hsbc.com
Mark Phin, Head of Investor Relations, Asia-Pacific
The Hongkong and Shanghai Banking
Corporation Limited
1 Queen’s Road Central
Hong Kong
Telephone: 852 2822 4908
Email: investorrelations@hsbc.com.hk
Where more information about HSBC is available
The Annual Report and Accounts 2022 and other information on HSBC may be downloaded from HSBC’s website: www.hsbc.com.
Reports, statements and information that HSBC Holdings files with the Securities and Exchange Commission are available at www.sec.gov.
Investors can also request hard copies of these documents upon payment of a duplicating fee by writing to the SEC at the Office of Investor
Education and Advocacy, 100 F Street N.E., Washington, DC 20549-0213 or by emailing PublicInfo@sec.gov. Investors should call the
Commission at (1) 202 551 8090 if they require further assistance. Investors may also obtain the reports and other information that HSBC
Holdings files at www.nyse.com (telephone number (1) 212 656 3000).
HM Treasury has transposed the requirements set out under CRD IV and issued the Capital Requirements Country-by-Country Reporting
Regulations 2013. The legislation requires HSBC Holdings to publish additional information in respect of the year ended 31 December 2022 by
31 December 2023. This information will be available on HSBC’s website: www.hsbc.com/tax.
420
HSBC Holdings plc Annual Report and Accounts 2022
Taxation of shares and dividends
Taxation – UK residents
The following is a summary, under current law and the current
published practice of HM Revenue and Customs (‘HMRC’), of certain
UK tax considerations that are likely to be material to the ownership
and disposition of HSBC Holdings ordinary shares. The summary does
not purport to be a comprehensive description of all the tax
considerations that may be relevant to a holder of shares. In
particular, the summary deals with shareholders who are resident
solely in the UK for UK tax purposes and only with holders who hold
the shares as investments and who are the beneficial owners of the
shares, and does not address the tax treatment of certain classes of
holders such as dealers in securities. Holders and prospective
purchasers should consult their own advisers regarding the tax
consequences of an investment in shares in light of their particular
circumstances, including the effect of any national, state or local laws.
Taxation of dividends
Currently, no tax is withheld from dividends paid by HSBC Holdings.
UK resident individuals
UK resident individuals are generally entitled to a tax-free annual
allowance in respect of dividends received. The amount of the
allowance for the tax year beginning 6 April 2022 is £2,000. To the
extent that dividend income received by an individual in the relevant
tax year does not exceed the allowance, a nil tax rate will apply.
Dividend income in excess of this allowance will be taxed at 8.75%
for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35%
for additional rate taxpayers.
UK resident companies
Shareholders that are within the charge to UK corporation tax should
generally be entitled to an exemption from UK corporation tax on any
dividends received from HSBC Holdings. However, the exemptions
are not comprehensive and are subject to anti-avoidance rules.
If the conditions for exemption are not met or cease to be satisfied, or
a shareholder within the charge to UK corporation tax elects for an
otherwise exempt dividend to be taxable, the shareholder will be
subject to UK corporation tax on dividends received from HSBC
Holdings at the rate of corporation tax applicable to that shareholder.
Taxation of capital gains
The computation of the capital gains tax liability arising on disposals of
shares in HSBC Holdings by shareholders subject to UK tax on capital
gains can be complex, partly depending on whether, for example, the
shares were purchased since April 1991, acquired in 1991 in
exchange for shares in The Hongkong and Shanghai Banking
Corporation Limited, or acquired subsequent to 1991 in exchange for
shares in other companies.
For capital gains tax purposes, the acquisition cost for ordinary shares
is adjusted to take account of subsequent rights and capitalisation
issues. Any capital gain arising on a disposal of shares in HSBC
Holdings by a UK company may also be adjusted to take account of
indexation allowance if the shares were acquired before 1 January
2018, although the level of indexation allowance that is given in
calculating the gain would be frozen at the value that would have
been applied to a disposal of those shares in December 2017. If in
doubt, shareholders are recommended to consult their professional
advisers.
Stamp duty and stamp duty reserve tax
Transfers of shares by a written instrument of transfer generally will
be subject to UK stamp duty at the rate of 0.5% of the consideration
paid for the transfer (rounded up to the next £5), and such stamp duty
is generally payable by the transferee. An agreement to transfer
shares, or any interest therein, normally will give rise to a charge to
stamp duty reserve tax at the rate of 0.5% of the consideration.
However, provided an instrument of transfer of the shares is
executed pursuant to the agreement and duly stamped before the
date on which the stamp duty reserve tax becomes payable, under
the current published practice of HMRC it will not be necessary to pay
the stamp duty reserve tax, nor to apply for such tax to be cancelled.
Stamp duty reserve tax is generally payable by the transferee.
Paperless transfers of shares within CREST, the UK’s paperless share
transfer system, are liable to stamp duty reserve tax at the rate of
0.5% of the consideration. In CREST transactions, the tax is
calculated and payment made automatically. Deposits of shares into
CREST generally will not be subject to stamp duty reserve tax, unless
the transfer into CREST is itself for consideration. Following the case
HSBC pursued before the European Court of Justice (Case C-569/07
HSBC Holdings plc and Vidacos Nominees Ltd v The Commissioners
for HM Revenue and Customs) and a subsequent case in relation to
depositary receipts, HMRC accepted that the charge to stamp duty
reserve tax at 1.5% on the issue of shares (and transfers integral to
capital raising) to a depositary receipt issuer or a clearance service
was incompatible with European Union law, and would not be
imposed.
Following the UK’s departure from the European Union and the expiry
of the transition period, the 1.5% stamp duty reserve tax charge on
issues of shares to overseas clearance services and depositary
receipt issuers is still disapplied, but no assurance can be given that
legislation will not be amended in the future to reintroduce the
charge.
Taxation – US residents
The following is a summary, under current law, of the principal UK tax
and US federal income tax considerations that are likely to be material
to the ownership and disposition of shares or American Depositary
Shares (‘ADSs’) by a holder that is a US holder, as defined below, and
who is not resident in the UK for UK tax purposes.
The summary does not purport to be a comprehensive description of
all of the tax considerations that may be relevant to a holder of shares
or ADSs. In particular, the summary deals only with US holders that
hold shares or ADSs as capital assets, and does not address the tax
treatment of holders that are subject to special tax rules. These
include banks, tax-exempt entities, insurance companies, dealers in
securities or currencies, persons that hold shares or ADSs as part of
an integrated investment (including a ‘straddle’ or ‘hedge’) comprised
of a share or ADS and one or more other positions, and persons that
own directly or indirectly 10% or more (by vote or value) of the stock
of HSBC Holdings. This discussion is based on laws, treaties, judicial
decisions and regulatory interpretations in effect on the date hereof,
all of which are subject to change.
For the purposes of this discussion, a ‘US holder’ is a beneficial holder
that is a citizen or resident of the United States, a US domestic
corporation or otherwise is subject to US federal income taxes on a
net income basis in respect thereof.
Holders and prospective purchasers should consult their own advisers
regarding the tax consequences of an investment in shares or ADSs
in light of their particular circumstances, including the effect of any
national, state or local laws.
Any US federal tax advice included in the Annual Report and Accounts
2022 is for informational purposes only. It was not intended or written
to be used, and cannot be used, for the purpose of avoiding US
federal tax penalties.
Taxation of dividends
Currently, no tax is withheld from dividends paid by HSBC Holdings.
For US tax purposes, a US holder must include cash dividends paid on
the shares or ADSs in ordinary income on the date that such holder or
the ADS depositary receives them, translating dividends paid in UK
pounds sterling into US dollars using the exchange rate in effect on
the date of receipt. A US holder that elects to receive shares in lieu of
a cash dividend must include in ordinary income the fair market value
of such shares on the dividend payment date, and the tax basis of
those shares will equal such fair market value.
Subject to certain exceptions for positions that are held for less than
61 days, and subject to a foreign corporation being considered a
‘qualified foreign corporation’ (which includes not being classified for
US federal income tax purposes as a passive foreign investment
company), certain dividends (‘qualified dividends’) received by an
individual US holder generally will be subject to US taxation at
preferential rates.
HSBC Holdings plc Annual Report and Accounts 2022
421
Additional information Additional information
Based on the company’s audited financial statements and relevant
market and shareholder data, HSBC Holdings does not believe that it
was a passive investment company for its 2022 taxable year and does
not anticipate becoming a passive foreign investment company in
2023 or the foreseeable future. Accordingly, dividends paid on the
shares or ADSs generally should be treated as qualified dividends.
Taxation of capital gains
Gains realised by a US holder on the sale or other disposition of
shares or ADSs normally will not be subject to UK taxation unless at
the time of the sale or other disposition the holder carries on a trade,
profession or vocation in the UK through a branch or agency or
permanent establishment and the shares or ADSs are or have been
used, held or acquired for the purposes of such trade, profession,
vocation, branch or agency or permanent establishment. Such gains
will be included in income for US tax purposes, and will be long-term
capital gains if the shares or ADSs were held for more than one year.
A long-term capital gain realised by an individual US holder generally
will be subject to US tax at preferential rates.
Inheritance tax
Shares or ADSs held by an individual whose domicile is determined to
be the US for the purposes of the United States–United Kingdom
Double Taxation Convention relating to estate and gift taxes (the
‘Estate Tax Treaty’) and who is not for such purposes a national of the
UK will not, provided any US federal estate or gift tax chargeable has
been paid, be subject to UK inheritance tax on the individual’s death
or on a lifetime transfer of shares or ADSs except in certain cases
where the shares or ADSs (i) are comprised in a settlement (unless, at
the time of the settlement, the settlor was domiciled in the US and
was not a national of the UK), (ii) are part of the business property of a
UK permanent establishment of an enterprise, or (iii) pertain to a UK
fixed base of an individual used for the performance of independent
personal services. In such cases, the Estate Tax Treaty generally
provides a credit against US federal tax liability for the amount of any
tax paid in the UK in a case where the shares or ADSs are subject to
both UK inheritance tax and to US federal estate or gift tax.
Stamp duty and stamp duty reserve tax – ADSs
If shares are transferred to a clearance service or American
Depositary Receipt (‘ADR’) issuer (which will include a transfer of
shares to the depositary) under the current published HMRC practice,
UK stamp duty and/or stamp duty reserve tax will be payable. The
stamp duty or stamp duty reserve tax is generally payable on the
consideration for the transfer and is payable at the aggregate rate of
1.5%.
The amount of stamp duty reserve tax payable on such a transfer will
be reduced by any stamp duty paid in connection with the same
transfer.
No stamp duty will be payable on the transfer of, or agreement to
transfer, an ADS, provided that the ADR and any separate instrument
of transfer or written agreement to transfer remain at all times
outside the UK, and provided further that any such transfer or written
agreement to transfer is not executed in the UK. No stamp duty
reserve tax will be payable on a transfer of, or agreement to transfer,
an ADS effected by the transfer of an ADR.
US information reporting and backup withholding tax
Distributions made on shares or ADSs and proceeds from the sale of
shares or ADSs that are paid within the US, or through certain
financial intermediaries to US holders, are subject to US information
reporting and may be subject to a US ‘backup’ withholding tax.
General exceptions to this rule happen when the US holder:
establishes that it is a corporation (other than an S corporation) or
other exempt holder; or provides a correct taxpayer identification
number, certifies that no loss of exemption from backup withholding
has occurred and otherwise complies with the applicable
requirements of the backup withholding rules. Holders that are not US
taxpayers generally are not subject to US information reporting or
backup withholding tax, but may be required to comply with
applicable certification procedures to establish that they are not US
taxpayers in order to avoid the application of such US information
reporting requirements or backup withholding tax to payments
received within the US or through certain financial intermediaries.
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HSBC Holdings plc Annual Report and Accounts 2022
Approach to ESG reporting
The information set out in the ESG review on pages 43 to 96, taken
together with other information relating to ESG issues included in this
Annual Report and Accounts 2022, aims to provide key ESG
information and data relevant to our operations for the year ended
31 December 2022. The data is compiled for the financial year
1 January to 31 December 2022 unless otherwise specified.
Measurement techniques and calculations are explained next to data
tables where necessary. There are no significant changes from the
previous reporting period in terms of scope, boundary or
measurement of our reporting of ESG matters. Where relevant,
rationale is provided for any restatement of information or data that
has been previously published. We have also considered our
obligations under the Environmental, Social and Governance
Reporting Guide contained in Appendix 27 to The Rules Governing the
Listing of Securities on the Stock Exchange of Hong Kong Limited
(‘ESG Guide’) and under LR9.8.6R(8) of the Financial Conduct
Authority’s (‘FCA’) Listing Rules. We will continue to develop and
refine our reporting and disclosures on ESG matters in line with
feedback received from our investors and other stakeholders, and in
view of our obligations under the ESG Guide and the FCA’s Listing
Rules.
ESG Guide
We comply with the ‘comply or explain’ provisions in the ESG Guide,
save for certain items, which we describe in more detail below:
• A1(b) on relevant laws/regulations relating to air and greenhouse
gas emissions, discharges into water and land, and generation of
hazardous and non-hazardous waste: Taking into account the
nature of our business, we do not believe that there are relevant
laws and regulations in these areas that have significant impacts
on HSBC.
• A1.3 on total hazardous waste produced, A1.4 on total non-
hazardous waste produced: Taking into account the nature of our
business, we do not consider hazardous waste to be a material
issue for our stakeholders. As such, we report only on total waste
produced, which includes hazardous and non-hazardous waste.
• A1.6 on handling hazardous and non-hazardous waste: Taking into
account the nature of our business, we do not consider this to be
a material issue for our stakeholders. Notwithstanding this, we
continue to focus on the reduction and recycling of all waste.
Building on the success of our previous operational environmental
strategy, we are identifying key opportunities where we can
lessen our wider environmental impact, including waste
management. For further details, please see our ESG review on
page 62.
• A2.4 on sourcing water issue and water efficiency target: Taking
into account the nature of our business, we do not consider this to
be a material issue for our stakeholders. Notwithstanding this, we
have implemented measures to further reduce water consumption
through the installation of flow restrictors, auto-taps and low or
zero flush sanitary fittings and continue to track our water
consumption.
• A2.5 on packaging material, B6(b) on issues related to health and
safety and labelling relating to products and services provided,
B6.1 on percentage of total products sold or shipped subject to
recalls for safety and health reasons and B6.4 in recall procedures:
Taking into account the nature of our business, we do not consider
these to be material issues for our stakeholders.
This is aligned with the materiality reporting principle that is set out in
the ESG Guide. See ‘How we decide what to measure’ on page 45
for further information on how we determine what matters are
material to our stakeholders.
TCFD recommendations and recommended
disclosures
As noted on page 17, we have considered our ‘comply or explain’
obligation under the FCA’s Listing Rules, and confirm that we have
made disclosures consistent with the TCFD Recommendations and
Recommended Disclosures in this Annual Report and Accounts 2022
save for certain items, which we describe below:
Targets setting
Metrics and targets (c) relating to short-term targets: For financed
emissions we do not plan to set 2025 targets. We set targets in line
with the Net-Zero Banking Alliance (‘NZBA‘) guidelines by setting
2030 targets. While the NZBA define 2030 as intermediate, we use
different time horizons for climate risk management. We define short
term as time periods up to 2025; medium term is between 2026 and
2035; and long term is between 2036 and 2050. These time periods
align to the Climate Action 100+ disclosure framework. In 2022, we
disclose interim 2030 targets for on-balance sheet financed emissions
for eight sectors as we outline on page 18. For the shipping sector,
we chose to defer setting a baseline and target until there is sufficient
reliable data to support our work, allowing us to more accurately track
progress towards net zero. We have chosen to defer setting targets
for facilitated emissions until the PCAF standard for capital markets is
published, which is expected in the first half of 2023. We aim to
update our targets and baselines to include both on- and off-balance
sheet activities following the publication of the industry standard for
capital markets methodology by PCAF. We intend to review the
financed emissions baselines and targets annually, where relevant, to
help ensure that they are aligned with market practice and current
climate science.
Metrics and targets (c) relating to capital deployment target: We do
not currently disclose a target for capital deployment. In relation to
capital deployment, since 2015, we have issued more than $2bn of
our own green bonds and structured green bonds with the capital
invested into a variety of green projects, including: green buildings,
renewable energy and clean transportation projects. In 2022, we are
internally reviewing and enhancing the green bond framework, with
further refinement to be undertaken in 2023. Our continued
monitoring of evolving taxonomies and practices over time could
result in revisions in our reporting going forward and lead to
differences year-on-year as compared with prior years. See the
HSBC’s Green Bond Report for further information.
Metrics and targets (c) relating to internal carbon prices: We do not
currently disclose internal carbon prices due to transitional challenges
such as developing the appropriate systems and processes, but we
considered carbon prices as an input for our climate scenario analysis
exercise. We expect to further enhance the disclosure in the medium
term as more data becomes available.
Impacts on financial planning and performance
Strategy (b) relating to financial planning and performance: We have
used climate scenarios to inform our organisation’s business, strategy
and financial planning. In 2022, we incorporated certain aspects of
sustainable finance and financed emissions within our financial
planning process. We do not currently fully disclose the impacts of
climate-related issues on financial planning, and particularly the impact
of climate-related issues on our financial performance (for example,
revenue and costs) and financial position (for example, assets and
liabilities), in each case due to lack of data and systems for compiling
the relevant financial impact. We expect to further enhance the
disclosure in the medium term as more data becomes available.
Strategy (b) related to transition plan: We do not currently disclose our
transition plan. We have committed to publish our own Group-wide
net zero transition plan in 2023. This plan will bring together our
climate strategy, science-based targets, and how we plan to embed
this into our processes, policies, governance and capabilities. It will
outline, in one place, not only our commitments, targets and approach
to net zero across the sectors and markets we serve, but how we are
transforming our organisation to embed net zero and finance the
transition.
Metrics and targets (a) relating to internal carbon prices and climate-
related opportunities metrics: We do not currently disclose internal
carbon price targets due to transitional challenges such as data
challenges. But we considered carbon prices as an input for our
climate scenario analysis exercise. In addition, we do not currently
fully disclose the proportion of revenue or proportion of assets, capital
deployment or other business activities aligned with climate-related
opportunities, including revenue from products and services designed
for a low-carbon economy, forward-looking metrics consistent with
our business or strategic planning time horizons. In relation to
sustainable finance revenue and assets we are disclosing certain
elements. We expect the data and system limitations related to
financial planning and performance, and climate-related opportunities
metrics to be addressed in the medium term as more reliable data
becomes available and technology solutions are implemented. We
expect to further enhance the disclosure in the medium term.
Impacts of transition and physical risk
Strategy (c) relating to quantitative scenario analysis: We do not
currently fully disclose the impacts of transition and physical risk
quantitatively, due to transitional challenges including data limitations
and evolving science and methodologies. In 2022, we have disclosed
the impairment impacts for our wholesale, retail and commercial real
estate portfolios in different climate scenarios. In addition, we have
disclosed losses on our retail mortgage book under three scenarios
and flood depths for specific markets. For our wholesale book we
have disclosed potential implications on our expected credit losses for
11 sectors under three scenarios. We have also disclosed a heat map
showing how we expect the risks to evolve over time.
Metrics and targets (a) relating to detailed climate-related risk
exposure metrics for physical and transition risks: We do not fully
disclose metrics used to assess the impact of climate-related physical
(chronic) and transitions (policy and legal, technology, market) risks on
retail lending, parts of wholesale lending and other financial
intermediary business activities (specifically credit exposure, equity
and debt holdings, or trading positions, each broken down by industry,
geography, credit quality, average tenor). We disclose the exposure to
six high risk wholesale sectors and the flood risk exposure and Energy
Performance Certificate breakdown for the UK portfolio. We are
aiming to develop the appropriate systems, data and processes to
provide these disclosures in future years.
Metrics and targets (c) on targets related to physical risk: We do not
currently disclose targets used to measure and manage physical risk.
This is due to transitional challenges including data limitations of
physical risk metrics. For retail, this is because we do not use targets
to measure and manage physical risk. Instead we have developed
exposure monitoring metrics and risk appetite where appropriate to
measure and manage physical risk. We also considered physical risk
as an input for our climate scenario analysis exercise.
We expect to further enhance the disclosure in medium term
considering the data limitations related to quantitative scenario
analysis, specific risk metrics and physical risk targets to be
addressed, more reliable data becoming available, and technology
solutions implemented.
Scope 3 emissions disclosure
Metrics and targets (b) relating to scope 3 emissions metrics: We
currently disclose partial scope 3 greenhouse gas emissions including
business travel, supply chain and financed emissions. In relation to
financed emissions, we published on-balance sheet financed
emissions for six sectors as detailed on page 18. Future disclosure on
financed emissions, and related risks is reliant on our customers
publicly disclosing their carbon emissions and related risks. We aim to
disclose financed emissions for additional sectors in our Annual
Report and Accounts 2023 and related disclosures. Our approach to
disclosure of financed emissions for additional sectors can be found
at: www.hsbc.com/who-we-are/esg-and-responsible-business/esg-
reporting-centre.
HSBC Holdings plc Annual Report and Accounts 2022
423
Additional information Additional information
Other matters
Strategy (b) relating to acquisitions/divestments: We have considered
the impact of climate-related issues on our businesses, strategy, and
financial planning, but not specifically in relation to acquisitions/
divestments. Due to transitional challenges such as process
limitations, we do not disclose the climate-related impact in these
areas. We will aim to further enhance our processes in relation to
acquisitions/divestments in the medium term.
Strategy (b) relating to access to capital: We have considered the
impact of climate-related issues on our businesses, strategy, and
financial planning. Our access to capital may be impacted by
reputational concerns as a result of climate action or inaction. In
addition, if we are perceived to mislead stakeholders on our business
activities or if we fail to achieve our stated net zero ambitions, we
could face reputational damage, impacting our revenue generating
ability and potentially our access to capital markets. We expect to
further enhance the disclosure in the medium term as more data
becomes available.
To manage these risks we have integrated climate risk into our
existing risk taxonomy, and incorporated it within the risk
management framework through the policies and controls for the
existing risks where appropriate.
Metrics and targets (c) relating to water usage target: We have
described the targets used by the organisation to manage climate-
related risks and opportunities and performance against targets.
However, taking into account the nature of our business, we do not
consider water usage to be a material target for our business and,
therefore, we have not included a target in this year’s disclosure.
With respect to our obligations under LR9.8.6R(8) of the FCA’s Listing
Rules, as part of considering what to measure and publicly report, we
perform an assessment to ascertain the appropriate level of detail to
be included in the climate-related financial disclosures that are set out
in our Annual Report and Accounts. Our assessment takes into
account factors such as the level of our exposure to climate-related
risks and opportunities, the scope and objectives of our climate-
related strategy, transitional challenges, and the nature, size and
complexity of our business. See ‘How we decide what to measure’
on page 45 for further information.
Cautionary statement regarding
forward-looking statements
The Annual Report and Accounts 2022 contains certain forward-
looking statements with respect to HSBC’s financial condition; results
of operations and business, including the strategic priorities; financial,
investment and capital targets; and ESG targets, commitments and
ambitions described herein.
Statements that are not historical facts, including statements about
HSBC’s beliefs and expectations, are forward-looking statements.
Words such as ‘may’, ‘will’, ‘should’, ‘expects’, ‘targets’, ‘anticipates’,
‘intends’, ‘plans’, ‘believes’, ‘seeks’, ‘estimates’, ‘potential’ and
‘reasonably possible’, or the negative thereof, other variations thereon
or similar expressions are intended to identify forward-looking
statements. These statements are based on current plans,
information, data, estimates and projections, and therefore undue
reliance should not be placed on them. Forward-looking statements
speak only as of the date they are made. HSBC makes no
commitment to revise or update any forward-looking statements to
reflect events or circumstances occurring or existing after the date of
any forward-looking statements. Written and/or oral forward-looking
statements may also be made in the periodic reports to the US
Securities and Exchange Commission, summary financial statements
to shareholders, proxy statements, offering circulars and
prospectuses, press releases and other written materials, and in oral
statements made by HSBC’s Directors, officers or employees to third
parties, including financial analysts. Forward-looking statements
involve inherent risks and uncertainties. Readers are cautioned that a
number of factors could cause actual results to differ, in some
instances materially, from those anticipated or implied in any forward-
looking statement. These include, but are not limited to:
424
HSBC Holdings plc Annual Report and Accounts 2022
• changes in general economic conditions in the markets in which
we operate, such as new, continuing or deepening recessions,
prolonged inflationary pressures and fluctuations in employment
and creditworthy customers beyond those factored into
consensus forecasts (including, without limitation, as a result of
the Russia-Ukraine war and, to a lesser extent, the Covid-19
pandemic); the Russia-Ukraine war and the Covid-19 pandemic and
their impact on global economies and the markets where HSBC
operates, which could have a material adverse effect on (among
other things) our financial condition, results of operations,
prospects, liquidity, capital position and credit ratings; deviations
from the market and economic assumptions that form the basis
for our ECL measurements (including, without limitation, as a
result of the Russia-Ukraine war, inflationary pressures and the
Covid-19 pandemic); potential changes in HSBC’s dividend policy;
changes in foreign exchange rates and interest rates, including the
accounting impact resulting from financial reporting in respect of
hyperinflationary economies; volatility in equity markets; lack of
liquidity in wholesale funding or capital markets, which may affect
our ability to meet our obligations under financing facilities or to
fund new loans, investments and businesses; geopolitical tensions
or diplomatic developments producing social instability or legal
uncertainty, such as the Russia-Ukraine war (including the
continuation and escalation thereof) and the related imposition of
sanctions and trade restrictions, supply chain restrictions and
disruptions, sustained increases in energy prices and key
commodities, claims of human rights violations, diplomatic
tensions, including between China and the US, the UK, the EU,
India and other countries, and developments in Hong Kong and
Taiwan, alongside other potential areas of tension, which may
adversely affect HSBC by creating regulatory, reputational and
market risks; the efficacy of government, customer, and HSBC’s
actions in managing and mitigating ESG risks, in particular climate
risk, nature-related risks and human rights risks, and in supporting
the global transition to net zero carbon emissions, each of which
can impact HSBC both directly and indirectly through our
customers and which may result in potential financial and non-
financial impacts; illiquidity and downward price pressure in
national real estate markets; adverse changes in central banks’
policies with respect to the provision of liquidity support to
financial markets; heightened market concerns over sovereign
creditworthiness in over-indebted countries; adverse changes in
the funding status of public or private defined benefit pensions;
societal shifts in customer financing and investment needs,
including consumer perception as to the continuing availability of
credit; exposure to counterparty risk, including third parties using
us as a conduit for illegal activities without our knowledge; the
discontinuation of certain key Ibors and the development of near
risk-free benchmark rates, as well as the transition of legacy Ibor
contracts to near risk-free benchmark rates, which exposes HSBC
to material execution risks, including in relation to the
effectiveness of its Ibor remediation strategy, and increases some
financial and non-financial risks; and price competition in the
market segments we serve;
• changes in government policy and regulation, including the
monetary, interest rate and other policies of central banks and
other regulatory authorities in the principal markets in which we
operate and the consequences thereof (including, without
limitation, actions taken as a result of the impact of the Russia-
Ukraine war on inflation and as a result of the Covid-19 pandemic);
initiatives to change the size, scope of activities and
interconnectedness of financial institutions in connection with the
implementation of stricter regulation of financial institutions in key
markets worldwide; revised capital and liquidity benchmarks,
which could serve to deleverage bank balance sheets and lower
returns available from the current business model and portfolio
mix; changes to tax laws and tax rates applicable to HSBC,
including the imposition of levies or taxes designed to change
business mix and risk appetite; the practices, pricing or
responsibilities of financial institutions serving their consumer
markets; expropriation, nationalisation, confiscation of assets and
changes in legislation relating to foreign ownership; the UK’s
relationship with the EU, which continues to be characterised by
uncertainty and political disagreement, particularly with respect to
the regulation of financial services, despite the signing of the
Trade and Cooperation Agreement between the UK and the EU;
changes in UK macroeconomic and fiscal policy as a result of the
change in UK government leadership, which may result in
fluctuations in the value of the pound sterling; general changes in
government policy that may significantly influence investor
decisions; the costs, effects and outcomes of regulatory reviews,
actions or litigation, including any additional compliance
requirements; and the effects of competition in the markets where
we operate including increased competition from non-bank
financial services companies; and
• factors specific to HSBC, including our success in adequately
identifying the risks we face, such as the incidence of loan losses
or delinquency, and managing those risks (through account
management, hedging and other techniques); our ability to achieve
our financial, investment, capital and ESG targets, commitments
and ambitions (including with respect to the commitments set
forth in our thermal coal phase-out policy and our energy policy
and our targets to reduce our on-balance sheet financed emissions
in eight high-emitting sectors), which may result in our failure to
achieve any of the expected benefits of our strategic priorities;
model limitations or failure, including, without limitation, the
impact that high inflationary pressures, rising interest rates and the
consequences of the Covid-19 pandemic have had on the
performance and usage of financial models, which may require us
to hold additional capital, incur losses and/or use compensating
controls, such as judgemental post-model adjustments, to address
model limitations; changes to the judgements, estimates and
assumptions we base our financial statements on; changes in our
ability to meet the requirements of regulatory stress tests; a
reduction in the credit ratings assigned to us or any of our
subsidiaries, which could increase the cost or decrease the
availability of our funding and affect our liquidity position and net
interest margin; changes to the reliability and security of our data
management, data privacy, information and technology
infrastructure, including threats from cyber-attacks, which may
impact our ability to service clients and may result in financial loss,
business disruption and/or loss of customer services and data; the
accuracy and effective use of data, including internal management
information that may not have been independently verified,
changes in insurance customer behaviour and insurance claim
rates; our dependence on loan payments and dividends from
subsidiaries to meet our obligations; changes in accounting
standards, including the implementation of IFRS 17 ‘Insurance
Contracts’, which may have a material impact on the way we
prepare our financial statements and (with respect to IFRS 17) may
negatively affect the profitability of HSBC’s insurance business;
changes in our ability to manage third-party, fraud and reputational
risks inherent in our operations; employee misconduct, which may
result in regulatory sanctions and/or reputational or financial harm;
changes in skill requirements, ways of working and talent
shortages, which may affect our ability to recruit and retain senior
management and diverse and skilled personnel; and changes in
our ability to develop sustainable finance and climate-related
products consistent with the evolving expectations of our
regulators, and our capacity to measure the climate impact from
our financing activity (including as a result of data limitations and
changes in methodologies), which may affect our ability to achieve
our climate ambition, our targets to reduce financed emissions in
our high-emitting sectors portfolio and the commitments set forth
in our thermal coal phase-out policy and our energy policy, and
increase the risk of greenwashing. Effective risk management
depends on, among other things, our ability through stress testing
and other techniques to prepare for events that cannot be
captured by the statistical models it uses; our success in
addressing operational, legal and regulatory, and litigation
challenges; and other risks and uncertainties we identify in ‘Top
and emerging risks’ on pages 135 to 142.
Additional cautionary statement
regarding ESG and climate-related
data, metrics and forward-looking
statements
The Annual Report and Accounts 2022 contains a number of forward-
looking statements (as defined above) with respect to HSBC’s ESG
targets, commitments, ambitions, climate-related scenarios or
pathways and the methodologies we use to assess our progress in
relation to these (‘ESG-related forward-looking statements’).
In preparing the ESG-related information contained in the Annual
Report and Accounts 2022, HSBC has made a number of key
judgements, estimations and assumptions, and the processes and
issues involved are complex. We have used ESG and climate data,
models and methodologies that we consider, as of the date on which
they were used, to be appropriate and suitable to understand and
assess climate change risk and its impact, to analyse financed
emissions - and operational and supply chain emissions, to set ESG-
related targets and to evaluate the classification of sustainable finance
and investments. However, these data, models and methodologies
are new, are rapidly evolving and are not of the same standard as
those available in the context of other financial information, nor are
they subject to the same or equivalent disclosure standards, historical
reference points, benchmarks or globally accepted accounting
principles. In particular, it is not possible to rely on historical data as a
strong indicator of future trajectories, in the case of climate change
and its evolution. Outputs of models, processed data and
methodologies are also likely to be affected by underlying data quality,
which can be hard to assess and we expect industry guidance,
market practice, and regulations in this field to continue to change. In
light of the highly uncertain nature of the evolution of climate change
and its impact, HSBC may have to re-evaluate its progress towards its
ESG ambitions, commitments and targets in the future, update the
methodologies it uses or alter its approach to ESG and climate
analysis and may be required to amend, update and recalculate its
ESG disclosures and assessments in the future, as market practice
and data quality and availability develops rapidly. The ESG-related
forward-looking statements and metrics discussed in the Annual
Report and Accounts 2022 therefore carry an additional degree of
inherent risk and uncertainty.
No assurance can be given by or on behalf of the Group as to the
likelihood of the achievement or reasonableness of any projections,
estimates, forecasts, targets, commitments, ambitions, prospects or
returns contained herein. Readers are cautioned that a number of
factors, both external and those specific to HSBC, could cause actual
achievements, results, performance or other future events or
conditions to differ, in some cases materially, from those stated,
implied and/or reflected in any ESG-related forward-looking
statements or metrics due to a variety of risks, uncertainties and
other factors (including without limitation those referred to below):
• Climate change projection risk: this includes, for example, the
evolution of climate change and its impacts, changes in the
scientific assessment of climate change impacts, transition
pathways and future risk exposure and limitations of climate
scenario forecasts;
• Changes in the ESG regulatory landscape: this involves changes in
government approach and regulatory treatment in relation to ESG
disclosures and reporting requirements, and the current lack of a
single standardised regulatory approach to ESG across all sectors
and markets;
• Variation in reporting standards: ESG reporting standards are still
developing and are not standardised or comparable across all
sectors and markets, new reporting standards in relation to
different ESG metrics are still emerging;
• Data availability, accuracy, verifiability and data gaps: our
disclosures are limited by the availability of high quality data
needed to calculate financed emissions. Where data is not
available for all sectors or consistently year on year, there may be
an impact to our data quality scores. Whilst we expect our data
quality scores to improve over time, as companies continue to
HSBC Holdings plc Annual Report and Accounts 2022
425
Additional information Certain defined terms
Unless the context requires otherwise, ‘HSBC Holdings’ means HSBC
Holdings plc and ‘HSBC’, the ‘Group’, ‘we’, ‘us’ and ‘our’ refer to
HSBC Holdings together with its subsidiaries. Within this document
the Hong Kong Special Administrative Region of the People’s
Republic of China is referred to as ‘Hong Kong’.
When used in the terms ‘shareholders’ equity’ and ‘total
shareholders’ equity’, ‘shareholders’ means holders of HSBC
Holdings ordinary shares and those preference shares and capital
securities issued by HSBC Holdings classified as equity. The
abbreviations ‘$m’, ‘$bn’ and ‘$tn’ represent millions, billions
(thousands of millions) and trillions of US dollars, respectively.
Additional information
expand their disclosures to meet growing regulatory and
stakeholder expectations, there may be unexpected fluctuations
within sectors year on year, and/or differences between the data
quality scores between sectors. Any such changes in the
availability and quality of data over time could result in revisions to
reported data going forward, including on financed emissions,
meaning that such data may not be reconcilable or comparable
year-on year;
• Developing methodologies: the methodologies HSBC uses to
assess financed emissions and set ESG-related targets may
develop over time in line with market practice, regulation and/or
developments in science, where applicable. Any such
developments in methodologies could result in revisions to
reported data going forward, including on financed emissions or
the classification of sustainable finance and investments, meaning
that data outputs may not be reconcilable or comparable year-on
year. In addition, climate scenarios and the models that analyse
them have limitations that are sensitive to key assumptions and
parameters, which are themselves subject to some uncertainty,
and cannot fully capture all of the potential effects of climate,
policy and technology driven outcomes; and
• Risk management capabilities: governments’, customers’, and
HSBC’s actions may not be effective in supporting the global
transition to net zero carbon emissions and in managing and
mitigating ESG risks, including in particular climate risk, nature-
related risks and human rights risks, each of which can impact
HSBC both directly and indirectly through our customers, and
which may result in potential financial and non-financial impacts to
HBSC. In particular:
– we may not be able to achieve our ESG targets, commitments
and ambitions (including with respect to the commitments set
forth in our thermal coal phase-out policy, our energy policy and
our targets to reduce our on-balance sheet financed emissions
in our portfolio of selected high-emitting sectors), which may
result in our failure to achieve any of the expected benefits of
our strategic priorities; and
– we may not be able to develop sustainable finance and climate-
related products consistent with the evolving expectations of
our regulators, and our capacity to measure the climate impact
from our financing activity may diminish (including as a result of
data and model limitations and changes in methodologies),
which may affect our ability to achieve our climate ambition,
our targets to reduce our on-balance sheet financed emissions
in our portfolio of selected high-emitting sectors and the
commitments set forth in our thermal coal phase-out policy and
energy policy, and increase the risk of greenwashing.
HSBC makes no commitment to revise or update any ESG forward-
looking statements to reflect events or circumstances occurring or
existing after the date of any ESG forward-looking statements.
Written and/or oral ESG-related forward-looking statements may also
be made in our periodic reports to the US Securities and Exchange
Commission, summary financial statements to shareholders, proxy
statements, offering circulars and prospectuses, press releases and
other written materials, and in oral statements made by HSBC’s
Directors, officers or employees to third parties, including financial
analysts.
Our data dictionaries and methodologies for preparing the above ESG-
related metrics and third-party limited assurance reports can be found
on: www.hsbc.com/who-we-are/ esg-and-responsible-business/esg-
reportingcentre.
426
HSBC Holdings plc Annual Report and Accounts 2022
Abbreviations
Currencies
£
CA$
€
HK$
MXN
RMB
SGD
$
A
ABS¹
ADR
ADS
AGM
AI
AIEA
ALCO
AML
AML DPA
AT1
B
Basel
Committee
Basel II¹
Basel III¹
Basel 3.1
BGF
BoCom
BoE
Bps¹
BVI
C
CAPM
CDS¹
CEA
CET1¹
CGUs
CMB
CMC
CODM
COSO
CP¹
CRD IV¹
CRR¹
CRR II¹
CSA
CSM
CVA¹
D
British pound sterling
Canadian dollar
Euro
Hong Kong dollar
Mexican peso
Chinese renminbi
Singapore dollar
United States dollar
Asset-backed security
American Depositary Receipt
American Depositary Share
Annual General Meeting
Artificial intelligence
Average interest-earning assets
Asset and Liability Management Committee
Anti-money laundering
Five-year deferred prosecution agreement with the US
Department of Justice, entered into in December 2012
Additional tier 1
Basel Committee on Banking Supervision
2006 Basel Capital Accord
Basel Committee’s reforms to strengthen global capital and
liquidity rules
Outstanding measures to be implemented from the Basel
III reforms
Business Growth Fund, an investment firm that provides
growth capital for small and mid-sized businesses in the UK
and Ireland
Bank of Communications Co., Limited, one of China’s
largest banks
Bank of England
Basis points. One basis point is equal to one-hundredth of a
percentage point
British Virgin Islands
Capital asset pricing model
Credit default swap
Commodity Exchange Act (US)
Common equity tier 1
Cash-generating units
Commercial Banking, a global business
Capital maintenance charge
Chief Operating Decision Maker
2013 Committee of Sponsoring Organizations of the
Treadway Commission (US)
Commercial paper
Capital Requirements Regulation and Directive
Customer risk rating
Revised Capital Requirements Regulation and Directive, as
implemented
Credit support annex
Contractual service margin
Credit valuation adjustment
Deferred Shares Awards of deferred shares define the number of HSBC
Holdings ordinary shares to which the employee will
become entitled, generally between one and seven years
from the date of the award, and normally subject to the
individual remaining in employment
Days past due
Discretionary participation feature of insurance and
investment contracts
Debit valuation adjustment
Exposure at default
DPD
DPF
DVA¹
E
EAD¹
EBA
EC
ECB
ECL
EEA
Eonia
EPC
EPS
ESG
EU
Euribor
EVE
F
European Banking Authority
European Commission
European Central Bank
Expected credit losses. In the income statement, ECL is
recorded as a change in expected credit losses and other
credit impairment charges. In the balance sheet, ECL is
recorded as an allowance for financial instruments to which
only the impairment requirements in IFRS 9 are applied
European Economic Area
Euro Overnight Index Average
Energy performance certificate
Earnings per ordinary share
Environmental, social and governance
European Union
Euro interbank offered rate
Economic value of equity
FAST-Infra
Finance to Accelerate the Sustainable Transition-
Infrastructure
FCA
FFVA
FPA
FRB
FRC
FSCS
FTE
FTSE
FVOCI¹
FX
G
GAAP
GAC
GBM
GDP
GEC
GMP
GPS
GPSP
GRC
Group
GTRF
H
Financial Conduct Authority (UK)
Funding fair value adjustment estimation methodology on
derivative contracts
Fixed pay allowance
Federal Reserve Board (US)
Financial Reporting Council
Financial Services Compensation Scheme
Full-time equivalent staff
Financial Times Stock Exchange index
Fair value through other comprehensive income
Foreign exchange
Generally accepted accounting principles
Group Audit Committee
Global Banking and Markets, a global business
Gross domestic product
Group Executive Committee
Guaranteed minimum pension
Global Payments Solutions, the business formerly known as
Global Liquidity and Cash Management
Group Performance Share Plan
Group Risk Committee
HSBC Holdings together with its subsidiary undertakings
Global Trade and Receivables Finance
Hang Seng Bank Hang Seng Bank Limited, one of Hong Kong’s largest banks
The Stock Exchange of Hong Kong Limited
HKEx
Hong Kong Monetary Authority
HKMA
HM Revenue and Customs
HMRC
HNAH
HSBC North America Holdings Inc.
Holdings ALCO HSBC Holdings Asset and Liability Management Committee
Hong Kong
Hong Kong Special Administrative Region of the People’s
Republic of China
HQLA
High-quality liquid assets
HSBC Holdings together with its subsidiary undertakings
HSBC
HSBC Bank plc HSBC Bank plc, also known as the non-ring-fenced bank
HSBC Bank
Middle East
HSBC Bank Middle East Limited
HSBC Bank
USA
HSBC Canada
HSBC
Continental
Europe
HSBC Finance
HSBC Bank USA, N.A., HSBC’s retail bank in the US
The sub-group, HSBC Bank Canada, HSBC Trust Company
Canada, HSBC Mortgage Corporation Canada and HSBC
Securities Canada, consolidated for liquidity purposes
HSBC Continental Europe
HSBC Finance Corporation, the US consumer finance
company (formerly Household International, Inc.)
HSBC Holdings HSBC Holdings plc, the parent company of HSBC
HSBC Private
Bank (Suisse)
HSBC UK
HSBC Private Bank (Suisse) SA, HSBC’s private bank in
Switzerland
HSBC UK Bank plc, also known as the ring-fenced bank
HSBC Holdings plc Annual Report and Accounts 2022
427
Additional information Additional information
HSBC USA
HSI
HSSL
HTIE
I
IAS
IASB
Ibor
ICAAP
ICMA
IEA
IFRSs
ILAAP
IMA
IMM
IRB¹
ISDA
J
JV
K
KMP
L
LCR
LGBTQ+
LGD¹
Libor
Long term
LTI
LTV¹
M
Mainland China
Medium term
MENA
MREL
MRT¹
MSS
N
Net operating
income
NGO
NII
NIM
NPS
NSFR
NYSE
NZBA
O
OCI
OECD
OTC¹
P
PBT
PCAF
The sub-group, HSBC USA Inc (the holding company of
HSBC Bank USA) and HSBC Bank USA, consolidated for
liquidity purposes
HSBC Securities (USA) Inc.
HSBC Securities Services (Luxembourg)
HSBC International Trust Services (Ireland) Limited
International Accounting Standards
International Accounting Standards Board
Interbank offered rate
Internal capital adequacy assessment process
International Capital Market Association
International Energy Agency
International Financial Reporting Standards
Internal liquidity adequacy assessment process
Internal model approach
Internal model method
Internal ratings-based
International Swaps and Derivatives Association
Joint venture
Key Management Personnel
Liquidity coverage ratio
Lesbian, gay, bisexual, transgender and queer. The plus
sign denotes other non-mainstream groups on the
spectrums of sexual orientation and gender identity
Loss given default
London interbank offered rate
For our strategic goals, we define long term as five to six
years, commencing 1 January 2020
Long-term incentive
Loan to value
People’s Republic of China excluding Hong Kong and
Macau
For our strategic goals, we define medium term as three to
five years, commencing 1 January 2020
Middle East and North Africa
Minimum requirement for own funds and eligible liabilities
Material Risk Taker
Markets and Securities Services, HSBC’s capital markets
and securities services businesses in Global Banking and
Markets
Net operating income before change in expected credit
losses and other credit impairment charges/Loan
impairment charges and other credit provisions, also
referred to as revenue
Non-governmental organisation
Net interest income
Net interest margin
Net promoter score
Net stable funding ratio
New York Stock Exchange
Net-Zero Banking Alliance
Other comprehensive income
Organisation of Economic Co-operation and Development
Over-the-counter
Profit before tax
Partnership for Carbon Accounting Financials
428
HSBC Holdings plc Annual Report and Accounts 2022
PD¹
Performance
shares¹
Ping An
POCI
PRA
PRC
Principal plan
PVIF
PwC
R
RAS
Repo¹
Reverse repo
RFR
RMM
RNIV
RoE
RoTE
RWA¹
S
SABB
SAPS
SASB
SBTi
SDG
SEC
ServCo group
Sibor
SIC
SICR
SME
SOFR
Solitaire
Sonia
SPE¹
T
TCFD¹
THBFIX
TNFD
TSR¹
U
UAE
UK
UN
US
V
VaR¹
VIU
W
WEF
WPB
Probability of default
Awards of HSBC Holdings ordinary shares under employee
share plans that are subject to corporate performance
conditions
Ping An Insurance (Group) Company of China, Ltd, the
second-largest life insurer in the PRC
Purchased or originated credit-impaired financial assets
Prudential Regulation Authority (UK)
People’s Republic of China
HSBC Bank (UK) Pension Scheme
Present value of in-force long-term insurance business and
long-term investment contracts with DPF
The member firms of the PwC network, including
PricewaterhouseCoopers LLP
Risk appetite statement
Sale and repurchase transaction
Security purchased under commitments to sell
Risk-free rate
Group Risk Management Meeting
Risk not in VaR
Return on average ordinary shareholders’ equity
Return on average tangible equity
Risk-weighted asset
The Saudi British Bank
Self-administered pension scheme
Sustainability Accounting Standards Board
Science Based Targets initiative
United Nation’s Sustainable Development Goals
Securities and Exchange Commission (US)
Separately incorporated group of service companies
established in response to UK ring-fencing requirements
Singapore interbank offered rate
Securities investment conduit
Significant increase in credit risk
Small and medium-sized enterprise
Secured Overnight Financing Rate
Solitaire Funding Limited, a special purpose entity managed
by HSBC
Sterling Overnight Index Average
Special purpose entity
Task Force on Climate-related Financial Disclosures
Thai Baht Interest Rate Fixing
Taskforce on Nature-related Financial Disclosures
Total shareholder return
United Arab Emirates
United Kingdom
United Nations
United States of America
Value at risk
Value in use
World Economic Forum
Wealth and Personal Banking, a global business
1 A full definition is included in the glossary to the Annual Report and
Accounts 2022 which is available at www.hsbc.com/investors.
HSBC Holdings plc
Incorporated in England on 1 January 1959 with
limited liability under the UK Companies Act
Registered in England: number 617987
Registered Office and Group Head Office
8 Canada Square
London E14 5HQ
United Kingdom
Telephone: 44 020 7991 8888
Facsimile: 44 020 7992 4880
Web: www.hsbc.com
Registrars
Principal Register
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
United Kingdom
Telephone: 44 0370 702 0137
Email: via website
Web: www.investorcentre.co.uk/contactus
Hong Kong Overseas Branch Register
Computershare Hong Kong Investor Services
Limited
Rooms 1712-1716, 17th floor
Hopewell Centre
183 Queen’s Road East
Hong Kong
Telephone: 852 2862 8555
Email: hsbc.ecom@computershare.com.hk
Web: www.investorcentre.com/hk
Bermuda Overseas Branch Register
Investor Relations Team
HSBC Bank Bermuda Limited
37 Front Street
Hamilton HM11
Bermuda
Telephone: 1 441 299 6737
Email: hbbm.shareholder.services@hsbc.bm
Web: www.investorcentre.com/bm
ADR Depositary
The Bank of New York Mellon
Shareowner Services
P.O. Box 43006
Providence RI 02940-3078
USA
Telephone (US): 1 877 283 5786
Telephone (International): 1 201 680 6825
Email: shrrelations@cpushareownerservices.com
Web: www.mybnymdr.com
Corporate Brokers
Morgan Stanley & Co. International plc
25 Cabot Square
London E14 4QA
United Kingdom
Bank of America Securities
2 King Edward Street
London EC1A 1HQ
United Kingdom
HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom
© Copyright HSBC Holdings plc 2023
All rights reserved
No part of this publication may be reproduced, stored in a retrieval
system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior
written permission of HSBC Holdings plc
Published by Global Finance, HSBC Holdings plc, London
Designed by Superunion, London (Strategic Report and ESG review)
and by Global Finance with Superunion (rest of Annual Report and
Accounts)
Printed by Park Communications Limited, London, on Nautilus
SuperWhite board and paper using vegetable oil-based inks. Made in
Austria, the stocks comprise 100% de-inked post-consumer waste.
Pulps used are totally chlorine-free.
The FSC® recycled logo identifies a paper that contains 100% post-
consumer recycled fibre certified in accordance with the rules of the
Forest Stewardship Council®.
HSBC Holdings plc Annual Report and Accounts 2022
429
Additional information HSBC Holdings plc
8 Canada Square
London E14 5HQ
United Kingdom
Telephone: +44 (0)20 7991 8888
www.hsbc.com
Incorporated in England with limited liability
Registered number 617987
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